“How that evolution looks is going to vary market to market in the U.S.,” Kempczinski said. “I do know there is innovation that is planned for later this year that's going to bring some menu items on. And then, with U.S. operators, talk with our team has been, ‘let's just make sure every item that we add earns its way back onto the menu.’”
A previously touted initiative that’s ready to spark for McDonald’s is what Kempczinski called the brand's “marketing war chest,” which it plans to invest in the back half of 2020. During Q2, most major markets reduced spend and value activities as McDonald’s assumed a defensive posture.
In the U.S., for instance, marketing spend decreased 70 percent. These funds will now be reinvested in Q3 and Q4, Kempczinski said.
Additionally, McDonald’s corporate will pour an incremental $200 million across its U.S. and Operated Markets in the second half to accelerate recovery, or roughly the equivalent to one additional month of media in every owned market.
Kempczinski said the bulk of that will not go toward innovation. Rather, it will focus on core menu items and spotlighting service channel opportunities, like digital.
It’s going to largely support McDonald’s base business, he said. “Because our view is, right now, consumers are still looking for sort of the trusted favorites, which is why core menu makes sense for us,” Kempczinski said.
McDonald’s is done being conservative. “Now, as we kind of go into a more normal, or what we're kind of saying new normal, next normal, whatever the phrase you want to use for this operating environment, it's time for us to get back on the front foot,” Kempczinski added.
BTIG analyst Peter Saleh wrote Tuesday in a note he predicts McDonald’s “will leverage its drive-thru access, and substantially higher marketing and advertising budget to take share from smaller competitors.”
Beyond a marketing blitz, McDonald’s is starting to think about affordability and value in a renewed light, and what role it could play amid a changed consumer dynamic. Kempczinski said they’ve conducted weekly consumer tracking surveys in top markets. What’s popped is concern and anxiety around the economy, he said, and a belief we’re in a “sort of recessionary type of dynamic.” In many cases, economic worries eclipsed public health or safety concerns, Kempczinski said.
“And so as I look at all of that, I'm certainly not qualified to make any predictions around whether we're going to be in recession or not, but I'd certainly say there's a lot of warning signs out there that would suggest that the consumer sentiment and consumer concern about the economy is negative and going in the wrong direction,” he said.
What could this mean for McDonald’s? Likely what it’s meant in the past, which is a stance where affordability leads as a key component of marketing mix.
How this plays out if unemployment benefits retract to an additional $200 per week from $600 is something to watch as well.
McDonald’s has also restarted remodel activity after pausing most project work early in the pandemic. Ozan said expected capital spend for 2020 is now about $1.6 billion versus an original call of $2.4 billion. About half of that will go to U.S. restaurants, including the completion of roughly 900 Experience of the Future projects.
While guest counts are down, McDonald’s has seen average checks bump some 30 percent domestically, Kempczinski said. Delivery became a more pronounced part of the mix (as high as 10 percent in some international markets, like Australia), and customers are simply ordering more per visit, perhaps for their families, and so forth. As traffic improved, however, check come down to more normal levels, he said.
