Committing to the Core: How 惭肠顿辞苍补濒诲鈥檚 Innovated to Survive (and Thrive) During the COVID-19 Pandemic
During the COVID-19 pandemic, McDonald's emerged as the winner in fast casual through digital innovations along their core competencies for their core consumers.
Though the impact of COVID-19 has been felt across the business community, the fast-casual restaurant industry has faced especially high adversity in the face of rapidly changing consumer behavior caused by the pandemic. According to , US fast-casual same store sales dropped to 56% of pre-pandemic levels by April 2020, with social distancing and restrictions on indoor capacity especially hurting fast-casual restaurants whose business models relied more heavily on larger dine-in crowds than its quick service restaurant (QSR) counterparts.听
And though many fast-casual chains quickly adapted to stay afloat during their industry鈥檚 most trying time — one in particular not only adapted to the short-term challenges presented by the pandemic, but positioned itself to emerge as the true winner in the post-pandemic future: 惭肠顿辞苍补濒诲鈥檚. Although the pandemic hit 惭肠顿辞苍补濒诲鈥檚 hard and prevented customers from dining in most of their restaurants throughout the year, 惭肠顿辞苍补濒诲鈥檚 rose to the occasion and managed to deliver its strongest financial performance of the year in Q420 — announcing that it had recovered 99% of Q419 global same store sales, a tremendous feat.听
So how was 惭肠顿辞苍补濒诲鈥檚 able to make such a rapid recovery? In the recent , CEO Chris Kempczinski attributed 惭肠顿辞苍补濒诲鈥檚 success to its new growth strategy encompassing all aspects of 惭肠顿辞苍补濒诲鈥檚 business, 鈥�.鈥� Kempczinski explained that at its core, the 鈥淎ccelerating the Arches鈥� strategy is about 鈥渓everaging our competitive advantages,鈥� providing increased value to its current customers and ensuring their continued loyalty. Tactically, this meant significant investment and innovation in what 惭肠顿辞苍补濒诲鈥檚 believed to be their key comparative advantages with their core customers — what 惭肠顿辞苍补濒诲鈥檚 calls the 鈥渢hree D鈥檚鈥�: digital, drive-thru, and delivery.听
Going into the pandemic, 惭肠顿辞苍补濒诲鈥檚 actually found itself well positioned to build on its prior digital innovations to create a user experience well-suited for the constraints posed by the pandemic. 惭肠顿辞苍补濒诲鈥檚 recent technology innovations — including the development of the 惭肠顿辞苍补濒诲鈥檚 mobile application, , Mobile Order and Pay, and self-order kiosks — together have transformed customer experiences in and around their restaurants, giving customers more ways to securely pay and personalize their orders to meet their needs. Digital sales exceeded $10B, or nearly 20% of systemwide sales, in 2020 across the top six markets.听
Such digital innovations paid off tremendously for 惭肠顿辞苍补濒诲鈥檚 drive-thru channel. In the , Kempczinski highlighted the strategic opportunity of drive-thru for 惭肠顿辞苍补濒诲鈥檚, noting that 鈥渁 world with less dine-in and more takeout plays to our significant long-time strength in drive-thru…We have the most drive-thrus. We know how to do it best.鈥� Accordingly, as indoor dining took a plunge during the pandemic, 惭肠顿辞苍补濒诲鈥檚 made significant drive-thru technology investments (such as dynamic menu boards — leveraging personalization technology from Dynamic Yield) and operational improvements (such as a staffing overall and dramatically cutting menu items to their 鈥渃ore menu鈥�) to ultimately deliver the value their customers cared most about: speed. These innovations enabled 惭肠顿辞苍补濒诲鈥檚 to cut 30 seconds from its drive-thru times on average and move 鈥�300 million additional cars鈥� through 惭肠顿辞苍补濒诲鈥檚 drive-thrus during the pandemic. Such focus on innovations targeting their core customer enabled 惭肠顿辞苍补濒诲鈥檚 to recover sales more quickly than anticipated and become one of the few fast casual restaurants to .
In addition to drive-thru, enabling delivery perhaps not surprisingly became a significant focus for 惭肠顿辞苍补濒诲鈥檚 to provide customers with additional safe channels to order food. Ozan mentioned that delivery has 鈥渂ecome a meaningful part of our business鈥� very quickly, scaling up its delivery platform and rapidly expanded the number of restaurants to offer delivery to 28,000 of 41,000 global restaurants. The result — delivery sales have more than tripled.听
By focusing innovation on the company鈥檚 comparative advantage, the three D鈥檚, 惭肠顿辞苍补濒诲鈥檚 was able to create a faster, easier, and better customer experience — even in the face of tremendous change. By improving the customer experience for their core customers, 惭肠顿辞苍补濒诲鈥檚 in turn ensured they maintained loyal customers in the face of adversity and successfully recovered sales in a challenging year for the industry.听
惭肠顿辞苍补濒诲鈥檚 will continue to build on the 鈥淎ccelerating the Arches鈥� strategy and is well positioned to continue seeing gains in the coming years. Recently, that will change how the company鈥檚 restaurants interact with customers for years, designed to integrate digital ordering more fully into the 惭肠顿辞苍补濒诲鈥檚 ecosystem, increase loyalty through a new rewards program, expand its advantage on drive-thru ordering and double down on delivery. Lucy Brady, 惭肠顿辞苍补濒诲鈥檚 chief digital customer engagement, said that 鈥渢echnology has changed our expectations as consumers,鈥� and Kempczinski further said that 鈥渢he needs of our customers coming through the pandemic are going to be different than they were coming in…the restaurant experience we offer must change to meet those evolving needs.鈥� 惭肠顿辞苍补濒诲鈥檚 continues to demonstrate a unique focus to meet those evolving needs of their core consumers, and expect 惭肠顿辞苍补濒诲鈥檚 to emerge a winner in the evolving fast casual industry.听
References
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Meatpoultry.com. 2021.听惭肠顿辞苍补濒诲鈥檚 doubles down on digital, delivery and drive-thru. [online] Available at: <https://www.meatpoultry.com/articles/24456-mcdonalds-doubles-down-on-digital-delivery-and-drive-thru> [Accessed 10 February 2021].
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Would it be fair to say that the automation McDonald’s was bringing in to deal with demands for a better minimum wage helped it deal with the pandemic better? Also, the “Accelerating the Arches” strategy though profitable for McDonald’s will cause more automation, leading to loss of jobs in the future. This could lead to McDonald’s have a public perception issue in the future which might in turn end up negatively impacting their profits.
Hi Vikram — yes this is a great point. I should note there is tremendous risk with the approach McDonald’s is taking. You’re right that the future they’re proposing would fully automate the drive-thru experience (e.g. AI for taking orders and making the food, building conveyor belts to deliver the food to cars). Further, another risk they are facing has to do with franchisees. Similar to our Domino’s case, McDonald’s will mandate the technology changes and charge additional fees. Franchisees were apparently caught off guard with the Accelerating the Arches announcement. It’ll be interesting to see how they adjust given these challenges.