Out of Crisis, a New Day Dawns for McDonald’s

    The fast-food leader just unveiled a fresh growth strategy, and it covers every base.

    Fast Food | November 2020 | Danny Klein
    McDonald's drive thru renderning.
    McDonald's
    Units with smaller dining rooms, or no dining rooms at all.

    McDonald’s on Monday unveiled its most expansive platform since the company’s “Turnaround Plan” in May 2015.

    Called “Accelerating the Arches,” McDonald’s fresh growth strategy covers all aspects of the current business as well as its post-COVID-19 vision, with a heavy focus on omnichannel strategy. There are three pillars: Maximize Marketing; Commit to the Core; and Double Down on the 3D’s (digital, delivery, and drive thru). And yes, it spells MCD.

    To start with the latter initiative, McDonald’s announced a new digital growth engine, “MyMcDonald’s,” which centers on personalization and convenience. Headed to its top six markets globally in 2021, the first key component begins in just a few weeks at participating restaurants in Phoenix, Arizona, with a loyalty program. National rollout is planned for 2021.

    MyMcDonald’s encompasses a suite of customer-facing technologies, including mobile ordering, digital ordering kiosks, digital menuboards, flexible payment options, delivery, and targeted rewards.

    Through these channels, McDonald’s said, it will create tailored deals for guests and offer the ability to order through every option. The company expects digital sales to exceed $10 billion, or nearly 20 percent of systemwide sales, across its top six markets in 2020.


    THE COVID-19 ROAD FOR MCDONALD'S SO FAR:

    McDonald’s is Flexing its Marketing Muscle Again

    McDonald’s Plans New Bakery Menu, Including Cinnamon Rolls

    McDonald's is Done Playing Defense

    McDonald's to Keep Dining Rooms Closed Another 30 Days

    McDonald's Pauses Reopening as COVID Surges Nationwide

    McDonald's Readies for $200 Million Marketing Blitz

    McDonald's U.S. President 'Appalled by Recent Events'

    McDonald’s to Boost Recovery with Significant Marketing Investment

    McDonald’s to Reward Company Employees with Bonuses

    McDonald’s CEO: People Will Return to Familiar Brands (Q1 recap)

    McDonald’s to Cut $1 Billion in Spending as COVID-19 Derails Sales

    McDonald's, Dunkin', Wendy's End Dine-In Service to Slow COVID-19


    Essentially, MyMcDonald’s represents the integration of its digital acceleration of recent years, including kiosks through the Experience of the Future design, Dynamic Yield predictive selling technology at the drive thru, digital menuboards, and flexible payment. It will make multiple ordering options available through mobile.

    “We have 40,000 restaurants around the world, and menu breadth that enables us to connect with customers day or night. Also, speed is in our DNA,” Lucy Brady, chief digital customer engagement officer, said Monday during an investor presentation. Brady was elevated to lead McDonald’s new tech team in January. “We invented 'quick service' 65 years ago and have continued to raise the bar and reset customer expectations of convenience over the years ... and we’re not about to stop now.”

    Some examples of how McDonald’s pictures it unfolding:

    Ordering: Customers will receive personalized suggestions on what to order via phone, drive-thru lane, or at a kiosk. In all cases, the ability to make a contactless payment added in.

    Already in many locations, through Dynamic Yield, McDonald’s provides customized displays at the drive thru that show different options based on factors like time of day and a guest’s current order. For instance, McDonald’s will suggest a Blueberry Muffin if a customer taps McCafe coffee. The chain is also testing voice-based technology in the U.S. to boost speed and accuracy.

    Rewards and offers: Powered by MyMcDonald’s, the brand will now display a menu and offers based on past ones, and blast out personal rewards.

    Order pick-up: Customers can choose the easiest way to get food, whether it's delivery, drive thru, pickup, or curbside.

    That brings us to what might be the most noticeable change for McDonald’s. The brand boasts more than 25,000 drive thrus worldwide. Nearly 95 percent of roughly 14,000 domestic restaurants (13,846 year-end 2019) feature the channel. And like chains across the quick-service lexicon (and beyond) the brand is trying to get a leg up on the future. In lead markets, about 70 percent of McDonald’s sales flow through the drive thru. The brand cut speed of service by an average of 30 seconds in top markets since 2018—a goal pushed forward by a laser focus during dining-room shutdowns.

