McDonald’s Announces Ambitious New Growth Targets

Chicago / IL. (mdc) McDonald’s Corporation announces ambitious new growth targets to advance its Accelerating the Arches (AtA) strategy. «As I’ve said before, there has never been a better time to be part of Brand McDonald’s. The McDonald’s System has demonstrated exceptional execution of our AtA strategy and is delivering tremendous results across our key growth pillars,» said President and Chief Executive Officer Chris Kempczinski. «We have a clear trajectory for future growth as we continue to build on the brand strength, global footprint and digital ecosystem that have resulted in unparalleled competitive advantages and cemented McDonald’s as one of the world’s leading consumer-facing brands.»

Since 2019, the Company has delivered significant performance, generating 30 percent comparable sales growth through AtA strategy. The all-encompassing strategy is underpinned by modernized values and fueled by the M-C-D growth pillars to: Maximize our Marketing – Commit to the Core – Double Down on the 3Ds (Delivery, Digital, and Drive Thru) and with the addition of a fourth D (Development) earlier in 2023.

Maximize the Marketing

The Company continues to build relevance amongst customers through emotional connections and world class creative, which are central to the brand’s «Feel-Good Marketing» approach. Kantar recently named McDonald’s one of the world’s top five most valuable brands, driven by culturally relevant creativity that drives growth. It’s a recognition that speaks to the heart of McDonald’s iconic position as one of the world’s leading consumer-facing brands. The «Raise Your Arches» campaign demonstrated the brand’s efficiency and agility to create and scale award-winning campaigns that feed McDonald’s global fandom and inspire brand affinity. Originally developed in the U.K., the campaign was quickly picked up by more than 35 markets around the world. Another way in which McDonald’s connects with its customers is through personalized value and digital offers, like those available on the McDonald’s mobile app. McDonald’s is proud to be a destination of choice, and it continues to be recognized by customers with the number one position on Value and Affordability scores in the industry.

Commit to the Core

Core menu items – like the Big Mac, Quarter Pounder, Chicken McNuggets and World-Famous Fries – are truly the core of this business, representing about 65 percent of Systemwide sales and driving profitable growth. Seventeen classic McDonald’s menu items are billion-dollar brands in their own right, beloved by customers around the world. Building on its historic strength with burgers, the Company continues to evolve and innovate around its longest-standing menu item with plans to deploy the Best Burger initiative to nearly all markets by 2026. All while the Company gains share in the rapidly growing chicken category, which it has highlighted as a significant opportunity. Today, the size of the Company’s chicken business is on par with beef, as the Company continues to aggressively expand through billion-dollar equities including McNuggets, McChicken, McCrispy and McSpicy. This includes plans to offer McCrispy in nearly all markets around the world by the end of 2025 and to expand McCrispy into wraps and tenders. These planned innovations and new menu offerings reflect the Company’s ability to test and scale quickly to serve customers.

Double Down on the 4Ds: Digital, Delivery, Drive Thru and Development

  • Digital: With 150 million 90-day active users and over USD 20 billion in Systemwide sales to loyalty members, McDonald’s loyalty program is one of the largest in the world. Still, the Company plans to increase its active loyalty user base to 250 million 90-day active users and deliver USD 45 billion in annual Systemwide sales to loyalty members by 2027. Mobile ordering is a popular and growing choice for customers, with hundreds of millions of mobile orders recorded during the third quarter of 2023. To ensure McDonald’s restaurant teams are able to deliver the speed, convenience and freshness customers expect when they place a mobile order, the Company will expand its U.S. pilot of Ready On Arrival across its top six markets by 2025. This initiative enables crew members to begin assembling a customer’s mobile order prior to their arrival at the restaurant to expedite service and elevate customer satisfaction.
  • Delivery: With a massive global footprint and unmatched proximity to customers, McDonald’s has the industry’s largest delivery program globally – with 55,000 orders prepared and delivered to customers at any given moment. Customers can order delivery within the McDonald’s mobile app in five of the Company’s top markets and the Company is scaling this capability, expecting 30 percent of delivery orders to originate in its mobile app by 2027.
  • Drive Thru: McDonald’s is the largest drive thru player worldwide, with more than 27,000 drive thru locations. A first mover in locking down the best locations at attractive prices, McDonald’s network provides unmatched scale and convenience for customers. This competitive advantage in drive thru also presents significant opportunities for growth. Enhancements, such as improving the physical layout of the drive thru with additional lanes, creates additional capacity, which improves speed and efficiency and ultimately leads to sales growth and strong returns.
  • Development: As the Company previously announced, it will accelerate the pace of restaurant openings to fully capture the increased demand being driven through the M-C-D growth pillars. Today the Company announced it will continue to build on its industry-leading development progress by targeting expansion to 50,000 restaurants by the end of 2027. This will mark the fastest period of growth in Company history, with an expected run rate of 1,000 gross openings across the U.S. and International Operated Markets in 2027.

