The digital transformation is complete, now it is execution time
SUMMARY THOUGHTS ON THE QUARTER
MCD is LONG
Loyalty IS NOW CENTER STAGE
Loyalty has the most significant potential for a multi-year run in same-store sales.
- As of 4Q212 (6 months), 30 million loyalty members enrolled, and 21 million active members earned rewards.
- "App usage" at McDonald's is in the mid-single digits, which suggests that about less than 5% of its customers are loyalty members."
- "Top six markets saw more than a quarter of their system-wide sales or $18 billion come from digital channels in 2021, a 60% increase over 2020."
- "months of our loyalty launch, we're seeing an increase in digital customer frequency of over 10%."
- "Going forward, the contribution to comp "is a function of how quickly we can bring on active monthly users, and that's the focus. Finding programs, finding ideas where we can get more of our customers coming into our restaurants engaged as active users and Loyalty."
Footnote: Sensor Tower is currently tracking 13.3 million users.
OTHER COMp DRIVERS
maximized marketing/delivery
- "Our core classics aren't just the heart of our business; they're also a central part of our growth strategy. Iconic favorites like the Big Mac, Chicken McNuggets, and our world-famous French fries drive almost 60% of our total business and about 75% of our food business."
- Strong marketing complemented with increased digital adoption and delivery, with the delivery footprint of more than 33,000 restaurants in 100 countries.
New Products
- Core menu upgrades enhanced cooking procedures and new buns in over 20 markets, including Australia, Canada, and Russia.
- Focused on growing market share in chicken with new chicken sandwiches in the US and many international markets.
- The company did call out McPlant in 250 restaurants in the UK, but not the USA (I'm still not convinced that McPlant will work in the USA)
Margin Pressure
- Inflation in 2021 US MCD food and paper costs inflation was 4%, and "our expectation is that will be about double or in high-single digits increases for 2022.
- Most of that pressure or more of that pressure will be in the first half of the year, and as the year progresses, we expect that to ease somewhat."
- International inflation was 3% in 2021, going to 6% in 2022.
- It certainly will pressure both margins and cash flow again.
- While we expect that 2022 will be a year of continued progress, we also anticipate that many of the challenges we experienced in 2021 will endure. A surge in COVID-19 cases and a return of restrictions in many of our markets are creating uncertainty worldwide, exacerbating labor shortages and supply chain delays.
- Additionally, rising consumer inflation levels are putting pressure on restaurant economics.
Other thoughts
- Drive-thru is a big advantage for MCD, with a higher percentage of sales in the drive-thru compared to pre-pandemic levels. Service times slowed in 2021 in the US with industry-wide labor availability challenges. Any relief in 2022 could be a tailwind.
- Management is comfortable with the current plan they are accelerating unit growth - will be a 2023 tailwind
Topline
- Global comp sales were 12% in 4Q21or nearly 11% on a two-year basis (gained QSR traffic share across nearly all markets versus 2019 (esp the International Operated Markets, where off-premise channels remain a significant competitive advantage in a COVID environment.)
- IOM SSS for 4Q21r was 17% or 8% on a two-year basis, with two-year solid double-digit growth in the UK and Canada and high-single-digit growth in Australia. The UK performance was driven by continued growth in delivery and strong marketing featuring core menu items such as the Double Big Mac. Canada also saw increased delivery momentum, with October being the strongest month of delivery sales to date. The launch of MyMcDonald's Rewards Loyalty Program drove significant digital engagement in the market that it has been rolled out.
- Australian consumers began to emerge from stay-at-home restrictions throughout the quarter.
- "stops and starts" in Germany and France due to elevated COVID and heightened government restrictions interrupted recovery. Germany is just beginning to see the benefit from the 3Q21 rollout of Loyalty.
- In the US, strong with 4Q21 sales up 7.5% for the quarter and over 13% on a two-year basis (positive comps across all dayparts driven by increased average check growth.
- International Developmental Licensed segment 4Q214 SSS up over 14% or 10% on a two-year basis, primarily driven by positive results in Japan and Latin America, partly offset by negative comps in China.
- "China, however, continues to be impacted by COVID-related government restrictions, which significantly disrupted the restaurant industry in the fourth quarter, but the development of new stores continues."
OTHER
- "US Company-operated margins were pressured for the quarter as a result of higher labor and commodity costs. G&A for the quarter increased 9% in constant currencies, driven by higher incentive-based compensation expense as a result of company performance ahead of plan."
- Foreign currency translation negatively impacted fourth-quarter results by $0.03 per share.
- CapEx and free cash flow for 2021 was a little over $2 billion and $7.1 billion, respectively.
