{"id":13954,"date":"2021-02-10T18:22:04","date_gmt":"2021-02-10T23:22:04","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-digit\/submission\/committing-to-the-core-how-mcdonalds-innovated-to-survive-and-thrive-during-the-covid-19-pandemic\/"},"modified":"2021-02-10T18:25:55","modified_gmt":"2021-02-10T23:25:55","slug":"committing-to-the-core-how-mcdonalds-innovated-to-survive-and-thrive-during-the-covid-19-pandemic","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-digit\/submission\/committing-to-the-core-how-mcdonalds-innovated-to-survive-and-thrive-during-the-covid-19-pandemic\/","title":{"rendered":"Committing to the Core: How McDonald\u2019s Innovated to Survive (and Thrive) During the COVID-19 Pandemic"},"content":{"rendered":"

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 <\/span>Crunchtime<\/span><\/a>, 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.\u00a0<\/span><\/p>\n

And though many fast-casual chains quickly adapted to stay afloat during their industry\u2019s 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: <\/span>McDonald\u2019s<\/b>. Although the pandemic hit McDonald\u2019s hard and prevented customers from dining in most of their restaurants throughout the year, McDonald\u2019s 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.\u00a0<\/span><\/p>\n

So how was McDonald\u2019s able to make such a rapid recovery? In the recent <\/span>Q420 earnings call<\/span><\/a>, CEO Chris Kempczinski attributed McDonald\u2019s success to its new growth strategy encompassing all aspects of McDonald\u2019s business, \u201c<\/span>Accelerating the Arches<\/span><\/a>.\u201d Kempczinski explained that at its core, the \u201cAccelerating the Arches\u201d strategy is about \u201cleveraging our competitive advantages,\u201d providing increased value to its current customers and ensuring their continued loyalty. Tactically, this meant significant investment and innovation in what McDonald\u2019s believed to be their key comparative advantages with their core customers — what McDonald\u2019s calls the \u201cthree D\u2019s\u201d: <\/span>digital, drive-thru, and delivery<\/b>.\u00a0<\/span><\/p>\n

Going into the pandemic, McDonald\u2019s 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. McDonald\u2019s recent technology innovations — including the development of the McDonald\u2019s mobile application, <\/span>acquisition of personalization technology provider Dynamic Yield<\/span><\/a>, 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.\u00a0<\/span><\/p>\n

Such digital innovations paid off tremendously for McDonald\u2019s drive-thru channel. In the <\/span>Q320 earnings call<\/span><\/a>, Kempczinski highlighted the strategic opportunity of drive-thru for McDonald\u2019s, noting that \u201ca 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.\u201d Accordingly, as indoor dining took a plunge during the pandemic, McDonald\u2019s 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 \u201ccore menu\u201d) to ultimately deliver the value their customers cared most about: speed. These innovations enabled McDonald\u2019s to cut 30 seconds from its drive-thru times on average and move \u201c300 million additional cars\u201d through McDonald\u2019s drive-thrus during the pandemic. Such focus on innovations targeting their core customer enabled McDonald\u2019s to recover sales more quickly than anticipated and become one of the few fast casual restaurants to <\/span>sustain demand for drive-thru<\/span><\/a>.<\/span><\/p>\n

In addition to drive-thru, enabling delivery perhaps not surprisingly became a significant focus for McDonald\u2019s to provide customers with additional safe channels to order food. Ozan mentioned that delivery has \u201cbecome a meaningful part of our business\u201d 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.\u00a0<\/span><\/p>\n

By focusing innovation on the company\u2019s comparative advantage, the three D\u2019s, McDonald\u2019s 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, McDonald\u2019s in turn ensured they maintained loyal customers in the face of adversity and successfully recovered sales in a challenging year for the industry.\u00a0<\/span><\/p>\n

McDonald\u2019s will continue to build on the \u201cAccelerating the Arches\u201d strategy and is well positioned to continue seeing gains in the coming years. Recently, <\/span>McDonald\u2019s unveiled a series of changes<\/span><\/a> that will change how the company\u2019s restaurants interact with customers for years, designed to integrate digital ordering more fully into the McDonald\u2019s ecosystem, increase loyalty through a new rewards program, expand its advantage on drive-thru ordering and double down on delivery. Lucy Brady, McDonald\u2019s chief digital customer engagement, said that \u201ctechnology has changed our expectations as consumers,\u201d and Kempczinski further said that \u201cthe 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.\u201d McDonald\u2019s continues to demonstrate a unique focus to meet those evolving needs of their core consumers, and expect McDonald\u2019s to emerge a winner in the evolving fast casual industry.\u00a0<\/span><\/p>\n

References<\/h2>\n

CrunchTime!. 2021.\u00a0Restaurant Chain Industry Sales: Tracking US Recovery<\/i>. [online] Available at: <https:\/\/crunchtime.com\/blog\/restaurant-industry-sales-tracking-us-recovery> [Accessed 10 February 2021].<\/p>\n

Hospitality Technology. 2021.\u00a0McDonald’s Sees Sustained Demand for Drive-Thru<\/i>. [online] Available at: <https:\/\/hospitalitytech.com\/mcdonalds-sees-sustained-demand-drive-thru> [Accessed 10 February 2021].<\/p>\n

Hospitality Technology. 2021.\u00a0McDonald’s to Acquire Dynamic Yield<\/i>. [online] Available at: <https:\/\/hospitalitytech.com\/mcdonalds-acquire-dynamic-yield> [Accessed 10 February 2021].<\/p>\n

McDonald’s, 2021. [online] Corporate.mcdonalds.com. Available at: <https:\/\/corporate.mcdonalds.com\/content\/dam\/gwscorp\/assets\/news-articles\/2020\/November2020\/MCDN-ATA-InfoSheet.pdf> [Accessed 10 February 2021].<\/p>\n

Meatpoultry.com. 2021.\u00a0McDonald\u2019s doubles down on digital, delivery and drive-thru<\/i>. [online] Available at: <https:\/\/www.meatpoultry.com\/articles\/24456-mcdonalds-doubles-down-on-digital-delivery-and-drive-thru> [Accessed 10 February 2021].<\/p>\n

Restaurant Business. 2021.\u00a0Inside McDonald’s digitally-focused future<\/i>. [online] Available at: <https:\/\/www.restaurantbusinessonline.com\/financing\/inside-mcdonalds-digitally-focused-future> [Accessed 10 February 2021].<\/p>\n

Transcribers, M., 2021.\u00a0McDonald’s Corp (MCD) Q3 2020 Earnings Call Transcript | The Motley Fool<\/i>. [online] The Motley Fool. Available at: <https:\/\/www.fool.com\/earnings\/call-transcripts\/2020\/11\/09\/mcdonalds-corp-mcd-q3-2020-earnings-call-transcrip\/> [Accessed 10 February 2021].<\/p>\n

Transcribers, M., 2021.\u00a0McDonald’s Corp (MCD) Q4 2020 Earnings Call Transcript | The Motley Fool<\/i>. [online] The Motley Fool. Available at: <https:\/\/www.fool.com\/earnings\/call-transcripts\/2021\/01\/28\/mcdonalds-corp-mcd-q4-2020-earnings-call-transcrip\/> [Accessed 10 February 2021].<\/p>\n","protected":false},"excerpt":{"rendered":"

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