Will McDonald's Loyalty Program Fare Better Than Some Of Its Peers?

Bernstein sees a potential game-changer in play for McDonald's Corporation (NYSE: MCD), as research analyst Sara Senatore raised her target price to $170 and maintained her Outperform rating.

New Loyalty Program Could Be A Huge Hit

Royalty programs have greatly expanded over the last few years as restaurants look to gain a competitive advantage. While the benefits vary among each business, Bernstein sees a potential winner in McDonald’s new program.

According to Bond Brand Loyalty, the average individual owned 13.4 loyalty cards in 2016. However, a large portion of these cards are inactive. This highlights the importance of ensuring the program is a strong fit for the company.

Specifically, Senatore said loyalty programs work well "for products/services that are high frequency and where consumption is flexible.”

The analyst added, "We think MCD fits this bill better than some other concepts that have launched loyalty. This tends to mean that loyalty works best for concepts where [the] average check is relatively small (and/or customer income is high).”

Starbucks Corporation (NASDAQ: SBUX) launched the “My Starbucks Rewards Loyalty Program” in 2010, and Senatore noted comps accelerated after they launched their program. Specifically, she said, “Starbucks has called the loyalty program ‘an overwhelming success’ that drives both transaction frequency and average ticket size.” Senatore believes McDonald’s’ program will follow a similar pattern.

Strong Digital Order Platform Makes It More Enticing

Additionally, the digital ordering component of the program should entice more consumers, according to Senatore. She noted, “Loyalty programs appear to be most effective when integrated into digital payment and ordering as they reinforce ease of use.”

Overall, a loyalty program seems to be a perfect fit for McDonald’s as consumers typically return frequently and the restaurant will soon have one of the best digital ordering capabilities according to Bernstein’s research report.

McDonald’s was trading at $149.43, at the time of publication after having reached a new 52-week high of $149.81.

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