McDonald’s shifts focus to digital marketing through new investment

McDonald’s Introduces Digital Marketing Fund

McDonald's plans to launch a Digital Marketing Fund on January 1, 2025. This initiative aims to boost digital investments and enhance the company's competitive edge. According to a memo obtained by Restaurant Dive, the fund is set to drive growth in the digital marketing space.

The chain is planning to transfer its digital marketing tools such as MyMcDonald’s App, customer relationship management platforms, and consumer web tools to a new fund in Australia, Canada, Germany, U.K., and the U.S.

This fund will account for 1.2% of projected identified digital sales. The company defines these sales as transactions where customers identify themselves, enabling direct marketing to them.

Article Insight:

The funding shift is anticipated to bring a cash flow advantage to all U.S. McDonald’s locations, with each store benefiting by approximately $2,600 starting in 2025. This change will involve transferring costs from the P&L to the Digital Marketing Fund, which will cover the ongoing expenses related to McDonald’s expansion in the digital realm, as stated in the memo. Currently, the global mobile app is financed through an annual fee, as outlined in the company’s 2024 Franchise Disclosure Document. McDonald's suggests that the fund should be supported by utilizing existing OPNAD, the cooperative marketing fund of McDonald’s, and contributions from local marketing efforts.

The company explained that although the 2025 required system marketing contribution rate will remain unchanged, there is a need to shift our approach in delivering the most impactful strategy for the System. This adjustment stems from feedback received from Owner/Operators, who view the Global Mobile App and CRM as marketing tools that should be funded accordingly.

Furthermore, the company highlighted that this new marketing strategy will enhance our understanding of customer behavior and enable us to optimize customer lifetime value. These efforts will be supported by robust systems for data management, network security, and data storage.

McDonald's CEO Chris Kempczinski highlighted the importance of investing in modern and digital capabilities over traditional mass media during the company's Q1 earnings call. By personalizing the customer experience, the company aims to drive profitability. Transforming restaurants to focus on delivering hot, fresh orders with convenience and accuracy is key to success in this strategy.

This shift is fueled by McDonald's rapid growth in digital channels and loyalty program participation. Loyalty members in 50 markets contributed nearly $25 billion in systemwide sales over the past year, with $6 billion generated in Q1 2024, as stated in an earnings release.

The company announced in a memo that they will be investing hundreds of millions of dollars into innovation and digital products. This includes new ordering channels like web ordering, personalization, and more ways to use loyalty points. McDonald’s is also planning to transition to a national value platform instead of local value messaging.

McDonald’s CEO, Kempczinski, mentioned that with the decline in QSR traffic, they have the opportunity to increase the frequency of visits from existing customers. With more customers making purchase decisions based on personalized recommendations on their phones, utilizing digital capabilities like loyalty programs will help them serve customers better. By leveraging insights from loyalty members, McDonald’s aims to deliver the right message to the right consumer at the right time.

In 2025, no changes are planned for other international operated markets or international developmental licensed markets. The company stated in a memo that the new model will be implemented once these markets have the necessary tools and capabilities.

Editor's P/S:

McDonald's Digital Marketing Fund initiative represents a significant shift in the company's marketing strategy, embracing digital channels and customer personalization. By consolidating digital marketing tools and investing in innovation, McDonald's aims to enhance customer engagement, optimize lifetime value, and drive profitability. The fund's establishment reflects the growing importance of digital touchpoints in the restaurant industry, as consumers increasingly rely on mobile apps and loyalty programs for convenience and personalized experiences.

The anticipated cash flow advantage for U.S. McDonald's locations highlights the company's commitment to empowering its franchisees. By transferring costs from the P&L to the Digital Marketing Fund, McDonald's provides additional resources for digital initiatives, allowing franchisees to leverage the latest technologies and marketing strategies to drive growth. This move also aligns with the feedback from Owner/Operators, who recognize the value of digital marketing tools in delivering a compelling customer experience.