Fast Food Chains: Adapting to Changing Consumer Preferences

Menu Innovation and Health Trends

Fast food chains are increasingly focusing on menu innovation to adapt to changing consumer preferences. McDonald's, Domino's, Starbucks, and Yum! Brands are all introducing new and exciting food and beverage offerings, leveraging innovation to improve customer satisfaction and meet evolving demands.

"All of those things in combination are improving customer satisfaction. We're seeing our satisfaction scores increase in the U.S. And then we will, of course, have menu innovation that happens throughout the year." --- (MCD, earning call, 2024/Q1)

"Russell's highlighted that menu innovation now represents an important theme moving forward." --- (DPZ, conference, 2024/06/10)

"In the balance of the fiscal year, we anticipate continued progress on our action plans to increase demand across dayparts by introducing innovative and exciting beverage and food offerings to reach customers more broadly, while expanding our efficiency efforts and disciplined operational execution." --- (SBUX, sec filing, 2024/Q3)

"Whether it’s South Africa which we visited or Kenya where we have got franchisees that used to be a part of our – the company’s system, who is building our brand the right way there, launching breakfast, the employer of choice in the country, leveraging menu innovation to take and actually inspiring some of our innovation around the world." --- (YUM, earning call, 2024/Q1)

"We have a simplified menu that focuses on our core while never shying away from bringing back fan favorites at the right times or pursuing the right new product innovations. We have built one of the largest loyalty programs in the industry and we're continuing to lead with a long-term mindset, making decisions that meet our customers where they are and where they need us right down, while also plotting a path for sustained success. And now I'll turn it over to Ian." --- (MCD, earning call, 2024/Q2)

Sustainability and Environmental Practices

Fast food chains are increasingly prioritizing sustainability and environmental practices. Yum! Brands collaborates with partners to reduce energy use, while Chipotle emphasizes sustainable business practices. McDonald's acknowledges the risks of not addressing environmental impacts, and Starbucks expands its coffee innovation farms to ensure sustainability.

"This includes identifying and then working closely with sector partners and suppliers who have shared goals around energy reduction and sustainable practices." --- (YUM, press release, 2024/04/22)

"Chipotle is committed to making its food more accessible to everyone while continuing to be a brand with a demonstrated purpose as it leads the way in digital, technology and sustainable business practices." --- (CMG, press release, 2024/07/24)

"A failure, whether real or perceived, to address environmental and social impact matters or to achieve progress on our environmental and social impact initiatives on the anticipated timing or at all, could adversely affect our business, including by heightening other risks disclosed in these Risk Factors, such as those related to consumer behavior, consumer perceptions of our brand, labor availability and costs, supply chain interruptions, commodity costs, and legal and regulatory complexity." --- (MCD, SEC filing, 2024/Q2)

"Farmer Promise: Ensure the Future of Coffee for All To ensure a sustainable future of coffee for farmers and farming communities, Starbucks announced that it will expand its network of coffee innovation farms with four new farms across Africa, Asia and Latin America in the coming years to continue global agronomy innovation." --- (SBUX, press release, 2024/04/23)

"As @PizzaHut’s Sr. Manager of Sustainability, Emily True integrates eco-practices into brand strategy, proving sustainability is a business imperative for a better planet." --- (YUM, Twitter post, 2024/05/30)

Digital Transformation and Technology Adoption

Fast food chains like McDonald's, Domino's, Yum! Brands, and Starbucks are heavily investing in digital transformation and technology adoption to enhance customer experience, streamline operations, and drive growth. McDonald's focuses on digital customer acquisition and retention, while Domino's acknowledges the need for significant updates to its e-commerce platform. Yum! Brands leverages technology for internal operations, and Starbucks accelerates digital storyboard deployment.

