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McDonald's Stock: The Fast-Food Giant Has a Secret Weapon

Even before the pandemic, McDonald's made a conscious decision to invest heavily in its app and ordering kiosks in its stores.

Even a pandemic can't slow McDonald's (MCD) - Get McDonald's Corporation Report down. The fast-food giant thrived despite long periods where its dining rooms were closed and its business had to rely on drive-through and delivery.

The chain saw a global sales increase 12.7% in its third quarter (10.2% on a two-year basis), and a 9.6% increase in the U.S. (14.6% on a two-year basis), In addition, the fast-food giant also saw systemwide sales rise by 16% nearly $30 billion. Comparable-store sales were up 12.7% globally (9.6% in the U.S.). Comparable sales were up 14.6% on a 2-year basis.

These numbers happened despite the company dealing with limited in-store dining capacity and closures in some markets due to Covid. And, with delivery and drive-through driving sales, it may be fair to say that McDonald's managed to turn the pandemic into an opportunity.

Digital Has Driven McDonald's Sales

Even before the pandemic, McDonald's made a conscious decision to invest heavily in its app and ordering kiosks in its stores. Those moves proved prescient when the pandemic hit and CEO Chris Kempczinski explained how those efforts paid off in his comments in the company's third-quarter earnings call.

Being customer-driven is about more than just menu items. It's also about delivering feel-good experiences when and where our customers want McDonald's, so we can bring the Golden Arches to as many customers as possible. That means continuing to increase our engagement across drive-thru, digital, and delivery. As we do that, we're seeing an increase in sales mix across these channels. In our top six markets over 20% of sales or about $13 billion year-to-date came through digital channels, whether it was through our app, kiosk in our restaurants or delivery.

Customers who order using an app or an ordering kiosk generally spend more money. That's likely because ordering digitally removes shame and customers feel emboldened to get what they want without having to verbalize it to a human.

Delivery has also been a driver, according to Kempczinski, who noted that investing in that area was also a decision made long before Covid hit. 

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Over the past five years, our delivery footprint has grown from just 3,000 of our restaurants to more than 32,000 restaurants across 100 countries," he said, "As the needs of our customers who continue to change delivery has enabled us to increase our reach and gross sales around the world."

The CEO also highlighted that drive-through played a major role in McDonald's pandemic-era success.

"Lastly, our drive-thrus, with the drive-thru presence that is second to none, our drive-thru sales across our top six markets continue to stay elevated versus pre-pandemic levels even as dining rooms reopened," he added.

My McDonald's Rewards Graphic

McDonald's Has a Secret Weapon

Loyalty programs have been hit or miss. A lot of restaurant chains have them, but aside from Starbucks (SBUX) - Get Starbucks Corporation Report, they rarely succeed on a meaningful level. McDonald's has been an exception to that and its program, which launched in the U.S. in July, has been an instant hit, according to Kempczinski.

Our loyalty program has been an instant fan favorite and delivers great value to our most loyal customers. It also creates another touchpoint to increase engagement and take our relationship with customers to more responsive, more personalized places. We're already seeing increased customer satisfaction and higher frequency among digital customers, compared to non-digital. In September, we launched our loyalty program in Germany quickly amassing millions of active reward to customers. And we're on track to bring MyMcDonald's Rewards to Canada by the end of the year and the UK and Australia in the first half of 2022, which means that by mid-2022 loyalty programs will be in our top six markets inclusive of France, which has had a strong loyalty program for many years.

McDonald's gives customers who join the loyalty program, which can be found in its app, 100 points for every dollar they spent. Points can then be redeemed for free items.

"The more we learn about loyalty, the more optimistic that we get about loyalty," the CEO said. "...Certainly, the benefits you get with the loyalty program is the ability to increase frequency, and in the markets where we operate roughly 80% of the population visit to McDonald's once a year. So it's not that we have a reach opportunity, it's about driving frequency in this business and we've seen in the places where we have deployed loyalty that it absolutely does increase customer frequency."