McDonald’s prepares to spend marketing ‘war chest’ to boost recovery from Covid

McDonald’s is preparing to spend a “sizeable marketing war chest” in the second half of 2020, as it aims to boost growth and speed up its recovery from the coronavirus pandemic.

The fast food chain posted a 23.9% year-on-year fall in same-store sales for the quarter ended June, dragged down by international markets including the UK where its restaurants were closed for almost three months. In its key US market, where it operates more than a third of its restaurants, sales fell 8.7% as most locations were able to stay open with drive-thru and delivery options.

McDonald’s says the vast majority of its restaurants – around 96% – have now reopened and that it believes its strong presence in drive-thru, delivery and digital position it well to rebound from Covid-19.

To boost that rebound, McDonald’s plans to increase marketing spend. It cut investment in most markets in the first half of the year. Marketing spend and value activity, for example, was down 70% in the US as the company “chose to conserve resources until the situation stabilised”, according to CEO Chris Kempczinski.

It now plans to “reinvest” in marketing in the third and fourth quarters, including an incremental $200m in US and international markets to “accelerate recovery”. That, said Kempczinski, is equal to one additional month of media in every owned market.

“We have amassed a sizeable marketing war chest to invest in the back half of 2020,” explained Kempczinski, speaking on an investor call this afternoon (28 July). “[There will be a] sizeable increase in marketing spend in the balance of the year.”

The majority of that war chest will be spent on core menu items and service opportunities such as digital ordering and delivery, rather than innovations. McDonald’s is planning to launch some menu items, particularly in the US, in the second half but says the focus is on the main business.

We went into a defensive posture. As we go into the ‘new normal’ operating environment, it is time for us to get back on the front foot.

Chris Kempczinski, McDonald’s

“The war chest won’t be deployed against innovation, it will be deployed against the base business,” said Kempczinski. “Consumers are looking for trusted favourites, that is why the core menu makes sense for us.”

Its marketing spend will also look to position McDonald’s for any economic recession, which Kempczinski said is a bigger concern among consumers now than health. While McDonald’s has previously proved “pretty resilient” through recessionary times, a focus on affordability and value in its marketing mix will be important.

“Coming out of Q2 and the shock that went through the system as the pandemic spread, we ended up in reduction of marketing support and went into a defensive posture,” he added. “As we go into the ‘new normal’ operating environment, it is time for us to get back on the front foot. That is why we have the marketing war chest, but it also means we are going to need to be thinking about how affordability and value can play.”

Looking ahead, McDonald’s strategy will focus on the three ‘Ds’ – delivery, drive-thru and digital – where it expects the biggest opportunities for growth. It will also look to take advantage of behaviours it has seen during coronavirus that it expects to endure, including use of mobile and kiosks for ordering.

“Customers are looking for a more contactless experience, a more digital experience, one they can navigate on their own. That behaviour is an enduring change and why the three Ds are important strategically for us,” said Kempczinski.

He added: “We have done a great job around grabbing the opportunity to improve how our restaurants are running. We see customer satisfaction scores in eight of our top 11 markets are up and up by pretty significant amounts.

“Now we have got those embedded, there is an opportunity to get aggressive in going after share. That is the marketing war chest, getting on the front foot on things like affordability. The mentality for us now is we have got the business to a good position, so whether we have a recession or don’t have a recession, have a resurgence, don’t have a resurgence of the virus, all those things are going to vary. Our mindset now needs to pivot strongly to going after share because that is the opportunity we have.”