Smoothies Boost McDonald's 3Q Earnings

NEW YORK -- McDonald's net income rose 10 percent in the third quarter thanks to frappes, smoothies and a dollar menu that drew in the highest customer count in more than two decades, according to an AP report.

The article stated that new drinks have been keeping consumer and retailer interest lately, due, in part to their low-cost, but high-profit margins.

"We've seen beverages become a larger part of restaurant menus in the last several years," said Morningstar senior analyst R.J. Hottovy. "McDonald's has been at the forefront of that movement."

The smoothies and frappes also help increase profits because they cost more than a fountain beverage, and that's key to the company's strategy too, said Don Thompson, president and chief operating officer. It's crucial for a company that draws people in with dollar menu items to have a high-profit item to sell with them.

"What they allow us to do is to be able to afford to execute our value platforms. That's really the biggest goal that we have in economic downturns, protect and grow the guest counts, which yield us high levels of profitability," Thompson told investors on a conference call.

The chain is also using limited-time products to drive sales. The company plans to roll out its McRib sandwich on a national basis next month, something it said it hasn't done in years. It also plans to come out with new products next year, including oatmeal available all day.

The company is slowing its remodeling of company-owned restaurants so it can test various redesigns, keep an eye on costs and measure the effect on sales. It had planned to remodel between 400 and 500 locations in the U.S. this year but that will now be around 225 instead. Next year the chain plans to remodel 600.

"We really have one chance to do this right and we're going to do it," said CFO Pete Bensen.