McDonald’s history charts a clear cautionary path. When the brand has slipped off track, you could generally point to it losing sight of value, CEO Chris Kempczinski said. That’s not happening today, he assured investors Thursday during McDonald’s Q1 review, despite prices being up roughly 8 percent over the prior-year quarter.

So far, McDonald’s hasn’t seen any meaningful pushback from guests. U.S. same-store sales climbed 3.5 in Q1 over a 13.6 percent jump in the comparable period last year. The comp comprised average check of about 4.5 percent and a 1 percent decline in transactions. BTIG analyst Peter Saleh said 8 percent was the “highest pricing we can recall McDonald’s operating with.” It was about 6 percent in recent reports.

One thing that’s shielding McDonald’s, Kempczinski added, is the fact its value scores relative to competitors prove diners are still giving the brand credit. Or put differently, prices are up everywhere and every place. And McDonald’s efforts haven’t outpaced what guests have come to expect in the market.

The food away from home index in March rose 6.9 percent year-over-year—the largest 12-month increase since December 1981. Quick-service meal prices upped 7.2 percent. Meanwhile, the Consumer Price Index for food-at-home hiked 10 percent, building on an 8.6 percent lift in February. Meats, poultry, fish, and eggs cost customers 13.7 percent more at the grocery store; beef 16 percent.

“Consumers are definitely worried about inflation,” McDonald’s CFO Kevin Ozan said. “There’s no doubt about that. They’re concerned about energy and gas prices. But right now, and we are keeping certainly a close watch on lower-end consumers just to make sure that we’re still providing the right value for our lower-end consumer, but one of the things that’s probably helpful right now, as you know, is food at home has been increasing even more than food away from home.”

Overall, Kempczinski said, the U.S. consumer appears in good shape. Revenues company-wide increased 11 percent to $5.7 billion as net income declined 28 percent to $1.1 billion ($1.48 per share). It’s a number that would have been $2.28 sans an international tax event and what’s happening abroad with Ukraine.

McDonald’s said restaurants in Ukraine and Russia remain closed (it operated about 850 before the conflict). In both countries, McDonald’s has continued to pay employees and provide support. Doing so cost the company $27 million on the salary, lease, and supplier payment front, as well as $100 million of costs for inventory in McDonald’s supply chain it said “likely will be disposed of” due to temporary closures. The $2.28 also excludes $500 million of non-operating expense to reserve for a potential settlement “related to an international tax matter,” Ozan said. The monthly run rate sits today in the $55 million range.

Kempczinski added it was clear the crisis was “far from over,” and the company expected to provide direction to investors and stakeholders no later than the end of Q2.

Global same-store sales for McDonald’s rose nearly 12 percent in the quarter, including 20.4 percent in the company’s International Operated Markets segment, which includes France and the U.K. The latter introduced a “Chicken Big Mac” promotion that “became the market’s most successful food promotion ever, selling millions of sandwiches in the first two weeks,” Kempczinski said.

The digital storefront

Executives spent a good portion of Thursday’s call outlining McDonald’s digital growth, and how the pandemic opened avenues into a massive revenue stream. In the company’s top six markets, digital sales (mobile app, kiosks, and delivery) accounted for more than 30 percent of system-wide sales in Q1. That equates to nearly 60 percent year-over-year expansion. McDonald’s U.S. business generated north of $2 billion in digital sales in just one quarter.

MyMcDonald’s Rewards, live for nine months stateside, has more than 26 million loyalty members. Coming into the year, the chain introduced the platform in over 40 markets, including France, Germany, and Canada. Australia joined in March and the U.K. will later this year.

Kempczinski said McDonald’s is seeing more frequent visits from the base, many of whom were classified as “very loyal” to begin with. Some of the company’s largest markets appreciated record visit frequency driven by loyalty usage and app exclusive promotions.

Unlike some chains, loyalty is not a reach play for McDonald’s. Kempczinski said roughly 80 percent of the U.S. population visits a McDonald’s at least once each year.

