Good morning,
As digitalization and customer experience are high priorities, the CFO of a fast-food giant sees marketing as a growth center, not a cost center.
“McDonald's continues to put the customer at the center of our strategy, driving top-line growth, and further strengthening the brand,” Ian Borden said on the company’s Q1 2023 earnings call on Tuesday. In his remarks on the call, Borden emphasized that he’s all in on the brand’s marketing and social media.
“Our marketing excellence was also on full display during the quarter,” said Borden, an almost 30-year veteran of McDonald’s system, who began his role of EVP and CFO on Sept. 1 promoted from president of international markets. He offered several marketing examples, like the “Raise Your Arches” campaign in the U.K. “Within the first weekend, the campaign reached millions of people and our customers reacted on social media more than 30,000 times,” he said.
Borden talked about the McSpicy chicken sandwich marketing campaign with a streetwear brand in China. He also described the cooking procedures for burgers such as the Big Mac, and other slight changes such as improved buns. “These improvements are resulting in hotter, juicier, and tastier burgers,” he said. “We're seeing improved taste perception scores across markets.” McDonald’s brought back the Hamburglar character, McDonaldland’s resident burger thief dating back to the 1970s, in a TV commercial to promote the burgers. The company also had a celebrity Valentine’s Day meal promotion in the U.S. with rappers Offset and Cardi B.
'Revving up our world-class marketing engine'
For some insight on McDonald’s (NYSE: MCD) marketing dynamic, I talked to Nick Setyan, an equity research analyst at Wedbush covering restaurant stocks. “Marketing has always been a core McDonald’s strategy,” Setyan says. “Given its size and ad budget, which dwarfs anyone else in the restaurant industry, it has always been one of [its] primary competitive edges, and a pivotal driver of market share gains historically, and remains so.”
And the company is doubling down on marketing. "As part of our Accelerating the Arches strategy, we've been particularly focused on revving up our world-class marketing engine with our agency partners and internal teams,” CEO Chris Kempczinski said on the call.
“MCD’s marketing fund is driven by franchisee contributions, and has very little impact on its profit margins,” Setyan says. “From the perspective of any franchised business’ CFO, marketing spend is nothing but upside as it drives sales, which drives royalties, and more marketing.”
McDonald’s reported net income of $1.8 billion, an increase from $1.1 billion at the same time last year. And revenue increased 4% to $5.9 billion, beating analyst estimates. The company’s divisions reported same-store sales growth of 12.6%. McDonald’s recently had a round of layoffs of office workers in a reorganization in an attempt to streamline the company. Borden said the company incurred a $180 million charge related to terminating leases and employee severance.
"In our top six markets, digital sales now represent almost 40% of system-wide sales," Borden said. "MyMcDonald's Rewards is yet another example of how we've tapped into our marketing engine to deploy our loyalty platform throughout the system." A customer can redeem rewards on the McDonald’s app.
Approximately 95% of McDonald's restaurants worldwide are owned and operated by independent local business owners, according to the company. "Our owner/operator cashflow is actually up,” Borden said. And so are prices. The company is starting to see resistance to price increases in most of its markets, like fewer customers adding fries to their orders, according to Kempczinski.
Sheryl Estrada
sheryl.estrada@fortune.com
