McDonald’s Lays Out Digital Future, Plus Some Crispy Chicken
(Bloomberg) -- McDonald’s Corp. unveiled its new growth strategy to investors, with everything from a long-awaited U.S. loyalty program, a crispy chicken sandwich and a plant-based meat line on the agenda in a bid to maintain growth.
The plan comes one year -- nearly to the day -- into Chris Kempczinski’s tenure as chief executive officer. Under the new strategy, dubbed “Accelerating the Arches,” the company expects system-wide sales growth in the mid-single digits next year, compared to 2019 levels, with unit growth contributing another 1.5% to 2% in 2022.
“In countries around the world, we have seen customer behaviors change at an unprecedented pace over the last several months,” Kempczinski said in a statement Monday announcing the multi-pronged plan, which touches an array of topics from marketing to menu items. “This presents an opportunity to do something special as we write the next great chapter of McDonald’s.”
Kempczinski has given plenty of clues into his vision for the fast-food giant since he took the helm, including creating in January an entirely new executive position to oversee digital customer engagement. He’s also rolled out limited-edition celebrity meals featuring Travis Scott and J Balvin in the company’s home market and tested trendy items, including spicy chicken nuggets, to fuel a return to U.S. growth.
Earlier Monday, the company reported better-than-expected results for the third quarter. Shares fell slightly in Monday trading, erasing an earlier gain, declining 0.7% as of 2:13 p.m. McDonald’s shares were up 9.6% this year through Friday, just ahead of the S&P 500.
But there’s still room to do more, especially as drive-thru and digital boom during the pandemic. McDonald’s will be investing in more technology, including a digital platform called “MyMcDonald’s” that will suggest to customers tailored offerings and include a new loyalty component. Investors have been waiting for a U.S. loyalty program to rival Starbucks Corp.’s popular one for years, beyond the McCafe digital punch card already available.
The burger chain will start testing the U.S. loyalty program in the Phoenix area in the next few weeks. It will then roll out “MyMcDonald’s” across its top six markets by the end of 2021. Those markets -- the U.S., U.K., Canada, Australia, Germany and France -- will see digital sales exceed $10 billion, or nearly 20% of system-wide sales, this year.
With digital offerings increasingly important, McDonald’s is also planning to test a new restaurant concept that offers drive-thru, delivery and takeaway only. It’s also testing a new drive-thru express pick-up lane for digital orders. The new lanes could eat into some existing dining room space, Joe Erlinger, president for the U.S. division, said on a call.
In terms of product, McDonald’s will be focusing on its core menu items -- Big Mac, Quarter Pounder, Chicken McNuggets and fries -- which make up about 70% of food sales in its biggest markets. Burgers will get “a series of operational, process and formulation changes,” the company said, including new toasted buns and an enhanced grilling method “to unlock more flavor.” Packaging is also due for a global redesign.
The company will be introducing a new crispy chicken sandwich in the U.S. early next year. Chicken has been growing faster than beef, with competitor Popeyes Louisiana Kitchen Inc.’s fried-chicken sandwich so popular last year that an altercation over one turned deadly.
“Developing a reputation for great chicken is one of our highest aspirations,” Erlinger said on the call. The new crispy chicken sandwich, which will replace another sandwich on the menu, will be simple: chicken, pickles and butter on a potato roll.
McDonald’s is also planning its own line of faux meat, starting with a substitute burger. News of the McPlant launch, which will begin tests next year, originally sent shares of alternative-meat maker Beyond Meat Inc. tanking -- until Beyond said it had co-created the patty.
The chain’s revamped strategy comes more than three years after McDonald’s last roadmap, its “Velocity Growth Plan.” Under the new plan, operating margins will be in the low-to-mid 40s percent-wise, it said, while capital expenditures will be about $2.3 billion. It told investors it also intends to keep paying dividends and returning to pre-Covid debt ratios.
“Our solid financial position and business foundation has been a source of strength through the pandemic,” Chief Financial Officer Kevin Ozan said in a statement. “We are confident that Accelerating the Arches builds on our momentum and will drive long-term profitable growth for all stakeholders.”
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