If economic conditions worsen, McDonald’s believes it will be a net beneficiary of consumers trading down from casual dining and fast casual. Kempczinski also called out the difference between grocery and restaurant pricing, describing it as “the largest gap we’ve ever seen.” To his point, the food away from home index rose 7.7 percent in June year-over-year, but the food at home index increased 12.2 percent, according to the Bureau of Labor Statistics. The CEO said he can’t quantify how much that helps, but he’s confident higher grocery inflation will provide some level of benefit.
Consumers are tolerating McDonald’s price hikes quite well. In almost every major market, China and Spain being the exception, the brand is leading in “value for money” metrics. As lower-priced menu options become increasingly important, the chain wants to make sure it’s thinking about value in a targeted manner, as opposed to 10 years ago when it leveraged blanket, national promotions used on customers that would’ve bought the product anyway.
Now, value is primarily driven at the local level, specifically at the breakfast daypart. McDonald’s national $1, $2, $3 menu is still intact, but it’s complemented by individual field offices promoting products that make sense in their local markets and competitive sets.
“We’ll continue to have some national programs, whether it’s a 2 for $6 or buy one, get one, but we’ve moved really more to a local approach, which then ultimately becomes a personalized approach,” CFO Kevin Ozan said.
Opportunities for targeted marketing become a lot bigger as McDonald’s builds its digital business. In Q2, the brand’s top six markets earned more than $6 billion in digital sales, or about a 33 percent mix. Also, the loyalty program is now in nearly 50 markets; in the past 90 days, the U.S. had nearly 22 million active users. In countries like Germany, France, and China, digital mixes more than 50 percent, with China being over 80 percent. In the U.S. and Canada, it makes up about 25 percent of sales, putting into perspective just how much there is to gain.
In the coming months, Kempczinski and Ozan—who is transitioning from CFO to senior executive vice president of strategic initiatives ahead of his retirement—will work closely together to brainstorm more digital ideas that will “put a little topspin on the plan.”
“What happens when you [increase digital mix] is your percent of identified customers goes up very dramatically and that opens up a whole range of things from service opportunities, pricing opportunities, etc.,” Kempczinski said. “I think digital for us, we’re starting to see the benefits, we just need to go harder and faster against that."
McDonald’s ended Q2 with 13,433 U.S. restaurants and 26,263 international stores, for a total of 39,696 units systemwide. The company is now based in 118 countries after exiting roughly 800 locations in Russia. The chain experienced $1.2 billion in charges related to the sale.