Dive Brief:
- McDonald's plans to boost its marketing spend for the remainder of the year by $200 million, equaling one month of its typical spending, as the burger chain plots a recovery from pandemic lockdowns. The increase comes after the company slashed marketing spend by 70% in Q2, giving it a "sizable marketing war chest" for Q3 and Q4, Chris Kempczinski, president and CEO of McDonald's, said this week in a quarterly earnings call.
- McDonald's marketing will focus on affordability and value amid consumer anxiety about an economic recession, he said. The chain will shift from a "defensive posture" that characterized its promotional efforts in Q2 that included a "Thank You Meal" program for first responders on the front lines of the coronavirus pandemic, AdExchanger reported.
- McDonald's spent more than $200 million in the first half to help franchisees advertise as the pandemic negatively affected sales. Global same-store sales fell 24% in Q2 from a year earlier, while total revenue plunged 30% to $3.76 billion, per its earnings report.
Dive Insight:
McDonald's plans to ramp up its marketing spending for the second half comes as the burger chain seeks to fuel a recovery from a sales decline that likely was among the worst in the company's 65-year history. With an extra $200 million to spend on marketing during the second half of the year, McDonald's will likely be more aggressive with its promotional activity that highlights affordability and value to consumers faced with economic uncertainties.
The QSR giant joins other major advertisers Coca-Cola and Unilever in recently committing to doubling down on marketing investment in the second half following a period when budgets were mostly put on hold because of the coronavirus pandemic. These turnarounds could give a much-needed boost to the advertising industry, which has seen revenue forecasts for the year revised downwards because of the health crisis.
In the second half, McDonald's will focus on what CEO Kempczinski described as "the three Ds: drive-thru, delivery and digital" that have helped to sustain sales during the pandemic. In the U.S., McDonald's generated almost 90% of sales from its drive-thru service, while less than 10% came from delivery as dining rooms were closed. The company started to reopen dining rooms in the U.S. with limited seating, ending the quarter with 2,000 of its almost 14,000 locations open. McDonald's will permanently close 200 U.S. locations this year, more than half of which are "low-volume restaurants" in Walmart stores, as part of an ongoing plan.
McDonald's plans to increase marketing spend come as the company saw signs of improvement with each month in Q2. Total sales plunged 39% in April from a year earlier, but the 21% drop in May and 12% decline in June indicated that the company was gaining momentum with the reopening of restaurants worldwide, AdExchanger reported. The company started the quarter with about 75% of its restaurants open and ended the period with almost all of them open, per its call. A key challenge will be its breakfast business until more consumers return to commuting to work.
McDonald's was one of the major companies that quietly stopped advertising on Facebook without officially participating in a boycott over the social network's policies on removing hate speech, per an analysis by a media watchdog group. The boycott officially started after Q2 ended, and it remains to be seen how many companies will resume their advertising on Facebook next month. Before the pandemic, McDonald's had been active with promotions that included the nationwide rollout of its "McDelivery" service last year. As management indicated during its Q2 call, delivery service will be a focus area for promotions in the second half.
