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McDonald's (MCD) Sharpening Competitive Edge: Here's How

McDonald's (MCD) benefits from a robust loyalty program, focus on drive-thru, delivery & take-away and expansion efforts.

This story originally appeared on Zacks

McDonald's Corporation MCD has done well in an intensely competitive restaurant landscape. This is quite evident from the stock’s performance so far this year. In the said period, the stock has gained 17.2% compared with the industry’s growth of 13.4%. Let’s delve deeper and analyze the factors keeping McDonald's ahead of the curve.

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Loyalty Program Bodes Well

McDonald's launched its first-ever loyalty program in the United States. It is worth mentioning that the company started testing its loyalty program in November last year. The company’s customers will get 100 points for every one dollar spent. Customers will get 1,500 points once they join the loyalty program. Items like hash browns, vanilla cone, McChicken or a cheeseburger will cost just 1,500 points. Once customers have accumulated 6,000 points, they can be redeemed for Big Mac or a Happy Meal. The new loyalty program will not only help in retaining its customers but also aid in expanding the customer base. We believe this loyalty program will drive sales. The company’s loyalty program is likely to contribute to average checks as well.

Zacks Investment ResearchImage Source: Zacks Investment Research

Robust Digitalization

Amid the coronavirus pandemic, the company has been focusing on drive-thru, delivery & take-away. Prior to the coronavirus crisis, drive-thru accounted for about two-thirds of all sales in the United States. Drive-thru now accounts for approximately 90% of sales. McDonald’s continues to roll out mobile order and pay, with a new curbside check-in option. To provide enhanced experience and convenience to customers, the company has been increasingly focusing on delivery.

The Zacks Rank #2 (Buy) company informed that more than 80% of its restaurants across 100 markets globally provide delivery. In the United States, 95% of its restaurants provide drive-thru facility. Over the past year, delivery sales mix has doubled in Australia, Canada and the United States. It announced that across its major six markets, digital sales crossed $10 billion or nearly 20% of system-wide sales in 2020. During first-half 2021, the company recorded approximately $8 billion in digital sales in its top six markets, a 70% gain compared with the last year.

Solid Expansion Efforts

McDonald’s believes that there is a huge opportunity to grow all its brands globally by expanding presence in existing markets and entering new ones. The company’s expansion efforts continue to drive performance. Despite the pandemic, the company inaugurated about 500 restaurants across the market in 2020. In 2021, it is planning to open more than 1,300 restaurants globally. In China, the company surpassed the 4,000 restaurants mark in June and is on track to open 500 new restaurants in the country this year.

Comps Growth Back on Track

After reporting dismal comps in the trailing four quarters due to the coronavirus pandemic, the company posted robust comps in first and second-quarter 2021. In second-quarter 2021, global comps advanced 40.5% against a decline of 23.9% in the prior-year quarter. In the second quarter, comps at the United States, international operated markets and international developmental licensed segment rose 25.9%, 75.1% and 32.3%, respectively.

Other Key Picks

Some other top-ranked stocks in the same space include Domino's Pizza, Inc. DPZ, Chipotle Mexican Grill, Inc. CMG and Jack in the Box Inc. JACK, each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Domino's has a three-five year earnings per share growth rate of 12%.

Chipotle's 2021 earnings are expected to rise 137.3%.

Jack in the Box has a trailing four-quarter earnings surprise of 26.4%, on average.

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