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At McDonald’s, more drive-thru orders and less breakfast

The burger giant is adjusting to a new normal and expects that some of the changes will last for some time.
Photograph courtesy of McDonald's Corp.

McDonald’s is seeing more sales in the drive-thru, fewer sales in the morning, and on weekends as consumers have shifted to a new normal during the global pandemic.

The Chicago-based burger giant is adjusting to those changes and expects some of them will be more or less permanent even coming out of the pandemic.

“The world is going to look different coming out of this crisis, and we expect many of those changes are going to be enduring,” CEO Chris Kempczinski said on the company’s first-quarter earnings call Thursday.

He said the company is thinking about its post-COVID strategy and rethinking its long-term plans to adjust to that new reality.

“It’s probably fair to say that we’re not just going to pick up the Velocity Growth Plan playbook and kind-of resume business as usual,” Kempczinski said, referring to the company’s technology-infused long-term strategy. “There are going to need to be adjustments to that.”

The call, like many other restaurant company earnings discussions, focused less on the quarter behind than on what is coming, and how the company is dealing with the worst crisis to hit the restaurant industry in several decades.

McDonald’s global same-store sales declined 3.4% in the first quarter, though they actually increased slightly in the U.S., up 0.1%, as a strong early start to the year—including increases in traffic, something that the company had been striving for in recent years—more than offset a weak March.

Domestic same-store sales fell 13% in March and were down 25% between mid-March and mi-April. Those numbers have improved in the past couple of weeks, as same-store sales are down 20%. Consumers appear to be readjusting to their habits, and stimulus funds appear to be providing a sales tailwind.

“There is a benefit I think you could attribute to the stimulus checks,” Kempczinski said.

The bulk of McDonald’s U.S. sales are now coming through the drive-thru. Kevin Ozan, the company’s chief financial officer, said that about two-thirds of sales were through the drive-thru before COVID-19. That is now up to 90%.

That’s been a big help in the U.S., where 95% of the company’s 13,900 locations have that window. In countries like China where it’s less prevalent, more sales shifted to delivery. “The vast majority of our business is still drive-thru-driven in the U.S.,” Kempczinski said. “While delivery is up significantly, it’s not the predominant thing that is driving our business.”

One thing consumers are not doing is eating breakfast. The morning daypart has experienced weaker sales and traffic as a growing number of consumers work from home. The situation in the U.S. is similar to that in countries like China. “Breakfast is a little slower to recover than other dayparts,” Ozan said.

That will become a major focal point of the company as the country emerges from its post-COVID shutdown.

McDonald’s was in a major battle for the morning daypart, as competitors like Wendy’s added breakfast and others intensified their marketing around the morning. That battle can be expected to intensify as these chains work to regain those customers as people start working in the office again.

“Getting back that breakfast business is going to be critical for us,” Kempczinski said. “It takes time. It’s a disruption to routines. Reestablishing those routines does take time, but we plan to be very aggressive to make sure we get back the breakfast business.”

Sales have also been hurt more on the weekends than on weekdays, as “consumers leave their houses only when necessary,” and average check is up as consumers make more bulk orders.

Value customers are also becoming increasingly important. That happened in China, executives said, and it could be expected to happen in the U.S., where some 30 million people have been left jobless by the shutdown. Despite stimulus checks, economic fears are expected to persist.

The company is planning to shift its marketing to adjust to these various shifts.

“We know that value will be a necessary element to reengage our consumers,” Kempczinski said. “Each market is rebuilding their marketing calendar to reflect these learnings and many others so we can reignite our business momentum.”

McDonald’s expects that value focus, as well as a tendency toward familiar names not just in the U.S. but around the world. The company expects to take advantage of this new reality.

“As markets start to open up, this desire to return to familiar favorites, to brands they know, is very, very powerful,” Kempczinski said. “I think the fact that we have a strong orientation toward convenience and value are also two other elements. We are very optimistic. We expect we’re going to be able to take share in those markets.”

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