McDonald’s is ready for a street fight.

That’s the best way CFO Ian Borden could describe the current macroeconomic environment to investors during the chain’s Q1 earnings call.

“Clearly, everybody is fighting for fewer consumers or consumers that are certainly visiting less frequently, and we’ve got to make sure we’ve got that street-fighting mentality to win irregardless of the context around us,” Borden said. “And as I think we’ve talked a lot today about our position—our system is positioned with the strength and capability. There’s no reason why we shouldn’t have the most compelling value and affordability positioning from the focus of a consumer.”

CEO Chris Kempczinski noted that consumers are more discriminating with every dollar spent, and that led to flat to declining Q1 industry traffic in the U.S., Australia, Canada, Germany, Japan, and the UK. Frequency is dropping across almost all major markets, which lets McDonald’s know that guests are “looking for reliable everyday value now more than ever,” Kempczinski said.

In the U.S., the burger giant plans to leverage its marketing engine to advertise a national value platform instead of “doing it in 50 different ways with local value.” This strategy will involve showcasing entry-level items at affordable price points, entry-level meal bundle deals, and compelling value at breakfast. McDonald’s has already seen this work globally. Over the past year, it’s launched everyday value menus across many international markets, including all five of its biggest Internationally Operated Markets (IOM). These offers feature value bundles at various price points and smaller, more affordable meals. For instance, there’s a McSmart Menu in Germany and France that’s been met with high consumer awareness, an everyday value menu in Spain that has a convenient bundle for every price point, and a new entry-level value platform in Poland that’s driving traffic.


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Kempczinski noted that France’s McSmart Menu gathered more than 80 percent consumer awareness in a short period.

“I think what that highlights is it’s not about how quickly can you see the business impact when you have a strong marketing support against a compelling value platform, it’s how quickly can your system move and pivot to getting that in place,” the CEO said. “And I know that’s something that [McDonald’s U.S.A. president Joe Erlinger] and the U.S. team are talking with U.S. franchisees on. I think, again, there’s lots of great value that we have out there at a local level, but it’s how do we come together in the U.S. around a stronger national value platform that can compete? How long that takes, I think, is going to be up to individual conversations that happen in the market, but it’s clear that once you have that in place, the business could start to respond pretty quickly.”

It’s not as if the U.S. is lacking value. Ninety percent of the system is offering meal bundles for $4 or less. Kempczinski even opened his mobile app during the earnings call to see a Big Mac for 29 cents when you buy another one and 30 percent off a McCrispy Sandwich. The main issue is that McDonald’s is operating in an environment where everybody is coming up with a value message. The chain just needs to do a better job of breaking through the noise.

“We have a lot of great value out there in the market. We’re just doing it in a very fragmented way,” Kempczinski said. “And so the opportunity for us is how do you maybe pull back a little bit on all the local value that we’re offering, which, frankly, we don’t have very high awareness on, and how do you coalesce and drive awareness around a national value proposition? So I think there’s a smart way to do this that can end up being net neutral to a franchisee P&L. But just using the size and scale of our marketing engine and the amount of media that we spent I think that’s going to be the opportunity for us going forward. And certainly, we’re in a good position from a system financial health standpoint to go do that.”

While the economic environment is more pronounced for lower-income consumers, Kempczinski emphasized that all income cohorts are seeking value. And that doesn’t always have to mean a price point. The CEO feels confident in how franchisees are running restaurant operations, as seen by improvements in speed of service and turnover. Those ongoing enhancements are paired with consistent menu innovation throughout the year. All of those together are combining to increase customer satisfaction scores in the U.S.

McDonald’s is still performing well despite tightening wallets from guests. Q1’s 2 percent global same-store sales lift marked the brand’s 13th straight quarter of positive figures, with 30 percent growth over the past four years. The U.S. increased 2.5 percent thanks to average check growth, menu price increases, effective marketing campaigns featuring core menu items, and continued expansion of digital and delivery. IOM lifted 2.7 percent, led by the U.K. International Developmental and Licensed Markets (IDL) dropped 0.2 percent because of the continued impact of the Middle East war.

“The foundation of our business, the vast majority of our business, is in an incredibly strong position,” Borden said. “I think we come into this more challenged macro environment in an advantaged position. And I think the emphasis with that would be we have a fully modernized estate, we’ve got, I think, a marketing and brand engine that’s best-in-class, meaning I think the team continues to deliver great creative execution. I think that’s resonating with customers in culturally relevant ways. We’ve got our system financial strength that’s at one of its strongest points in our history. So we’ve got the ability to kind of lean into opportunities together because of all the work we’ve done over the last couple of years. And then if you think of our 3Ds of delivery, drive-thru, and digital, we have a leadership position in each of those areas.”

McDonald’s finished Q1 with 13,469 stores nationwide, comprising 12,783 franchised units and 686 company-owned locations. It also had 28,548 international restaurants for a total of 42,018 outlets worldwide.

Burgers, Fast Food, Finance, Franchising, Growth, Marketing & Promotions, Story, McDonald's