McDonald’s finished 2023 with just under 13,500 domestic locations and there are few brands in any category with as much saturation. But for the quick-service giant, there’s room for more.
Much more.
Late last year, McDonald’s announced plans to target a 50,000-unit global footprint by 2027, or about 10,000 more locations than it has today. If this goal comes to fruition, it will mark the fastest period of growth in the company’s 69-year history.
That goal includes about 900 new restaurants in the U.S. in the next four years, and 1,000 in the next five. It’s a lofty objective for any company, let alone one with as much ubiquity as the Golden Arches. But it’s more than feasible, according to chief development officer Tabassum Zalotrawala. The “excitement and the challenge” is why she took on the opportunity last year after spending four and a half years in the same role at Chipotle.
Indeed, Zalotrawala came on board just as McDonald’s was launching its Accelerating the Arches 2.0 strategy, which prioritizes development alongside delivery, digital, drive-thru, marketing, and the core menu.
“It was interesting timing because not only was development added as a strategic priority for the entire organization, it was also a time when the company was being restructured,” Zalotrawala said during a recent interview. The restructuring elevated the chief development officer position to the senior leadership team to reflect its prioritization.
“It allowed me to have a full assessment of our human capital and what was required to take the company to growth mode,” she said. “I had to assess that I was sitting on a bench of 13,000 restaurants already; is there really enough white space to grow?”
Perhaps surprisingly, 2023 marked the first time McDonald’s generated year-over-year unit count growth in about eight years. During that time, the company was busy focusing on other priorities, including and especially the modernization of its existing portfolio through the “Experience of the Future” initiative, which kicked off in 2017. Couple its expansion pause with continued population growth – an annual rate of 3.2% with several Southern states growing by double digits – and you have bottlenecked demand for the biggest chain by sales in the country, according to Zalotrawala.
“It was really eye opening how much opportunity exists here in the U.S. even with that many restaurants,” she said. “McDonald’s spent a ton of energy and investment on its existing portfolio along with owner/operators. The company kept working on the menu, operations, the marketing piece. It didn’t really grow any restaurants and that caused increased demand in almost every part of the country.”
The playbook
However, pausing for remodels and building up such pent-up demand was the right sequence, Zalotrawala added. Having a modernized estate has since served McDonald’s well, executives have shared, quickly buoying and sustaining sales after the pandemic, while many competitors stagnated or played catch-up. Zalotrawala acknowledges she even pulled pages from McDonald’s playbook while at other brands.
“[McDonald’s] did all that work and took the time to invest in the exterior and interior of the restaurants, adding digital components to serve the customer best. It was industry-leading work. I know because I’ve copied McDonald’s. They were taking care of their existing portfolio, and I was saying we ought to be doing this proactively too, to not lose share and guest count,” she said. “The restaurants are the face of the brand.”
Now that she’s charged with growing that modernized estate, she has embarked upon what she calls a “journey of carefully prioritizing and assessing where gaps exist.” That journey is focused on three pillars:
- Focus – on building the pipeline for the long-term, knowing that the development timeline now takes about two years.
- Collaboration from McDonald’s “three-legged stool,” of corporate, franchisees, and suppliers. “Development is a team sport,” Zalotrawala said.
- Innovation. This is where Zalotrawala leans on the systems and processes that have guided her entire career, which began at Arby’s and Panda Express before moving onto Chipotle and McDonald’s. “Innovation doesn’t have to be some big invention – it could be small process improvements. What is redundant? Do we have the right vendors? The right partners assessing real estate?” she said.
The journey focuses on states where there is high population growth and lower restaurant density, like Texas, Georgia, Florida, and the Carolinas. The company is leveraging its data capabilities to analyze every trade area in the U.S., Zalotrawala said, and while many brands are targeting growth in small towns, the definition of such a market for McDonald’s is a little different. The goal is to get all customers within a 5-mile or 5-minute radius of a McDonald’s restaurant.
“For other brands, small towns are those that have about 20,000 to 30,000 people. For McDonald’s, we can serve a community that has about 10,000 or less. That’s the power of our brand,” Zalotrawala said. “The closer customers are to restaurants, the more frequency, which then creates profitability. That’s the formula.”
As McDonald’s continues this development journey, how deep the chain goes into a market will depend on real estate availability, traffic patterns, and the traditional “work/home/shop” generators. Post-COVID, the number of homes in an area has become more important than work and shop, for instance, but every site has to stand on its own for all three considerations, Zalotrawala said.
If real estate availability is a challenge or if a market is exceedingly skewed toward digital sales, then the company can get creative with some of its non-traditional locations. But for the foreseeable future, much of McDonald’s development will focus on its “bread and butter traditional restaurant format,” which includes a full-size dining room and double drive-thru lanes.
“When you go with non-traditional locations, you have to forgo your traditional channels. Why would I do that? All channels, that’s the priority,” Zalotrawala said.
Though it’s full speed ahead for McDonald’s development, plenty of challenges exist, especially in this post-COVID environment. Construction costs remain high, the supply chain continues to be pressured, competition has increased, and development is slow. To navigate, Zalotrawala is relying on her three pillars and focusing on finding efficiencies in process improvements, value engineering, and vendor diversification.
“The world has changed. The [development] process has become more onerous, but how we work is not so different. That’s why I’m committed to more collaboration. If one of us wins, everyone wins. We are in growth mode and it’s an exciting time. … Our share is going to be about 900 restaurants bigger over the next four years. That is considerable,” Zalotrawala said. “Is it possible? It is more than possible.”
Contact Alicia Kelso at [email protected]
