McDonald’s reported third quarter results Monday morning, including an 11% increase in global systemwide sales, and 8.1% increase in U.S. comp sales. In a release, the company notes domestic comp sales benefited from a strong average check growth driven by menu price increases, as well as restaurant-level execution, effective marketing campaigns, and continued digital and delivery growth.
Those menu price increases are up just over 10% for the full year, CFO Ian Borden said during the earnings call, adding that he expects pricing to come down now that inflation is starting to cool. That said, the chain is experiencing some traffic pressures, particularly among lower-income consumers - $45,000 and below.
“The (U.S.) consumer is more discriminating because of all the price pressure they’re facing. What you end up seeing is pressure is felt more on the lower income consumers, so we saw industry wide that lower income consumer is negative,” CEO Chris Kempczinski said. “We had a slight dip in traffic in Q3, and we expected that because of what we were lapping, but on a two-year stack, traffic is up strongly. We just need to keep a close eye on the $45,000 and under consumer and make sure we’re offering value.”
Indeed, value was a major theme on the call, with executives pointing to value promotions from various markets, such as a McMuffin/coffee deal in Canada that drove strong performance during the breakfast daypart, Germany’s McSmart menu that offers smaller and more affordable meal options, and the $1, $2, $3 Dollar Menu in the U.S. Kempczinski said the company is not seeing changes “in terms of customer acceptance on pricing.”
“The headline is we maintained QSR market share in the quarter, with strong share gains in beef and chicken being two key elements,” Borden added. “We continued to gain with middle and high-income consumers. We’re partly benefiting from trade down from more expensive alternatives. We held share with lower-income consumers in a pretty competitive marketplace. Industry traffic was down during the quarter, our comparable traffic was marginally down.”
Placer.ai data finds that McDonald’s visits are still beating overall dining trendlines. September visits, for instance, were down 3.7% year-over-year at McDonald’s, versus negative 4.2% for overall dining.
Though executives noted there is some promotional activity in the space to maintain lower-income consumers, nothing is “alarming.”
“We’re focused on maintaining our value leadership … but we have lots of things that go into value, beyond price,” Kempczinski said, citing improvement in operational execution as an example. Service times were about 9 seconds faster during Q3. He also cited McDonald’s remodels, or “modernized estate,” as an advantage among its QSR peers.
Aside from value perception, McDonald’s is also leading in digital, with over 40% of systemwide sales in its top six markets coming from digital channels, or nearly $9 billion. In those markets, there are now over 57 million 90-day active members. For context on the company’s continued digital growth, there were 52 million 90-day active members in Q2.
“Our relationship with them continues to grow. We’re learning when they visit, how they visit and what they buy,” Kempczinksi said. “There are more sales coming through identified channels than ever before and by continuing to elevate the digital experience, customers to feel more connected to the brand and driving incremental visits we believe would otherwise go uncaptured.”
McDonald’s marketing machine also continued to churn during the quarter, with more of a global approach this time around. The company announced its One McDonald’s Way strategy earlier this year, in which the company examines “horizontal ways” of working and digitizing the organization across its global footprint. In Q3, that meant integrated, global marketing campaigns for “As Featured In,” Monopoly and the FIFA Women’s World Cup.
“I can’t think of another time when we better utilized our scale for marketing,” Borden said. “It’s a tangible demonstration of accelerating the organization.”
One McDonald’s Way is driven by the new Global Business Services unit and includes the finance, people, marketing, development, supply chain and technology functions. Efficiency has become a bigger focus for the chain since announcing its Accelerating the Arches 2.0 plan in January that included some organizational restructuring and breaking down segment and market silos, which Kempczinski called “outdated and self-limited.”
Contact Alicia Kelso at [email protected]