    McDonald’s Monday shared some model-of-the-future designs it expects to reach more than 10,000 restaurants worldwide in time.

    It breaks down across four drive-thru concepts and initiatives.

    Easy ordering and payment ID: McDonald’s is working on ways to streamline transactions through automated ordering and payments made by identifying customers at the display screen.

    Express pickup: New technology will alert employees to prep orders when customers are nearby. There will also be dedicated parking spaces to ensure fast pick up. Check out the prototype below, plus video.

    McDonald's

    Designed for pickup, and speed.

    Express drive thru: Customers will find a new lane that allows them to skip the line if they’re using McDonald’s app. Less waiting, hotter food, the company said. Some renderings below.

    McDonald's
    McDonald's

    A dedicated lane for app orders.

    On-the-go (image at the top of the story): McDonald’s is working on a smaller restaurant footprint that focuses exclusively on efficiency, featuring drive thru, takeaway, and delivery with limited or no dine-in seating. This has been a common target for the biggest players in the space. Taco Bell, Wendy’s, and Burger King dropped versions of a drive-thru-only setup in recent months.

    “Customers’ desire for convenience, speed, and ease will only grow, and we’re ready for that.  We’re taking steps to accelerate our phenomenal drive-thru advantage,” said Mason Smoot, SVP and chief restaurant officer. “… We know better than anyone what drive-thru customers care about. It starts with speed of service.”

    BTIG analyst Peter Saleh wrote Tuesday in a note he expects McDonald’s to continue to invest behind its digital and technology platforms, spending that has amounted to $ billion annually with $600 million coming from the company. "Increased accessibility and throughput will be a focus as the concept tests additional pick-up windows, drive-thru express lanes, and an off-premises-only restaurant format," he said. "Longer term, we expect drive-thru enhancements such as automated voice ordering that leverages its investment in Apprente and a streamlined payment process through the McDonald’s app or loyalty program will drive greater throughput."

    For the other D—delivery—McDonald’s said nearly 75 percent of the population across its top markets lives within 3 miles of a McDonald’s (a statistic it’s touted before). In the past three years, McDonald’s expended the number of restaurants that offer delivery nine-fold, to about 28,000 locations. Building on the range, McDonald’s plans to carry delivery to its app, which is available in “several markets” and optimize operations with a focus on speed and accuracy.

    “This is the start of something new for McDonald’s,” CEO Chris Kempczinski said. “This is a moment when we proudly embrace both what we are going to do to write the next chapter of McDonald’s growth and how we are going to do it. This is a moment when we share a new growth strategy for our future while articulating a clear vision of where we’re going to make a difference for a world in need of community and connection.”

    Shifting to the “C” in McDonald’s transformation agenda, the brand said it will tap into customer demand for familiarity. This is something Kempczinski spotlighted very early in the pandemic—the idea guests are seeking restaurants they trust in untrustworthy times. And that loyalty has post-pandemic ramifications. Will customers remember the restaurants that took care of them during COVID? McDonald’s is banking on it.

    The brand will focus on chicken and beef as priorities. On the former, it plans to offer fresh line extensions to leverage Chicken McNuggets and McChicken. A new Crispy Chicken Sandwich is coming to the U.S. next year.

    McDonald’s said it will feature a crispy chicken fillet, topped with crinkle cut pickles and butter, served on a toasted potato roll. A spicy version of sorts appears bankable, too, as the company noted “we’ll continue to bring spice and flavor to our classic chicken offerings.” It referenced the McSpicy sandwich that launched in markets outside the U.S. McDonald’s also ran Spicy McNuggets domestically (and in the U.K.) earlier in the year.

    In regards to beef, McDonald’s promised operational, process, and formulation changes to unlock more flavor, such as using new buns toasted to golden brown, and enhanced grilling. This includes searing in smaller batches and adding onions on burgers at the grill—changes that rolled in Australia and Canada in 2019.

    Basically, the model will shift to focusing on items that matter most to guests, but innovating in ways that riff off classics. As opposed to launching new items that requirement significant marketing and awareness campaigns, McDonald’s will spin the most-ordered products in new ways.

    The brand went viral Monday on the tease of a different offering—the McPlant. McDonald’s tested a plant-based burger in select Canada restaurants last year and said learnings drove future pilots, expected for 2021.

