Earlier this week, according to reports, Starbucks hired its new chief technology officer, Deb Lefevre. The move is notable not only because she takes over the technology helm for the world’s largest coffee chain, but because of the company she was recruited from: McDonald’s.
Not long ago, the idea that Starbucks would tap McDonald’s for its top technology executive would seem ludicrous. Starbucks, after all, is one of the most technology-forward companies in the world. McDonald’s, for much of recent history, has been a laggard.
But the past couple of years have changed that. The company has added a wealth of technology in recent years, from in-store kiosks to third-party delivery, mobile ordering, outdoor digital menu boards and now an increasingly popular loyalty program. The resulting digital sales helped carry the chain coming out of the pandemic and provide a potential growth avenue for some time.
Digital sales in the U.S. topped $2 billion in the first quarter—more, for instance, than the total system sales generated by In-N-Out last year. That represents about 20% of system sales during the period.
In its six biggest markets, including the U.S., digital sales topped $5 billion, or about 30% of sales. That was an increase of 60% from a year ago. Digital sales include kiosk sales, delivery and mobile ordering.
“Digital, in particular, is a tremendous opportunity for us,” CEO Chris Kempczinski told investors on Thursday. “In a world where the storefront of a McDonald’s restaurant can be the screen of a smartphone, we’re building stronger relationships with our customers, knowing what they like, how they like it, when they want it. It’s all a critical piece of our digital strategy, and the results of our efforts speak for themselves.”
McDonald’s technology push can be traced to 2017. That year, the company had franchisees remodel stores, adding kiosks inside. It also inked its groundbreaking deal with Uber Eats, a deal that helped usher in a massive restaurant industry push on third-party delivery.
To be sure, the company’s efforts have not been without controversies. The remodel demands in particular angered franchisees, as did a later technology fee. The company in 2019 spent $300 million for an artificial intelligence company, Dynamic Yield, that promised to put suggestive selling technology on its menu boards. It spent subsequent quarters boasting about the higher average check it generated. Yet some of McDonald’s projections didn’t turn out and the company sold Dynamic Yield to MasterCard for an undisclosed amount—suggesting it took a loss on the transaction.
Yet McDonald’s digital sales strategies are providing new avenues that add to its level of convenience while giving the company more information on its customers.
Third-party delivery has been an especially big win for the chain. McDonald’s, Kempczinski said, has become the largest quick-service delivery program in the world. The company plans to add delivery to its app, which will let it control the process, and it has inked new deals with several major providers to continue providing the service.
Maybe more important: Delivery sales continue to increase, even as consumers shift to more normalized behavior. “Despite things kind of reopening, delivery is still growing and is a significant part of the business,” Kempczinski said, noting that the experience in the U.S. is consistent with other markets around the world.
Delivery and mobile ordering have given McDonald’s important new sales avenues. In the U.S., delivery is behind other markets in large part because of the number of drive-thrus the brand has. Yet McDonald’s relative proximity to the majority of Americans could make that business particularly lucrative for some time.
Mobile ordering, meanwhile, has soared in popularity during the pandemic. This is particularly true as more chains deal with long lines, either inside or in the drive-thru, and consumers realize they’re a good option for getting food.
McDonald’s is particularly bullish about loyalty, however. McDonald’s debuted its MyMcDonald’s Rewards program last year. The program already has 26 million active users in the U.S. just nine months since its debut. The company used a number of incentives to get customers to sign up for the program and is aggressively expanding the effort into other global markets.
For the chain, MyMcDonald’s Rewards is about getting customers to come in more frequently. The company can market directly to consumers with offers and other strategies that convince them to visit. “We’ve always viewed loyalty as a frequency play,” Kempczinski said, noting that about 80% of the U.S. population visits one of the chain’s restaurants at least once a year. “We don’t have a big reach opportunity at McDonald’s. Our opportunity is always about driving frequency.”
Executives said MyMcDonald’s Rewards was key to a quarter when its same-store sales grew 3.5%%—growth that came on top of strong growth the same quarter a year ago.
McDonald’s executives believe this growth will only continue. For a brand that relies heavily on convenience, that’s a potentially valuable avenue for sales for years to come.
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