McDonald’s CEO Chris Kempczinski told investors Tuesday consistency is powering the business right now. That’s not just a qualitative perspective, either.
In the first quarter, U.S. same-store sales lifted 12.6 percent year-over-year. The exact growth happened in McDonald’s International Operated Markets (IOM) and its International Developmental Licensed Markets (IDL).
The brand attributed domestic growth to menu price increases, positive comparable guest counts, operational execution, effective marketing campaigns featuring the core menu, and continued expansion of digital and delivery. McDonald’s renamed chicken sandwich—the McCrispy—fueled double-digit comps not by a change to the core product, but through “compelling creative along with a new flavor,” CFO Ian Borden said. The executive estimated average check was responsible for about two-thirds of growth and guest count contributed a third.
For IOM, performance was led by comps across the big five (Australia, Canada, France, Germany, and the U.K.). And for IDL, results stemmed from strong same-store sales throughout the segment, led by Japan. Also, customer satisfaction scores are up mid-to-high single digits as measured by PACE, a grading and consulting program that launched in all major markets in 2022, except for the U.S., which recently rolled it out.
“That’s what I love most about the McDonald’s system, our restless ambition,” Kempczinski said during the chain’s Q1 earnings call. “While we feel good about our current strategy, our success is driving us to do even more to lay a foundation for the future.”
McDonald’s has consistently outperformed peers in weekly visits since the start of 2023, according to Placer.ai. The chain saw growth for the first 14 weeks of the year compared to 2022.
To explain the company’s success, Kempczinski first pointed to the chain’s long-term Accelerating the Arches plan, involving modernized marketing, emphasis on the core menu, and commitment to the three Ds—digital, delivery, and drive-thru. The strategy went through an evolution earlier this year. First, restaurant development was added as the fourth “D.”
In 2022, for the first time in eight years, McDonald’s experienced net growth in the U.S. This year, the plan is 4 percent global expansion or net growth of about 1,500 units. Kempczinski said the brand’s performance has “earned us the right to open new restaurants at a faster rate than we have historically.”
The other new element is what the CEO calls Accelerating the Organization or rethinking ways McDonald’s can become more efficient as a company. One of the biggest points is working horizontally instead of being geographically or functionally siloed. Company leadership wants collaboration across the world to “bring the full breadth of McDonald’s skills and experiences to devise the best system solution.” The burger chain is supporting this objective through “One McDonald’s Way”—a system intended to standardize common processes.
“We’re an innovative entrepreneurial organization, but once a part of our system somewhere has solved a problem or developed a novel idea, we need to stop the work elsewhere,” Kempczinski said. “We don’t need every market to invent its own light bulbs, so to speak.”
Still though, Kempczinski warned investors a tougher environment looms. McDonald’s expects a mild recession in the U.S. and more challenging obstacles in Europe, where the chain is providing targeted and temporary support valued at $100 million to $150 million. The company is also undergoing an organizational restructure in which hundreds of workers are being laid off. Kempczinski acknowledged this move, saying “the path to continuously improving how we innovate for customers in the system involves difficult decisions, and saying goodbye to valued colleagues is never easy.”
The chain has already seen some pressures that validate its recession prediction. For instance, there’s been a slight decrease in items per transaction and, in some places, customers are becoming more resistant to pricing.
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“We’ve built a very good capability over the last several years working with some external partners to know exactly by item, by restaurant, the ability for us to take pricing,” the CEO said. “And what we see is that when we follow that and we’re mindful of the elasticities, we’re able to get the pricing that we need through. And we’ve seen really no deterioration in that. But what we are seeing is when you go off script, when you go and you start to try to take pricing in areas that would not be suggested by all of our modeling, we are starting to encounter some more resistance there.”
As one investor analyst discussed, McDonald’s is familiar with beating economic downturns. Same-store sales remained high during the Great Recession and outpaced expectations. As good as the chain worked back then, Borden said it’s in a much better position now because of several strategic investments. For one, the entire estate is modernized. And two, McDonald’s has emphasized digital ordering and one-to-one relationships with customers.
Digital represents nearly 40 percent of systemwide sales in the chain’s top six markets, or $7.5 billion. There are roughly 50 million MyMcDonald’s Rewards members active in the past 90 days. McDonald’s continues to learn when they visit, how they visit, and what they buy. In the U.S., the brand is piloting a method in which a restaurant uses location data to assemble orders before a customer’s arrival. It’s still early days, but initial results show better service times and customer satisfaction.
McDonald’s is aware of the potential. In China, digital mixes 80–90 percent. Borden said as more sales come through the web/app, the chain can get specific around delivering personalized value. The executive used himself as an example. He loves the chicken sandwich and orders it often. Borden believes he should never get an app offer toward this item because he’s going to get it anyway. McDonald’s hasn’t reached that level of distinction, but it will soon.
“As you think out to the future, I think all of the things that we’re doing right now. We’re laying a foundation for a very intimate, close connection that we have with our customers,” Borden said. “And as we do that and as we get more and more identified, I think it’s going to allow us to get much more sophisticated about how and when we’re delivering value and to whom. And for what purpose? Is it to drive frequency? Is it to drive reach? All of that is to come. We’re in very early stages today.”
The chain remains bullish on consumer demand. McDonald’s in the U.S. is gaining share across all income groups, including lower-tiered consumers. Kempczinski acknowledged Q1 benefited from lapping Omicron and favorable weather, but the brand thinks it will keep gaining market share for the rest of 2023, similar to what it’s done in the past several years.
One of the driving factors of this confidence is top-line growth in the face of double-digit inflation, which is expected to lighten as the year goes on. The brand has started to see the benefits of this shift. In the U.S., franchisees returned to cash flow positive in the first quarter.
“2022 was more challenging for them from a cash flow standpoint,” Kempczinski said. “But again, when you have a strong top line and you’re working your way through inflation, you can be pretty confident—you can be very confident—that you’re going to get back to the cash flow growth that our system expects. And so we feel good about that sort of message is what keeps the system aligned for the long-term.”
