Extra Bacon Brings in Extra Cash for Top McDonald's Franchisee

(Bloomberg) -- A little extra bacon or chocolate sauce is going a long way for McDonald’s largest franchisee.

Giving diners the chance to customize their meals at self-ordering kiosks has delivered a bump of as much as 15 percent to the average sale for Buenos Aires-based Arcos Dorados Holdings Inc., said Chief Executive Officer Sergio Alonso. The company operates around 2,200 restaurants in Latin America.

Extra Bacon Brings in Extra Cash for Top McDonald's Franchisee

"Clients can dive into the menu and see all the ingredients without pressure," Alonso said in an interview. "The user is now in control."

The chain’s "experience of the future" effort, part of a global campaign, will get another $160 million in investment through 2019, in addition to $500 million previously announced. Brazil and Argentina are priority countries for installation of new digital menu boards and renovations.

Signs of economic recovery in the region have been slower than expected but customers spending more has helped in tougher times, Alonso said. In Brazil, the upcoming presidential election is driving uncertainty, while double-digit annual inflation in Argentina will lead the company to increase prices up to 85% of inflation.

Extra Bacon Brings in Extra Cash for Top McDonald's Franchisee

Shares are down 15 percent so far this year as competition is increasing. Burger King Brasil, which last year raised $660 million in an initial public offering, said recently it’s bringing Popeye’s Louisiana Kitchen chicken franchise to Brazil. Arcos Dorados is sticking to the burgers as the company’s agreement with McDonald’s Corp. does not allow it to have partnerships with other brands.

The company reported comparable sales up 9.1 percent for 2017 amid positive traffic in all divisions. Consolidated revenue rose 12 percent year over year. Still, the company’s shares are down about 9 percent since results were published March 21, a phenomenon the executives couldn’t explain. They pointed to growth in volume and cash flow that’s allowing the company to finance its expansion without taking on new debt, and the announcement of a dividend. Shares are rated a buy equivalent by six analysts and hold by one.

"We’ve seen sales growing, Ebitda margin above inflation and the major economies we operate in recovering," said Mariano Tannenbaum, Arcos Dorados’s chief financial officer. "On our end we’re only seeing good news."

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