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Financing

McDonald’s is investing about $200M to boost marketing

The burger giant is also taking steps to help its weakest franchisees as it works to jump-start the system’s recovery.
Photograph by Jonathan Maze

McDonald’s plans to invest an estimated $100 million to bolster its U.S. marketing and will invest a similar amount in some of its biggest international markets as part of a renewed package of strategies to help its franchisees recover from the coronavirus shutdown.

In a video message to employees and franchisees, CEO Chris Kempczinski said the company would invest one month’s worth of additional marketing support in its wholly owned markets. That includes the U.S. as well as its International Operated Markets, which include some of the chain’s most developed international markets, such as much of Europe as well as Canada and Australia.

The $100 million figure in the U.S. is a Restaurant Business estimate of operators’ marketing contribution, about 3% of sales, calculated against one month’s worth of system sales, which hit $40 billion for all of 2019.

Based on a similar calculation in the International Operated Markets, McDonald’s investment there would be an estimated $110 million. The more than $200 million investment is on top of existing marketing spending.

“The overarching objective is to accelerate recovery, return to growth and maintain the competitive advantage that has played such an important part in McDonald’s success,” Kempczinski said in his video, a transcript of which was shared with members of the media.

In addition to the marketing investment, McDonald’s plans to take more significant steps to help operators hardest hit by a shutdown that has lasted more than two months in many markets.

It’s uncertain how many operators need that assistance, but sources said it was a “small number” of franchisees.

“We will be providing targeted financial support to the hardest hit organizations in our system,” Kempczinski said. “Working closely with local finance teams, we’ll conduct an organization-by-organization assessment in the coming months to make sure those needs are met.”

In addition, McDonald’s plans to address unique circumstances in certain markets. For instance, it will lower the rent structure for restaurants that are only able to operate with delivery services. That largely pertains to markets outside the U.S., where drive-thrus are less popular and delivery has become more important.

Kempczinski said the strategy was developed in consultation with market leaders and noted that “details will be determined” by local managing directors. “Above all,” Kempczinski said, “this program is designed to fuel growth and support the hardest hit.”

The moves represent a shift in McDonald’s strategy to help its franchisees through the pandemic.

When the company shut down its dining rooms in March, prompted by state requirements, the company took steps to help the bulk of its operators, deferring much of their rent for three months.

Negotiations over that relief generated some tension with operators, notably the independent franchisee association, the National Owners Association, which wanted the assistance applied more broadly than the company was offering.

Yet the chain has shifted to an even more targeted strategy, focusing only on those in the most serious situations.

McDonald’s last month acknowledged that it was assessing the financial health of “specific at-risk franchisee and developmental licensee organizations.”

That assessment includes sales projection scenarios and the impact of liquidity assistance provided by the company, vendors and various governments.

“It is essential that our franchisees have the financial wherewithal to capitalize on the opportunities we think will be available to our system,” Kempczinski told analysts last month, according to a transcript on financial services site Sentieo.

McDonald’s and other fast-food concepts in the U.S. have seen a surprisingly quick recovery in recent weeks, thanks to the popularity of their drive-thrus.

Many of these chains believe they have an opportunity to pick up business amid a weak economy and with consumers expected to return to dining rooms more slowly—though some fast-food chains, including McDonald’s, are taking steps to reopen their own seating areas.

“Once we emerge from this crisis,” Kempczinski said last month, “our expectation is that McDonald’s can further extend its leadership in every market where we operate.”

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