Categories Analysis, Consumer

McDonald’s (MCD) vs. Yum Brands (YUM): How the fast-food leaders tackled the pandemic?

McDonald’s will also invest $200 million in marketing across its US and International Operated Markets

The COVID-19 pandemic and resultant restrictions impacted the fast food industry significantly leading to restaurant closures and reduction in customers which in turn caused declines in revenues and profits. The major players in the fast food sector, McDonald’s Corp. (NYSE: MCD) and Yum Brands (NYSE: YUM), were no exception. Let’s take a look at how these leaders fared in their most recent quarter amid the health crisis:

Revenue and profits

McDonald’s saw revenues drop 30% year-over-year to $3.76 billion while EPS plunged 67% to $0.65 in the second quarter of 2020. Global comp sales fell 23.9% while system-wide sales dropped 24%. The company also saw steep decreases in sales from company-operated restaurants and franchised restaurants as well as comp sales decreases across all its segments.

Yum Brands’ revenue fell 9% to $1.2 billion while adjusted EPS dropped 23% to $0.64 in the second quarter of 2020. Worldwide same-store sales decreased 15%. The company saw revenues, same-store sales and system sales decline across all its segments.

COVID-19 impact

After having to close a vast majority of its restaurants and limit its operational hours, McDonald’s changed its strategy. The company modified its operations across 30,000 restaurants and then worked on reopening 9,000 restaurants in a matter of weeks.  

The company’s strength in drive-thru proved to be a great advantage during this time allowing it to serve customers across more markets than its rivals. McDonald’s offers drive-thru in about 70% of its restaurants across its five big International Operated Markets – Australia, Canada, France, Germany and the UK. The company also improved its drive-thru times across most of its major markets.

Nearly all of the company’s restaurants in the US were open by the end of the second quarter with a sequential improvement through the quarter. Around 45% of its restaurants in the International Operated Markets segment were open at this time. Many of its large markets such as the UK, Spain, France and Italy remained closed for a long time during the quarter but managed to see sequential sales improvement upon reopening.

The company faced severe pressure in Latin America due to the health crisis and less drive-thru penetration. The pace of recovery in China remains slow and this pattern is expected to continue into next year.

Yum’s sales declines were mainly driven by temporary store closures which peaked in early April at around 11,000 restaurants. By the end of the second quarter, the company was able to reopen around 95% of its system at full or limited capacity. During the quarter, digital sales increased $1 billion to approx. $3.5 billion compared to the year-ago period.

Yum saw strength in the US, Canada and Australia, and a pickup in performance in Germany and the UK after easing of restrictions, helped by good drive-thru coverage, off-premise capabilities and robust digital service.

Looking ahead

McDonald’s had significantly reduced its marketing spend across its major markets in the second quarter to conserve resources until it saw stability. In the US, marketing spend was down 70%. The company plans to invest these funds in the third and fourth quarters. McDonald’s will also invest $200 million in marketing across its US and International Operated Markets in the second half of 2020 to accelerate recovery.

Yum plans to continue investing in its business and is looking to resume its share repurchases if conditions remain favorable. The company remains optimistic as sales continue to grow and digital capabilities continue to improve.

Click here to read the transcripts of McDonald’s and Yum Brands Q2 2020 earnings conference calls

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