A Big Mac appears on a page of the McDonald's app
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McDonald's U.S. franchisees will begin paying into a digital marketing fund next year as the fast-food giant looks to expand its booming digital business, according to a memo seen by CNBC on Thursday.
The change is intended to modernize the company's marketing strategy and increase its competitive advantage, according to the memo, written by U.S. Customer Experience Officer Tariq Hassan and Chief Information Officer Whitney McGinnis. The memo also said McDonald's plans to invest hundreds of millions of dollars in the coming years to improve its loyalty program and add ordering channels, including placing web orders without downloading an app, which should also strengthen its digital business.
Loyalty program members accounted for more than $6 billion in system revenue worldwide during McDonald's first quarter. The company has 34 million active digital customers in the US. For 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 with their existing marketing contribution, which requires them to spend at least 4% of gross sales, according to the memo. As a result, the new approach is likely to see McDonald's cut back on traditional marketing tools, such as TV commercials, and focus on areas that tangibly lead to increased sales.
Next year, U.S. operators will have to collect 1.2% of expected identified digital sales, such as transactions that occur when a customer logs into the loyalty program or places an order, according to the memo. The rate will change annually, based on projections made at the beginning of the year.
As a result of the change, McDonald's predicts that each U.S. restaurant's cash flow will increase by about $2,600 starting in 2025. The windfall comes from the digital investment costs that shift from a franchisee's profit and loss account to the marketing contribution.
Franchisees in Britain, Canada, Australia and Germany will also contribute to the global digital marketing fund. The rest of McDonald's markets will adopt this approach later.