"Chris Kempczinski: Thanks, Ian. Earlier this month, we brought leaders together to discuss our goals and objectives as we further establish McDonald's as a leading global consumer brand. As a team, we are committed to act with urgency, cementing our value leadership growing share in areas like chicken and bolstering loyalty through digital customer acquisition, adoption and retention on a global scale, and we are continuing to lean into our three pillars, M, C and D as our blueprint and engine for growth while leveraging technology to transform how we operate across all platforms. Even as the world around us continues to change, we know the power of the McDonald's brand will prevail." --- (MCD, earning call, 2024/Q2)

"And the reason I say that is, while we were at the forefront of the digital transformation in the company's consumer experience about a decade ago like we talked about earlier, that e-commerce platform really hasn't had much more than small patches and updates had to it over the last 10 years or so or more than 10 years now." --- (DPZ, conference, 2024/06/10)

"And of course, we’re continuing to better leverage our scale and how we operate internally in digital and technology, which is allowing us to do more together across the business." --- (YUM, earning call, 2024/Q1)

"We're also accelerating the rollout of digital storyboards with target deployment across most US stores in the next two years, a year earlier than originally anticipated. Lastly, we are working on other ways to enhance the cafe experience." --- (SBUX, earning call, 2024/Q3)

"This was offset by higher G&A due to continued investments in digital and technology as well as enterprise transformation efforts and costs associated with our biennial worldwide convention. As we've talked about before, driving long-term growth requires making the right strategic and forward-looking investments, and we are committed to continuing to invest in our platforms and growth drivers, while" --- (MCD, earning call, 2024/Q2)

Enhancing Customer Experience

Fast food chains like Starbucks, McDonald's, and Chipotle are enhancing customer experience by investing in supply chain improvements, technology, affordability, and digital platforms. These efforts aim to increase product availability, convenience, and customer satisfaction, meeting evolving consumer expectations effectively.

"In addition, we believe our end-to-end supply-chain focus gives us the opportunity to increase inventory availability with the right products at the right time, enhancing the customer experience while reducing waste. As we've shared, G&A was elevated at more than 7% of revenue through Q2, as we have deliberately invested in resources to continue to grow our technology capability." --- (SBUX, earning call, 2024/Q3)

"I think the sharp point and Chris mentioned this is just we've got that opportunity on affordability, and we're really laser-focused on making sure we can meet the need that consumers are expressing in the current context, but we feel really good about all the other aspects of the experience and how we're delivering against what customers are expecting." --- (MCD, earning call, 2024/Q1)

"So you're seeing us invest up and down the supply chain all the way to the point of customer experience." --- (CMG, earning call, 2024/Q1)

"In summary, we are working to increase throughput and improve product availability to enhance the customer experience, improve convenience and better capture existing demand." --- (SBUX, earning call, 2024/Q2)

"You noted that customer satisfaction scores had been heading higher. And that definitely doesn't surprise me given all the improvements to the restaurants and digital and the core food renovations." --- (MCD, earning call, 2024/Q1)

Competitive Strategies and Market Positioning

Starbucks focuses on premium market differentiation, Yum! Brands optimizes labor to protect profitability, Domino's deploys extra levers to stay competitive, Chipotle aligns local strategies for expansion, and McDonald's monitors consumer confidence in China to adjust growth strategies.

"And so I think as long as we continue to focus on that elevated positioning, which we will do, particularly as we play in the premium, I think there's opportunity for us to continue to differentiate ourselves even over the long term as the market continues to evolve." --- (SBUX, conference, 2024/06/05)

"focused on protecting profitability to remain competitive. Those efforts led to a comprehensive store level labor optimization effort, which contributed to an impressive 520 basis point expansion of restaurant level margins from the first quarter, despite a double-digit increase in restaurant level labor rates in California stores. Same-store sales growth remained suppressed, but we're encouraged by the improvement from first quarter trends despite a more challenged regional backdrop." --- (YUM, earning call, 2024/Q2)

"So, sorry, to get really excited about that. No, no, no. I mean clearly it's a great topic of conversation and it seems like you're deploying some extra levers for Domino's to be able to be well positioned in an increasing competitive environment." --- (DPZ, conference, 2024/05/30)

