McDonald’s CEO Steve Easterbrook says the brand is not trying to go more premium despite its significant investments in quality, provenance and technology.
Speaking on a call with analysts this afternoon (26 July) following its second quarter results, Easterbrook said there is “not a conscious effort to take the brand upmarket”, with the focus on broadening its customer base.
McDonald’s has been rolling out its ‘experience of the future’ restaurant, which offers customers options such as mobile ordering and table service. In the US, around 5,000 restaurants (or a third of its estate) have been converted to the more modern experience, and it converted 1,300 restaurants in Q2 alone – the equivalent of 10 a day.
The fast food giant has also been premiumising its menu offering, introducing a more gourmet range of ‘Signature’ sandwiches and fresh-cooked burgers. Yet Easterbrook is adamant McDonald’s still wants to stand for value.
“We don’t want to alienate anyone and we will always stand for value,” he said. “But as we continue to invest in the brand, as we invest in quality and the properness of our food, in the physical real estate and technology, what you tend to do is broaden you customer base.
“What we end up doing is appealing to a broader range of customers on more occasions, more often. We want to do things that positively impact the most people in [as many] areas as possible. Continuing to reinvest in the brand and keep it relevant for customers today is what it’s all about. And it’s a competitive marketplace. We want to differentiate ourselves from the competition and we believe we have the initiatives in place [to do that].”
However, McDonald’s admits it now has a job to do to attract customers who are “looking for a great deal”. While everyday promotions such as its one, two and three dollar menu is attracting customers looking for everyday predictable low prices, there is a “gap” among those who love fast food but are willing to shop around for a deal.
“That is an area where we haven’t been as competitive as we needed to be,” said CFO Kevin Ozan. “We need to make sure on the deal side we are competitive – that’s where we’ve lost some frequency. It’s really having those customers come back to us more frequently because we’ve got compelling deals on a regular basis.”
The opportunity in delivery
Another initiative that has seen success is delivery. McDonald’s has a partnership with UberEats and now offers delivery in more than 13,000 restaurants in 60 markets across six continents. Easterbrook said the service is now a “meaningful contributor to sales”, and in the most successful locations contributes as much as 10% of sales. Those sales are also profitable and incremental, with delivery orders typically twice the size of restaurant orders.
While Easterbrook admits there are more ways to optimise the process to ensure the quality of the food and speed of delivery, he believes there is plenty of room for growth, particularly by using marketing promotions.
“Delivery is contributing to our success now, and offers untapped potential in the future,” he added.
The UK continues to perform well, with high single-digit sales growth in the quarter. It had its second highest day of sales on record in May, and in June the best ever day for guest counts. Easterbrook pointed to iconic menu items such as the Big Mac and its Signature range as reasons for the success.
Globally, comparable sales were up 4%, marking 12 straight quarters of growth.
“We’re seeing good performance across our business as our customers tell us that they value and appreciate the moves we’re making to elevate the McDonald’s experience,” said Easterbrook.
“We remain focused on delivering the most enjoyable experience for every customer, every visit. Whether that is when they visit a modernised restaurant with inviting hospitality or through the convenience of having delicious food delivered to their home, we know that our fundamental day-to-day commitment to our customers is running great restaurants.”