Advancing Tech-Driven Solutions

The Company’s technology strategy aims to leverage scale and unlock greater speed and efficiency for customers, restaurant teams, and employees.

McDonald’s and Google Cloud announced a strategic partnership to connect the latest cloud technology and apply generative AI solutions across its restaurants worldwide. This will help accelerate automation innovation from equipment manufacturers and allow restaurant general managers to quickly spot and enact solutions to reduce business disruptions. Overall, this will also reduce complexity for crew and lead to customer benefits such as hotter, fresher food.

«We’re focused on making AI more helpful for everyone, with the potential to unlock many new opportunities for innovation,» said Sundar Pichai, CEO of Google and Alphabet. «The restaurant industry is already benefiting from these advances, and we’re excited to see how McDonald’s will use our generative AI, cloud, and edge computing tools to improve their iconic dining experience for their employees and their customers all over the world.»

In addition, and beginning in 2024, the Company will begin to deploy new, universal software that all McDonald’s customer and restaurant digital platforms will run on – from the mobile app to loyalty and kiosks in store. The bespoke operating system will enable restaurants to roll out innovation even faster, with less complexity and more stability; and customers will enjoy a more familiar, consistent experience no matter where they go or how they order.

More shared data means more opportunity to accelerate customized AI solutions. The scale of incoming information from all corners of the globe will allow McDonald’s GenAI models to better understand the broadest range of patterns and nuances, resulting in more informed tests and automated solutions to enhance restaurant operations.

Financial Performance Expectations

«Over the past decade, we’ve evolved our business model significantly, enabling us to allocate the majority of our resources to the areas of the business with the greatest stability, returns and opportunity for growth. This has resulted in a more durable business model that yields a consistently strong TSR algorithm that is expected to grow,» said Global Chief Financial Officer Ian Borden. As a result, the Company expects its evolved growth strategy to deliver the following financial targets:

Preliminary 2024 guidance Average, annual long-term financial targets beyond 2024
Net restaurant unit expansion Nearly 2 percent of Systemwide sales growth in constant currencies About 2.5 percent of Systemwide sales growth in constant currencies
Operating margin In the mid-to-high 40 percent range Continued expansion
Net new restaurant unit growth Over 4 percent Between 4 percent to 5 percent annually, targeting 50,000 global units by 2027 with a run rate of about 1,000 gross restaurant openings across the U.S. and International Operated Markets in 2027
Capital expenditures About USD 2.5 billion Sequential increases of about USD 300 to USD 500 million each year through 2027
Free cash flow conversion In the 90 percent range In the 90 percent range

«It’s clear that our AtA strategy has delivered exceptional results and we’re operating from a position of strength,» said Borden. «The goals we’ve outlined today further our competitive strengths across the M, C, and Ds and our ability to continue to identify new platforms for growth puts us in the best possible position to maximize the opportunities in our strategic plan and provide long-term profitable growth for all stakeholders.»

Addendum: Overview New Growth Targets

20231207-MCDONALDS-OUTLOOK(Graphics: McDonald’s Corporation)