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McDonald's (MCD) Banks on Loyalty Program Amid Traffic Woes

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McDonald's Corporation (MCD - Free Report) is likely to benefit from new loyalty program, digital offerings across drive thru, takeaway, delivery and curbside pick-up. The company is focusing on expansion to drive growth. However, dismal traffic due to the coronavirus pandemic remains a concern. Year to date, the company’s shares have gained 9.8%, compared with the industry’s rally of 11.6%. Let’s delve deeper.

Growth Drivers

Recently, 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 already has a loyalty program in other countries like France. Per the loyalty program,  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. If customers have 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 will also help the company in expanding customer base. We believe this loyalty program will aid sales. The company’s loyalty program is likely to drive average checks.

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. The company has more than 25,000 drive-thrus globally. 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 is increasingly focusing on delivery. It provides delivery from more than 30,000 restaurants in above 75 countries, compared to nearly 3,000 restaurants over the past four years.

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 opened about 500 restaurants across the market in 2020. In 2021, it is planning to open more than 1,300 restaurants globally. In 2021, the company anticipates systemwide sales growth, in constant currencies, in the low double digits. In China, the company opened 150 new restaurants in first-quarter 2021 and is on track to open 500 restaurants in the country this year.

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McDonald’s results in the upcoming quarters are likely to be impacted by the coronavirus outbreak. Although the company has reopened most of its restaurants, it is likely to witness dismal traffic due the social distancing protocols. Shutdown of dine-in in several markets will continue to hurt the company’s performance. In first-quarter 2021, France and Germany reported dismal comps due to dining rooms closure and curfews. The company is struggling to perform in Spain and Italy due to the current scenario.

Zacks Rank & Key Picks

McDonald’s currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some better-ranked stocks in the same space include Chuy's Holdings, Inc. (CHUY - Free Report) , Dine Brands Global, Inc. (DIN - Free Report) and Bloomin' Brands, Inc. (BLMN - Free Report) , each carrying a Zacks Rank #2 (Buy).

Chuy's Holdings has a trailing four-quarter earnings surprise of 127.6%, on average.

Dine Brands’ 2021 earnings are expected to surge 269.3%.

Bloomin' Brands has a three-five year earnings per share growth rate of 2.5%.

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