Dive Brief:

• McDonald's announced Thursday that its Q1 2021 same-store sales rose 13.6% from last year. The chain generated nearly $1.5 billion in digital sales for the period through its app, kiosks and delivery, U.S. President Joe Erlinger said during an investor call.
• CEO Chris Kempczinski said on the call the company is maximizing its marketing to stay relevant, committing to its core menu and doubling down on digital, delivery and drive-thru. The chain also now has over 20 million active app users, which could help bolster its loyalty program once it comes out of test mode.
• Additionally, the restaurant's new chicken sandwich, introduced in February, is exceeding projections, Erlinger said, selling "substantially more" than the previous chicken sandwich line.  

Dive Insight:

McDonald's seems to be hitting on all cylinders right now, benefiting from its robust drive-thru business, an impactful and growing digital business and successful marketing campaigns.

As dine-in regulations settled in throughout the past year, McDonald’s was generating more than 90% of its business at the drive-thru window. On the Q1 call, executives noted the company has improved speed of service times through this channel and has reduced menu complexity. It has also grown its delivery presence and delivery is now available in 75% of its global restaurants, including some markets that are testing self-delivery models.

Once McDonald's officially rolls out its new loyalty program, that should drive even higher digital sales. The program is currently still in pilot phase, but the company is optimistic about initial results. The national launch is expected to occur later this year. 

"User adoption [of MyMcDonald's Rewards], as measured by guests ordering through the app, are up significantly since the test began. Frequency has increased. In fact, our loyalty customers are far more likely to return in the next 30 days compared to non-loyalty customers," Erlinger said. 

McDonald's Q1 results also got a significant lift from its marketing and menu strategies. In Q2 2020, McDonald's announced it was going to open up a "marketing war chest" behind a $200 million investment. That chest included collaborations with powerhouse celebrities, including Travis Scott. This marketing momentum should continue with the company's latest collaboration with K-pop superstars BTS. These celebrity promotions reiterate McDonald's cultural relevance, particularly among younger consumers.  

McDonald's chicken sandwich has also fueled sales growth thanks to high diner demand for the menu item. Grubhub's State of the Plate report for 2020, for example, found that spicy chicken sandwich orders spiked by almost 300% year-over-year. Kalinowski Equity Research estimates McDonald's franchisees are selling an average of 262 chicken sandwiches a day and predicts this product could make up about 10% of a McDonald's franchisee's annual sales.

This product's success, however, may be driving supply pressures in the industry. During Yum Brands' earnings call earlier this week, CEO David Gibbs said the company's main challenge after KFC's sandwich launch has been keeping up with consumer demand amid "general tightening of domestic chicken supply." Still, McDonald's has earned awards for its supply chain efficiency, including a "Masters" recognition from Gartner in 2018, so it's possible the chicken sandwich could yield sustained positives versus shortages for the company.