McDonald’s Corp. says growing usage of its mobile app is driving mobile-order-and-pay adoption and creating another opportunity for the fast-food giant to get to know its customers.
McDonald’s MCD, -0.38% has been focused on updating its operations and customer experience, with mobile capabilities playing a part in that process.
On the Tuesday earnings call, Chief Executive Stephen Easterbrook said many of the company’s markets have used special deals to encourage customers to use the app, which is yielding benefits for customers and the company.
“As the base of active users grows, the rate of mobile-order-and-pay adoption increases, we are providing our guests greater convenience on their terms while gaining deeper insights on their purchasing behavior,” Easterbrook told analysts, according to a FactSet transcript. “All of this is helping us create a foundational base of information upon which we will build programs to deepen our customer relationships.”
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Another restaurant chain that has seen the virtues of mobile-order-and-pay is Starbucks Corp. SBUX, -0.03% On its fiscal third-quarter earnings call in July, Chief Operating Officer Rosalind Brewer said digital is one of the company’s ongoing priorities, and mobile-order-and-pay is a significant part of that.
“We now have 15.1 million active Starbucks Rewards members, up 14% year-over-year, driving 40% of tender in the U.S.,” she said, according to a FactSet transcript. “Spend per member has grown in the mid-single digits range, with mobile-order-and-pay representing 13% of transactions.”
Starbucks is also looking to its mobile-ordering app to jump-start slowing U.S. sales, The Wall Street Journal reported in March.
Analysts view McDonald’s digital initiatives as a way to spur growth in the U.S.
“In the United States, the chain is rapidly modernizing its footprint (1,000 restaurants per quarter) with digital capabilities including mobile ordering and self-order kiosks,” KeyBanc Capital Markets’ analyst Eric Gonzalez wrote in a note.
He is expecting upgrades to contribute nearly one point to U.S. same-store sales growth beginning in 2019.
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Gonzalez also sees opportunity in breakfast, where McDonald’s has been losing share. In a note published last Thursday, KeyBanc said McDonald’s breakfast business has suffered as marketing dollars shifted to national promotion of the value menu. Based on geolocation data, KeyBanc is expecting that those breakfast losses accelerated through the summer.
In a post-earnings note, KeyBanc was more hopeful.
“We believe the company has stemmed its losses at breakfast in the majority of markets and we look forward to new value and menu news in the coming weeks, which should help arrest traffic declines in those markets that continue to struggle,” KeyBanc said.
In September, McDonald’s expanded its $1 $2 $3 Dollar Menu to include $1 for any size coffee and $1 for two breakfast sandwiches, the sausage biscuit and sausage McMuffin. New launches are coming, according to Easterbrook.
KeyBanc rates McDonald’s shares overweight and raised its price target to $195 from $185.
RBC Capital Markets analysts led by David Palmer said digital initiatives are one of McDonald’s tailwinds heading into next year, along with those new breakfast menu items and regional marketing to support the breakfast business.
“While 2018 has been a transition year as the U.S. system undergoes a period of disruption, we believe McDonald’s is one of the clear improvement stories heading into 2019,” analysts said.
RBC rates McDonald’s shares as outperform and raised its price target to $190 from $175.
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BTIG analysts said McDonald’s “Experience of the Future” remodels as well as digital enhancements like mobile ordering will offset rising wages and labor shortages in the U.S.
“We expect greater adoption of mobile ordering kiosks to help reduce labor hours over time, while also improving throughput, increasing average check and providing superior customer data,” analysts wrote in a note.
“While these investments are placing near-term headwinds on capital spending and same-store sales, we believe they are imperative to the long-term growth of McDonald’s and will ultimately become compelling sales drivers.”
BTIG rates McDonald’s shares buy with a $200 12-month price target.
McDonald’s shares have gained nearly 2% for the year to date, while the Dow Jones Industrial Average DJIA, -0.63% is up 1% for the period.
