After a tough second quarter, McDonald’s is increasing its marketing spend over the rest of the year by $200 million across the U.S. and its top international markets to take advantage of the opportunity to grow market share.
According to a report by QSR magazine, McDonald’s is moving from its second-quarter “defensive posture” — when it cut U.S. marketing spend by 70% — to deploying a “marketing war chest” to gain market share.
The fast-food giant will spend all the new funds over the second half of 2020 to create a huge marketing surge. During an earnings call on Tuesday, CEO Chris Kempczinski said the increased spend equals one full month of additional marketing support.
That’s good news for radio. According to data from Media Monitors, which tracks advertising in 85 markets, McDonald’s was the No. 4 radio advertiser last year (based on spot count), followed by Subway (No. 20) and Wendy’s (No. 26).
As consumer confidence wanes, the advertising campaign will focus on McDonald’s affordability and value during a time of economic uncertainty, Kempczinski said. With sequential sales improving, he said the second quarter was likely the “trough” in McDonald’s performance.
For Q2, McDonald’s net income plunged 68% to $483.8 million from $1.52 billion in the year-ago quarter. Revenue sank 30% to $3.8 billion. Global same-store sales tumbled 24% (8.7% in the U.S.) vs. a 6.5% gain a year ago.
In April, global sales sank 39% on a year-over-year basis. The picture improved to a 21% sales drop in May, and a decline of 12% in June. Kempczinski said McDonald’s had to close and reopen 9,000 restaurants so far during the pandemic. By the end of the quarter, almost all restaurants had reopened for either limited dine-in service or off-premises-only business via drive thru, takeout, and delivery.
The U.S. market outperformed McDonald’s global markets, with a same-store sales drop of 19% in April, 5% in May and just 2.3% in June. Year-over-year sales continue to improve in July. Customer satisfaction reached “new highs” in the U.S. and McDonald’s also saw strong, “significant” improvements in customer satisfaction globally.
After instituting 50 new safety changes in recent months, McDonald’s said it’s pandemic-ready and reopened 2,000 U.S. restaurant dining rooms before pausing its efforts as the U.S. health situation worsened.
The ubiquitous hamburger chain also said it would accelerate restaurant closings that were previously planned for future years. About 200 domestic closures are expected this year, with more than half being low-volume restaurants in Walmart stores, said Chief Financial Officer Kevin Ozan. Yet over its entire system, McDonald’s expects to open about 950 gross and 350 net new restaurants this year.
The McDonald’s spending announcement comes against the backdrop of what the restaurant industry says will be a good week as McDonald’s, Starbucks, Yum Brands and others in the fast-food space announce quarterly earnings results.
There is optimism in the air, especially after competitors including Chipotle Mexican Grill announced surging sales, despite dining rooms that have been shuttered for months.