"The successful approach of aligning the local strategy with our overall operational vision and diligently overseeing execution of Chipotle standards has set up Canada for rapid expansion. We see many similarities between the European operation today and the" --- (CMG, earning call, 2024/Q1)

"And then in China, I know you mentioned that consumer is less confident. I'm just wondering if you're seeing anything to give you pause on an otherwise aggressive unit growth outlook or maybe a change in strategy, whether you're seeing any US brand pushback or anything along those lines would be helpful. Thank you." --- (MCD, earning call, 2024/Q2)

Marketing and Brand Loyalty

Fast food chains like McDonald's, Domino's, and KFC are leveraging loyalty programs to enhance brand loyalty and drive customer engagement. McDonald's focuses on accelerating growth in its loyalty program, while Domino's emphasizes value, convenience, and new products. KFC is expanding its global loyalty program and providing franchisees with essential tools.

"The consumer platform will enable the Company to accelerate growth in our loyalty program and drive valuable loyalty customers to visit more frequently." --- (MCD, sec filing, 2024/Q1)

"We believe our commitment to value, convenience, quality and new products continues to keep consumers engaged with the brand." --- (DPZ, sec filing, 2024/Q1)

"In that vein, the KFC team is tirelessly working to give our franchisees the tools to succeed, including furthering the expansion of SuperApp and the KFC global loyalty program, which is now live in 14 markets. Now I'll discuss our relevant, easy and distinctive brands or RED for short, followed by our unrivaled culture and talent and good growth strategy." --- (YUM, earning call, 2024/Q2)

"Systemwide sales to loyalty members is comprised of all sales to customers who self-identify as a loyalty member when transacting with both Company-owned and operated and franchised restaurants." --- (MCD, sec filing, 2024/Q2)

"And maybe even into 2025, how are you guys are thinking about that Loyalty program, given the contribution you've seen already this year and what you're expecting kind of again balance of the year -- in the year to how you think about marketing it, promoting it." --- (DPZ, earning call, 2024/Q2)

Supply Chain Management and Efficiency

Fast food chains like Domino's and Chipotle are enhancing supply chain efficiency through procurement productivity, cost management, and diversification. Domino's reported increased gross margins due to lower food costs and procurement productivity, while Chipotle mitigated avocado market volatility by diversifying sources, maintaining stable costs.

"As a percentage of supply chain revenues, the supply chain gross margin increased 2.1 percentage points in the first quarter of 2024 due to lower food costs resulting from procurement productivity and a decrease in the cost of our food basket, as well as slightly lower delivery costs." --- (DPZ, sec filing, 2024/Q1)

"Some of those are supply chain efficiencies. We won't go into details of what those are, but we do think over the next couple of quarters that we'll be able to see some of efficiencies and I think that's really in terms of where our margins are and what we think--" --- (CMG, earning call, 2024/Q2)

"What we did see specifically in Q1 is that while we got the procurement productivity, some of the investments we are planning to make in supply chain capacity really pushed out into later in the year." --- (DPZ, earning call, 2024/Q1)

"Additionally, we are less impacted by the recent volatility in the Mexican avocado market, as our supply chain team has done a fantastic job of diversifying our exposure, and in the third quarter, the majority of our avocados come from Peru. Outside of avocados and the protein mix shift, we anticipate underlying cost of sales inflation will be in the low single-digits range for the remainder of the year. Labor costs for the quarter were 24.1%, a decrease of about 20 basis points from last year, as the benefit from sales leverage more than offset wage inflation." --- (CMG, earning call, 2024/Q2)

"Anything more if you could kind of break down that procurement benefit, perhaps exactly maybe what you saw inflation -- deflation in the quarter itself for the supply chain and anything on that go-forward procurement, et cetera, as we think about the full year?" --- (DPZ, earning call, 2024/Q1)