McDonald’s Bets on Technology Are Paying Big Dividends

McDonald’s (NYSE:MCD) drive-thru business in the U.S. was the driving force behind the fast-food chain’s third-quarter performance. Sales and profits alike exceeded Wall Street estimates.

Revenue, though, was still down globally despite nearly all restaurants being open. Comparable-store sales came in lower because of difficult restrictions still in place in many foreign markets due to the coronavirus pandemic. 

Customer in a car picking up an order at a McDonald's drive-thru window

Image source: McDonald’s.

Off-premise sales deliver

McDonald’s said revenue of almost $5.42 billion was down 2% from the $5.5 billion generated in the prior-year quarter, but it beat analyst forecasts of $5.4 billion. The fast-food giant attributed its strong U.S. performance to its “3 D’s” strategy: digital, delivery, and drive-thru. 

McDonald’s has been a big proponent of using technology to push sales higher. It has invested heavily in self-ordering kiosks, machine-learning and voice-activated drive-thru technology, digital sign boards, mobile pay and ordering upgrades, and kitchen robots to dunk fries, chicken nuggets, and fish patties into vats of oil.

The presence of these innovations made itself felt this quarter: McDonald’s reported U.S. comps grew 4.6% in the period, a remarkable recovery from the second quarter, when they plunged 19% from the year-ago period and were down 24% globally.

Keeping the express lane open

The drive-thru window has been essential to McDonald’s surviving the COVID-19 crisis, but it’s more of a fixture in the U.S. than it is in international markets. But regardless of whether a window was present or not, many foreign governments had closed down restaurants completely due to the pandemic, though most are now open and operational.

It’s estimated about 70% of McDonald’s business comes through the drive-thru, and most of that occurs during the morning daypart as people are driving to work. The business closures caused that aspect to evaporate for the fast-food leader, though consumers discretionary spending has since returned.

Many of McDonald’s peers and competitors are realizing the importance of the drive-thru window, too. Wendy’s just said it has a “new appetite” for opening more restaurants that may be drive-thru only, and Shake Shack previously said many of the new restaurants it opens will have drive-thru or walk-up windows, and it will try to retrofit them into as many existing restaurants as possible.

Investing in the future

For McDonald’s, its triple-D strategy is paying off. It reported earnings of $2.35 per share compared to $2.11 a year ago, and even after excluding the gains made from the sale of its shares of McDonald’s Japan business, the company earned $2.22 per share, ahead of the $1.90 per share Wall Street expected.

There are more developments to come from McDonald’s, which announced it had developed its own plant-based burger and may do more plant-based alternatives. It also plans to introduce a crispy chicken sandwich. The two new offerings will debut next year and tap into current trends and phenomena driven by changing consumer preferences. Additionally, the company plans to open 1,300 new restaurants next year.

The quick-serve chain proved it was money well spent on technology to modernize its operations, and now it can profit from them.

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