Macroeconomic headwinds have been “more significant” than anticipated for McDonald’s, which expects to begin Q2 2024 with “roughly flat” like-for-like growth, according to CFO Ian Borden.
Speaking on an investor call following the fast food giant’s first quarter results yesterday (30 April), Borden, along with CEO Chris Kempczinski, said McDonald’s has seen the effect of headwinds going into Q2, with QSR industry traffic “flat to declining” in Q1.
“2024 isn’t going to be a typical year for the broader industry,” Kempczinski said. “We don’t control the macro context, but we’re making sure we’re listening to consumer needs and delivering on them.
“Affordability expectations have heightened. We have a long history of being a leader in this space – we know what to do and how to do it well.”
McDonald’s reported a 1.9% increase in global comparable sales in Q1, reflecting positive sales in the US and International Operated Markets segment. Total revenue in Q1 stood at £6.2bn.
The International Developmental Licensed Markets segment decreased 0.2% - reflecting the war in the Middle East – with the management team clarifying they do not expect to see meaningful improvement until the war has ended.
The company expects ‘moderated’ top line growth this year, attributed to continuing pressure on consumer spend.
Kempczinski added that the company has reacted with agility to meet customer needs, with value bundles at various price points offering smaller, more affordable meals across markets.
The company further revealed it will be testing a “more satiating” burger – in response to consumer demand – in some markets later this year to ensure the product has universal appeal before scaling it globally.
“We’ve been impressed by our markets’ ability to find opportunities to implement value,” Kempczinski continued. “We’re laser-focused on affordability, that is, a good entry level price point.
“We literally wrote the playbook on value and are committed to upholding our leadership in the industry.”
Average franchisee cash flow remains strong, giving the business the ability to invest in “more aggressive” value initiatives.
Restaurant-level margins for franchisees have recently been built back to pre-pandemic levels, with food inflation easing – despite a rise in labour inflation.
There is also opportunity to build a ‘national value proposition’, aligning 2,000 franchisees across the US and using scale to drive awareness.
“That’s what our competition is doing,” Kempczinski said. “It may be more pronounced with the lower income consumer, but it’s important to recognise that all income cohorts are seeking value.”
“The vast majority of our business is in a strong position,” Borden added. “We have a fully modernised estate, fiscal and financial strength, and the best in-class marketing and brand engine that’s resonating with customers.”
In the UK, the loyalty scheme and gamification on the app has driven strong results and ‘record growth’ in the number of 90-day active users.
“We’re working to deliver the right message at the right time to the right consumer.
“In this environment of pressured traffic, we can get those who already visit to visit more often.”
As for CosMc’s – the beverage-led spinoff brand – the goal is to assess its performance in test markets, currently in the US. Its rollout will be a function of “unit volumes, margins, and capital,” as return on investment has to be comparable or stronger than a traditional McDonald’s, according to Kempczinski.
“We’re making sure we’ve got a street fighting mentality to win regardless of the environment around us,” Borden added.
