McDonald’s CEO Chris Kempczinski tells his team that if a microscope is required to see the impact of marketing on P&L, than it’s not big enough. The executive knows the burger giant is very much part of modern, Gen Z/millennial culture, but it just hasn’t been doing a good enough job of tapping into its relevancy.
Then came the Famous Order Meals in September 2020, where the chain partnered with celebrities to offer their preferred order. Over the course of a year, the promotion featured Travis Scott, Saweetie, J Balvin, and international k-pop band, BTS. More recently, there was the release of Camp McDonald’s in July, a month-long virtual experience where customers could check the mobile app for food deals, menu hacks, online musical performances, and merchandise drops, like a Retro Grimace Pool Float.
In early October, McDonald’s announced the Cactus Plant Flea Market Box, otherwise known as the adult version of the Happy Meal. The box includes either a Big Mac or McNuggets, fries, a drink, and one of four figurines—redesigned fan favorites Grimace, the Hamburglar, and Birdie, along with newcomer, Cactus Buddy. Fifty percent of collectibles were sold in the first four days of the promotion. It drove the highest week of digital transactions ever in the U.S., and October comps are expected to be in the low double digits as a result.
“It shows to us, and just as a reminder, we are charged with shepherding and stewarding one of the most fantastic equities in the world, and that we’ve actually got to find ways to continue to keep it fresh,” Kempczinski said during the company’s Q3 earnings call. “In terms of evidence of it, it’s the little things. So when you see we’re actually selling out of our adult Happy Meals and it’s happening in days, not weeks, that is a real proof point. When you see that people are posting on social media the fun ways where they got their Boo Buckets and ready to go out and do Halloween, all of those are proof points.”
McDonald’s 6.1 percent rise in same-store sales—15.7 percent on a two-year basis—was driven in part by successful marketing promotions, in addition to price increases, positive traffic, and growth in digital and delivery. It marked the concept’s ninth straight quarter of positive growth and 22nd out of the past 23. Visits to McDonald’s increased by 8.8 percent in June, 4.5 percent in August, and 6.2 percent in September, compared to 0.6 percent, negative 1.8 percent, and 0.8 percent in the overall quick-service segment, according to Placer.ai.
Traffic spiked with the launch of the adult Happy Meal. Through August and September, weekly foot traffic remained between 2.4 percent and 9.7 percent year-over-year, but when the product launched the week of October 3, visits skyrocketed to 37.1 percent.
“We’re starting to see marketing and our marketing program showing up as significant, meaningful comp drivers for us, and that’s what gives us confidence that we’re finding that right engagement with consumers,” Kempczinski said.
Pricing was 10 percent higher year-over-year in the quarter, but the chain hasn’t seen consumers pull back. The company said it’s gaining share in low-income guests, who are trading down from meals to value-based items instead of looking outside the restaurant. McDonald’s is also seeing higher-income guests moving down to quick-service. There are now fewer items per transaction on average, but that’s because of shifts toward dine-in where there aren’t as many group occasions.
MyMcDonald’s Rewards has expanded to more than 25 million active U.S. members. In addition, McDonald’s experienced one of its highest delivery sales quarters, and that should only increase in the future as the chain rolls out native delivery via its app in the U.S.
Kempczinski said customers are willing to tolerate price hikes because of McDonald’s initiatives to strengthen the brand offering, like spending $9 billion in the past five to six years to upgrade the asset base, improving quality of food, streamlining operations, quickening speed of service despite the challenging labor environment, and bolstering digital infrastructure to elevate convenience.
It also comes down to constant product and marketing news. Some efforts, like Famous Meals, Camp McDonald’s, and the Cactus Plant Flea Market Box bring customers closer to core menu items. Other times, the chain initiates excitement with innovation. McDonald’s disrupted the U.S. news cycle when it revealed its test of Krispy Kreme doughnuts at select locations in the Louisville market. Three choices are included—Original Glazed, Chocolate Iced with Sprinkles, and Raspberry Filled—and they can be purchased individually or in a pack of six.
Around the world, McDonald’s is leaning into chicken, like the new McCrispy Chicken Sandwich, which launched in Canada, Germany, and the U.K. In Spain and Australia, there’s the McSpicy Chicken Sandwich. The brand revealed in August that it would test the Chicken Big Mac in the Miami market after selling out in the U.K. earlier in 2022. McDonald’s has not yet revealed how that pilot performed.
Then of course, there’s the return of the McRib on October 31 for its “farewell tour.” Limited-edition throwback merchandise will be available for purchase, further engaging new and existing customers.
“Well the McRib is the GOAT [Greatest of All Time] of sandwiches on our menu, and so like the GOATs of Michael Jordan and Tom Brady and others, you’re never sure if they’re fully retired or not,” Kempczinski said.
International Operated Markets saw comps grow 8.5 percent in Q3, or 22.4 percent on a two-year basis. The increase was fueled by positive sales across the segment, led by Germany, Australia, and France. International Developmental Licensed Markets lifted 9.5 percent, on top of 12.7 percent growth last year. The strength was boosted by Brazil and Japan, and offset by negative sales in China due to COVID restrictions.
McDonald’s did express concern over an incoming recession, particularly in Europe, but the brand believes in its value positioning relative to peers.
“Our business and our brand is in a position of strength, and I certainly think that’s a strong tailwind for us as we head into this more volatile period,” said CFO Ian Borden.
McDonald’s finished Q3 with 13,435 U.S. restaurants (12,775 franchises and 660 corporate), down 13 units year-over-year. Internationally there are 26,545 locations. In total, the chain has 39,980 outlets globally.
Revenue decreased from $6.2 billion to $5.9 billion in the third quarter because of all major currencies weakening against the U.S. dollar. For the same reasons, operating income decreased 7 percent year-over-year to $2.76 billion, and net income slid 8 percent to $1.98 billion.