    This could be a line, not just a product. McDonald’s said burgers, chicken sandwiches, and breakfast items might all figure down the road.

    it was not clear who would the supplier would be, although Beyond Meat and McDonald's co-created the plant-based patty, Beyond Meat said.

    McDonald’s final tier of “Accelerating the Arches” is built around purpose. The chain said it will invest in new, culturally relevant approaches to communicate the story of McDonald’s.

    It plans to accentuate four areas: sourcing quality ingredients; driving climate action; connecting with communities in times of need; and increasing focus on equity by providing opportunity for employees.

    McDonald’s said this will manifest through farming community support; sourcing 100 percent of guest packaging from renewable, recycled, or certified sources by 2025; donating millions of pounds of food from its supply chain and restaurants in 2020; and reducing barriers for employment for more than 2 million people worldwide.

    McDonald’s purpose-driven path gets a public introduction with the “Serving Here” campaign. McDonald’s walks through various vignettes of American life, from families to communities to individuals, to show how people (and McDonald’s) make a difference. Another spot, “Everything Changes,” follows a family’s journey through childhood illness, focusing on how Ronald McDonald House Charities help out. “Doors” explores a day in the life of farmer Josh Bunger. The last, “Good Neighbors,” centers on “what makes someone a good neighbor.”

    “Customers today want to know the brands they love share their values and serve as a force for good in the world,” said Alistair Macrow, who was named global CMO in June. “Earning their trust is about acting first, and then communicating. We’re raising our marketing ambition by telling clearer, more effective stories that articulate the impact we have in the communities we serve, and more broadly what we stand for as a brand.”

    “We want to move beyond brand engagement to brand advocacy—when people feel so good about visiting McDonald’s, they invite others to join them,” he added.

    McDonald's

    A renewed purpose and message.

    Kempczinski said McDonald’s wants to improve the quality and efficiency of the brand’s marketing so “that it’s a true growth lever.”

    We know that when consumers feel better about our brand, when our brand trust scores are high, they visit more often,” he said.

    The “Famous Orders” promotion in the U.S., so far with Travis Scott and J Balvin, is just the beginning, McDonald’s said. The company will also stress value as the pandemic continues.

    “In the last 12 months, we’ve focused on building the McDonald's brand in a more consistent, coherent, culturally relevant way. We’re listening closely to our customers … letting them guide us,” said Morgan Flatley, SVP and U.S. CMO. “Recognizing people don’t experience McDonald’s transactionally, from one promotion to the next. They build a relationship with our brand over years.”

    With McDonald’s new packaging, the company said it’s unifying branding across all markets to create a more consistent customer experience. More on that in the video below.

    The results

    McDonald’s Q3 results were overshadowed a bit in Monday’s presentation. But the figures showed positive trends for the company’s system.

    Same-store sales rose 4.6 percent, year-over-year, in the U.S. as global comps declined 2.2 percent. The domestic results lapped a 4.8 percent lift in Q3 2019.

    International Operated Markets same-store sales fell 4.4 percent versus a gain of 5.6 percent last year. This was dragged by soft results in France, Spain, Germany, and the U.K. Australia comped positive on the strength of its drive thru.

    The International Developmental Licensed Segment dropped 10.1 percent due to struggles in Latin America and China.

    Revenues of $5.418 billion beat Wall Street estimates of $5.365 billion. The figure declined 2 percent, year-over-year, thanks to COVID challenges.

    In the U.S., McDonald’s said sales were buoyed by strong average check growth from larger group orders and improved dinner performance. Marketing efforts to the tune of $200 million incremental, drove low double-digit comp sales in September, McDonald’s said, including positive same-store sales across all dayparts. Guest counts remained negative, which is a byproduct of a lot of things, including the larger group orders that stem from guests ordering for multiple people. Also, the decline of solo occasions, especially around breakfast.

    McDonald’s began Q3 with nearly all of its restaurants globally open for business. However, as a result of COVID case spikes, since September, “there have been numerous instances of government restrictions on operating hours, limited dine-in capacity in most countries and, in some cases, mandated dining room closures,” the company said.

    This impacts most of McDonald’s key markets outside of the U.S. including Franchise, German, Canada, and the U.K.

    Before COVID, nearly 70 percent of customers’ orders overseas came in-restaurant.