McDonald's (NYSE: MCD) continued its strong momentum in its third quarter, delivering positive comparable sales growth for the ninth quarter in a row, its 41st consecutive annual dividend increase, and systemwide sales growth of 7%. There were plenty of reasons for investors to be happy with the company's performance during the quarter.
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But there was more to the quarter than the key metrics behind its strong growth. In the third-quarter earnings call, management shared insight on growth drivers, plans for becoming more competitive with value offers, and more.
Digital offers are driving traffic and check growth
As part of the company's deployment of its Experience the Future restaurants, or initiatives to add technologies to its fast-food locations to help improve the customer experience and increase sales, management is seeing promising success with its digital offers.
"Redemption of mobile offers continues to grow month on month, with a meaningful portion of the redemptions representing incremental visits," Stephen Easterbrook noted, by way of an S&P Global Market Intelligence transcript.
If Starbucks' (NASDAQ: SBUX) success in this area is any indication of the long-term growth potential stemming from the commitment at McDonald's to deploying a better digital experience at restaurants, there's likely to be plenty of upside left. Starbucks, which is considered to be the prime example of employing digital technology at restaurants at mass scale, continues to see incremental spending from its digital efforts -- years after it has refined its mobile app.
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"[M]obile ordering remains highly incremental," explained Starbucks' global chief strategy officer, Matthew Ryan, in the company's fiscal 2017 third-quarter earnings call, "resulting in many more occasions per customer than would be the case otherwise, because the convenience encourages more on-the-go visits."
Building a base of active users
Digital efforts at McDonald's are about far more than increasing sales today. It's part of a broader strategy to forge deeper connections with customers and drive more incremental revenue for years. This strategy includes building a large base of active digital users.
"Importantly, [digital offers are] also building our base of digital users, increasing awareness and adoption as we deploy the mobile order pay functionality of our mobile app," said CEO Stephen Easterbrook.
Christopher Kempczinski, president of the U.S. market, said McDonald's has already had almost 30 million app downloads and has about 9 million monthly active users. But he said the company is still "in the early innings of digital."
McDonald's wants to double down on value
One area where McDonald's has admitted it can improve is with value. Referring to what investors can expect from the value strategy in 2018 for the U.S. market, Kempczinski said:
Well, one of the things, that we have said to our franchisees in the U.S. is we don't have to win on value, but we can't lose on value. ... And I think also, it's no surprise that over the last, call it, three or four years since we rolled out [the] dollar menu, we weren't as competitive as we needed to be on value. And so what you're going to see from us next year is us being really fully competitive with our nearing competitors with the value program there.
Kempczinski went on to explain that part of these efforts will include a greater focus on the $1, $2, and $3, price points.
In addition, Kempczinski highlighted successful value programs during the quarter, as McDonald's returns to a greater focus on value:
[W]e offered compelling, consistent value programs across the number of tactics that clearly resonated with our customers. We continued our $1 any size soft-drinks program and supplemented it with the return of McPick 2 for $5 that offered some exciting food deals.
While a number of topics stood out during the call, a key narrative management pushed repeatedly is the company's growing efforts with digital, including mobile ordering, digital offers, and an enhanced customer experience. Investors should continue to keep an eye on how these efforts help McDonald's grow its business.
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