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McDonald’s Looks to Value Offerings, Technology and Delivery for Future Growth

McDonald’s is looking to the technology investments and new value offerings it developed in 2018 as major drivers for growth in 2019.

Corporate EVP & CFO Kevin Ozan said that specific items on the company’s new value offering, the $1 $2 $3 Menu, will be organized locally by the 50 marketing co-ops across the country, depending on cost structure. Only the $1 drink and $2 small McCafe drinks are mandatory offerings for the menu.

Regarding the value platform, Ozan argued customers view the items as add-ons which led to higher checks. Additionally, the company will utilize national promotions like the 2 for $5 deal and a 4 for $6 deal in tandem with the value menu to help drive traffic long-term that helps with operator cash-flow in the near-term by driving up average checks.

In 2018, McDonald’s remodeled about 4,500 U.S. stores, bring the total percentage of remodeled U.S. operations to about 80%. Additionally, 50% of U.S. stores now have Experience of the Future elements, with plans to add these technology suites to about 2,000 additional stores in 2019. However, the remodeling efforts dropped same-store sales by 0.5 percentage points for the year, headwinds the company expects to fade now that it is lapping those metrics.

The company is working with franchisees on the timeline of the remodels, resulting in a new timeline for the Experience of the Future elements. The company will give franchisees until 2020 instead of the original 2019 deadline to implement the technology effectively. Ozan noted that although costs associated with the Experience of the Future were a bit higher than expected, mostly due to inflation in the construction industry as a result of increased demand, it wasn’t the biggest pain point with franchisees regarding the deployment.

The technology is helping with a 2017-18 project for the company, which was delivery. Ozan was quick to note that although 9,000 restaurants in the U.S. offer delivery, there was room to improve and optimize the technology.

Utilization remained low per day per restaurant in 2018, but McDonald’s believes it represents a massive opportunity. Now that integration with UberEats is complete they are looking to grow awareness, citing high repeat order rates after customers order delivery for the first time. Additionally, the idea of new packaging with delivery in mind was floated, which would make delivery orders more appealing to consumers.

The fresh beef rollout in 2018 was successful, according to JP MORGAN analyst John Ivankoe, but drive-thru times increased as well. Ozan noted service times were already slowing down over the past few years, so it wasn’t just fresh beef that spurred the increase. Ozan noted All Day Breakfast, premium products and fresh beef items take longer to make, contributing to increased wait time.

However, now that the company has launched these products and platforms, it is looking for ways to optimize kitchen set-ups and operations in an effort to decrease the wait at the line.

Ivankoe asked Ozan about convenience regarding delivery and the drive-thru. Although the drive-thru used to be the most convenient option for food, delivery has arguably fewer pain points. Ozan reported that the company believes delivery will continue to grow substantially over the next several years. However, the overall industry was facing slowing sales, which McDonald’s was not exempt from.