McDonald’s Executive Summary
McDonald’s enjoys substantial brand equity as the largest and possibly most influential domestic brand, supported by the largest marketing budget in the industry and iconic signature products (Big Mac, Quarter Pounder, McNuggets, Egg McMuffin & fries) which drive a significant percentage of mix. A focus on its core menu and innovation around classic menu items helps service speed and corporate believes that it does not need lots of new products or huge innovation to maintain its current momentum (rather the key is to execute around its existing plan). Marketing focuses on accentuating taste, affordability, family & brand trust and a repositioning over the last several years has resulted in a better, slightly different perception of the brand. A 25% digital mix is supported by an abundance of discount promotions & daily deals for this channel and the recent loyalty launch (30MM members & 21MM active) which represents its largest digital driver. While a 30 second improvement in its drive-thru service time (over the last couple of years) was partially offset by a 1Q22 three second slowdown as traffic begins to return, the goal is to improve service speed by another 20 seconds. Full-year 2021 comps increased +13.8% (+14.3% on a 2-year stacked basis), representing MCD’s best results ever while 1Q22 comps further increased by +3.5%. All this translates into record store-level profitability which adds cushion to absorb substantially higher operating costs. All-the-same, an +8% 1Q22 menu price increase (after +6% taken during 2021) strains McDonald’s very important value orientation (even if the brand’s relative value positioning remains competitive). Given McDonald’s orientation towards the lower income demo, its going forward sales are likely more dependent on the macro economy than during any time since the Great Recession. In conclusion, while McDonald’s is currently well positioned with solid execution around very sound fundamentals, its core value oriented customers are caught in an inflationary spiral which may require a sacrificial pivot towards price value from this iconic brand which has worked so hard to earn America’s trust over the many decades.