McDonald’s is betting on its mobile business with new franchisee digital marketing fund

McDonald’s
U.S.
franchisees
will
start
paying
into
a
digital
marketing
fund
next
year
as
the
fast-food
giant
looks
to
expand
its
booming
digital
business,
according
to
a
memo
viewed
by
CNBC
on
Thursday.

The
change
is
meant
to
modernize
the
company’s
marketing
strategy
and
widen
its
competitive
advantage,
according
to
the
memo,
which
was
written
by
U.S.
Customer
Experience
Officer
Tariq
Hassan
and
Chief
Information
Officer
Whitney
McGinnis.
The
memo
also
said
that
McDonald’s
plans
to
invest
hundreds
of
millions
of
dollars
over
the
next
couple
of
years
to
improve
its

loyalty
program
and
add
ordering
channels,
including
placing
web
orders
without
downloading
an
app,
which
should
also
bolster
its
digital
business.

Loyalty
program
members
accounted
for
more
than
$6
billion
in
system-wide
sales
globally
during
McDonald’s
first
quarter.
The
company
has
34
million
active
digital
customers
in
the
U.S.
By
comparison,


Chipotle
Mexican
Grill
has
40
million
loyalty
members,
while
Starbucks
has
32.8
million.

In
December,
McDonald’s
said
it
aims
to
reach

100
million
loyalty
program
members
by
2027.

For
now,
the
franchisor
is
recommending
that
franchisees
pay
for
the
new
fund
using
their
existing
marketing
contribution,
which
requires
that
they
spend
at
least
4%
of
gross
sales,
according
to
the
memo.
As
a
result,
the
new
approach
will
likely
lead
McDonald’s
to
cut
back
on
legacy
marketing
tools,
such
as

TV
commercials,
and
focus
on
areas
that
tangibly
lead
to
higher
sales.

Next
year,
U.S.
operators
will
have
to
chip
in
1.2%
of
projected
identified
digital
sales,
such
as
transactions
that
occur
when
a
customer
logs
into
the
loyalty
program
or
orders
delivery,
according
to
the
memo.
The
rate
will
change
annually,
based
on
projections
created
at
the
start
of
the
year.

As
a
result
of
the
change,
McDonald’s
is
forecasting
that
every
U.S.

restaurant
will
see
its
cash
flow
increase
by
roughly
$2,600,
starting
in
2025.
The
windfall
comes
from
the
digital
investment
costs
moving
from
a
franchisee’s
profit
and
loss
statement
to
the
marketing
contribution.

Franchisees
in
the
U.K.,
Canada,
Australia
and
Germany
will
also
pay
into
the
global
digital
marketing
fund.
The
rest
of
McDonald’s
markets
will
transition
to
the
approach
later.