McDonald’s found a pretty good cadence from its $5 Meal Deal to the point where the chain gained back low-income consumers for the first time in over a year and stabilized eroding traffic trends overall.
Its plan was working, aided by strong marketing campaigns like Collector’s Meals, as well as operational improvements.
Then an E. coli crisis hit. Worse, it hit McDonald’s signature (and wildly popular) Quarter Pounders.
Commend the chain for moving swiftly in tandem with health agencies and communicating abundantly to identify the source and rectify the situation. But now it has found itself back to square one. The company had taken a big step forward in recovering from its first same-store sales decline since 2020 and now it finds itself two steps behind.
That said, during the company's third-quarter earnings call Tuesday morning, chief executive officer Chris Kempczinski and chief financial officer Ian Borden outlined yet another plan for yet another recovery, entailing several elements outlined below.
Value strategy
Much of the chain’s strategy will continue to hinge on its value proposition. As Kempcinski noted, the company has “moved with urgency to improve our value offerings in most of our major markets,” like a 3 for 3 deal in the United Kingdom and a $1 coffee in Canada.
“We view good value as including both entry-level items and meal bundles at affordable price points. This means offering Every Day Affordable Price menus, or EDAP, in our markets. At McDonald's, we define EDAP as a platform with an assortment of items all priced at compelling entry-level price points, generally including breakfast, beef, and chicken sandwich options,” he said.
The company will pair EDAP platforms with meal bundles under a branded value platform. This, Kempczinski said, will help build recognition and affinity with customers.
“So, when they're thinking about an affordable option for food, we're top-of-mind,” he said.
Borden said this more holistic value platform will launch in the first quarter of 2025.
Full-margin promotions
Alongside those value options will continue to be full-margin promotions aimed at growing check sizes. For instance, the Collector’s Meal, launched in August, featured core-equities across all dayparts in more than 30 markets and drove high-check, full-margin traffic.
“The campaign drove customers to our restaurants, especially in the U.S. where the promotion ran alongside the $5 Meal Deal. Collector's Edition maximized the power and scale of our global brand, while ensuring local flexibility and cultural relevance to connect fans in unexpected ways,” Kempczinski said.
Chicken
While it’s way too early to gauge results from the (also full margin) Chicken Big Mac launch Oct. 10, Kempczinski noted the potential of chicken categorically is “massive,” as the protein is now twice the size of beef and growing faster. During the third quarter, a majority of McDonald’s largest markets grew market share in chicken.
“There is significant room for us to grow our share and we're working to meet the moment and take advantage of its growth,” Kempczinski said, adding that the chain’s plan to scale the McCrispy equity across nearly all markets by the end of 2025 is on track.
Big Arch
Of course, never count out McDonald’s beef equities and that list will grow with the anticipated launch of the Big Arch, now in pilot in three international markets (Portugal, Germany, and Canada). Kempczinski said the pilot is going well enough to accelerate rollout into more international markets in 2025 (no word on whether that includes the U.S.). The bigger, “more satiating” burger is expected to further McDonald’s leadership position in the beef category, as executives have noted recently, and is meeting an “unmet consumer need.”
Loyalty/digital
McDonald’s has stated its goal to enroll 250 million active loyalty users by the end of 2027, and executives said the company is well within reach of that target. This growth should provide a significant spark for the company – in Q3, systemwide sales from the program generated nearly $8 billion globally. The program has also proven to increase frequency and spend.
“Digital certainly continues to grow in importance, but it's still a minority of our customers. Over the mid- to long-term, digital will become a much bigger part and then we'll obviously bring value to life at an individual level with a lot of data and insights, which allow us to effectively target value that's most relevant for that individual consumer,” Borden said.
Operations
As Borden pointed out, value is now a “holistic” idea that also includes customer experience, and during Q3, McDonald’s improved its speed of service at the drive-thru by double digits, while satisfaction scores reached an all-time high.
“While we will continue to focus on ensuring we have the right price points for our customers, we will not forget about all of the intangibles that create great value, knowing that providing a great experience, particularly now, is fundamental,” Borden said.
International
McDonald’s international markets remained pressured in Q3, with global same-store sales falling 1.5%. The International Operated Markets segment decreased 2.1%, impacted by negative comp sales across several markets, driven by France and the United Kingdom, while the International Developmental Licensed Markets segment decreased 3.5%, impacted by the ongoing war in the Middle East and negative comp sales in China.
Kempczinski said despite challenges in many international markets, McDonald’s is either gaining share or seeing sequential improvement, “which is encouraging.”
“But I would also tell you, I'm not satisfied with the pace. And I think there's more that we need to do to step up and accelerate. There's a number of adjustments that are being made in each individual market to augment their value programs. And I think we have an opportunity to overlay on top of that some stronger marketing efforts as well,” he said.
Leveraging resources
Finally, Kempczinski noted that McDonald’s vast resources are a benefit in this recovery process and, indeed, there are certainly not many companies in or outside of the industry that match McDonald’s scale.
“We’re seeing success with the $5 Meal Deal, we’re going to have food innovation, we’re going to be driving digital. And we stand ready to do more if we need to, to make sure we are bringing the full resources of McDonald's to bear to reengage that customer,” he said.
Kempczinski didn’t rule out allocating more dollars toward messaging aimed at restoring consumers’ trust in the coming months but added it won’t replace existing and relevant value messaging.
“I think we can do both. I think we can make sure that we're communicating the steps that we've taken and if there is lingering unease out there to be able to address that. At the same time, I think we can also continue to be driving value and I think we can be driving marketing news,” he said. “We’re going to do what we need to do to make sure we get the momentum back in the business.”
Contact Alicia Kelso at [email protected]
