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'We've amassed a sizable marketing budget': McDonald's readies 2020 advertising catch-up

'We've amassed a sizable marketing budget': McDonald's plans 2020 catch-up

After a smattering of global closures, McDonald's has "nearly all" of its restaurants operating again after moving fast to meet new retail requirements. While the disruption bit into profit margins, the fast food giant remains keen to open its marketing war chest in the second half of 2020 to make up for lost time.

The chain has adopted the '3D model' – drive-thru, delivery and digital – to survive. Drive thru accounted for as much of 90% of sales in the US when the dining rooms were shut.

The Q2 results offered some optimism for what's to come after its latest earnings miss. Here's what you need to know.

Financials

  • Quarterly revenue tumbled by nearly a third year-on-year to $3.76bn from $5.41bn.

  • US revenue is threatened by the surge of the virus, but European markets (like the UK, are reopening).

  • The company reported second-quarter net income of $483.8m - down from $1.52bn year-on-year.

  • Global same-store sales declined by 23.9%

Covid-19 effect

  • 94% of locations had reopened partial operations by Q2's close. The company says sales recovery is healthy in many of these locations.

  • Sites in the UK, Spain, France and Italy were completely closed for prolonged periods during the quarter. Now thanks to "drive thru penetration", 70% of venues in its five biggest international markets (Australia, Canada, France, Germany, and the UK) are functioning. McDonald's chief executive Chris Kempczinski, said: "This safe and convenient service channel has been particularly appealing to our customers during the pandemic."

  • It saw "continued improvement in our results throughout the second quarter as markets reopened around the world".

  • It is threatened by high unemployment, a surge of in home cooking and competition inside home delivery platforms. Also, in lockdown scenarios, the allure of fries and burgers may not hold the same sway they once had with the busy commuter.

  • Looking to China, ahead in the Covid-19 chain, recovery slowed as "customers remained wary of social activities... We now expect this more subdued pattern to continue into 2021."

What to expect from the marketing budget

  • Marketing savings from Q2 are to be reinvested in Q3 and Q4. During Q2, most top markets "significantly reduced" spend. In the US, marketing spend was down 70%, as "we chose to conserve our weeks until the situation stabilized".

  • Kempczinski said: "We've amassed a sizable marketing budget just to invest in the back half of 2020."

  • "McDonald's will also invest an incremental $200m in marketing spend across our US and international operator markets in the second half to accelerate recovery. That's equivalent to one additional month of media in every market. These actions will result in a sizeable increase in our marketing spend for the rest of the year."

Shares in the company fell more than 2% in premarket trading.

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