The point being, McDonald’s is courting frequency with loyalty instead of inspiring first-timers. “We have low levels of penetration versus our total market size opportunity here,” Kempczinski said, calling the program’s potential “early innings.”

“And for us the focus then is continuing to drive overall enrollment but also to be driving engagement,” he added. “And one of the things that we’re spending time on as we get more facts under our belt here is what is the right metric that’s most predictive of future performance? So is it absolute members? Is it monthly? Is it 90 days?”

Kiosk usage—a key design element of McDonald’s Experience of the Future remodel—has picked up alongside dine-in. In Q1, kiosk sales mixed more than half of in-store business in Australia, Germany, and the U.K.

At the same time, Kempczinski said, McDelivery has become the largest quick-service delivery program in the world. Notably, U.K. customers can now order delivery direct via McDonald’s app—a functionality Kempczinski said is expanding to the U.S., Canada, and Australia later in the year. “This will let us better control the delivery experience for our most loyal customers and to learn from the data they share ultimately about how we create more seamless memorable and personalized experiences,” he said.

To put it lightly, it’s been an unrivaled game-changer, Kempczinski said. Today, the company doesn’t know 90 percent plus of the customers coming inside, he said. McDonald’s doesn’t know their prior purchase, buying patterns, whether they’re a deal seeker or someone who always orders the same thing. “As I get better and better visibility into that customer I can actually track and identify their preferences over time it starts with I’m going to be able to give them a better experience,” Kempczinski said.

Then, McDonald’s can deliver faster speed of service; a cleaner app or menuboard. It can tailor deals and programs. “It’s not going to necessarily be a one-size-fits-all type of thing it’s going to be much more bespoke to what each customer is looking for,” he said. “And digital allows us to do a level of personalization at scale at McDonald’s that is almost impossible for us to do through sort of more of our analog type of approach.”

More buying behavior integrates inside locations, which leads to automation and labor benefits.

“So it can change, I think, just the entire unit economic profile for the better of what a restaurant looks like,” Kempczinski continued. “We’re still very early on this. … I want to caution against anybody out going out there and running and building a new model off of this. But if you go 10 years out that’s where we’re headed to, because I think we all recognize those of us who are in the business day to day, there is tremendous opportunity there if we can make further inroads.”

Even with stores reopening (95 percent of domestic McDonald’s are fully operational for dine-in and drive-thru), Kempczinski said delivery continues to grow and stay elevated from 2019 marks. The same is true of digital. “I think the only thing that we are keeping an eye on is we’ve seen average check come down a little bit as perhaps you’re seeing those large groups that were going out and ordering in the pandemic … we’re seeing some of that splintering, where it’s breaking up into two transactions, which was maybe previously one transaction,” Kempczinski said. Some guests are trading down in certain geographies as well, another reflection of inflationary pressures.

Last quarter, McDonald’s estimated commodities would be about 8 percent higher in the U.S. That number is closer to 12–14 percent for the year. With labor, it’s “probably over 10 percent,” Ozan said, partly due to McDonald’s raising wages in company stores mid-year 2021.

Saleh wrote in a note Friday it’s likely pricing is being taken on premium and mid-tier products. In turn, “some consumers are trading down within the menu, opting for more value-oriented items,” he said. “This is the first time in many years that McDonald’s has highlighted such a change in consumer behavior, which could be a harbinger of further traffic declines.”

At the company’s recent worldwide convention—its first in four years—more than 13,000 participants showed. And McDonald’s shared a number of initiatives around restaurant operations, including automated order taking and some different looks at dual-lane drive-thru configurations, Kempczinski said. Including, potentially, the idea of adding a second window, as well as “other ways for us to bring automation into kitchen operations.”

Additionally, McDonald’s plans to keep engaging with guests through its “Fan Truth” messaging. In the U.S., it’s most recognizable with the “Famous Orders” platform where celebrities and influencers share their go-to McDonald’s meal, which customers can then repeat. China activated it this past quarter, too, with Australia up next.

McDonald’s found success doing so from a guest perspective, but also an operational tilt. Since they’re core menu offerings, simply arranged a specific way, they don’t layer complexity into restaurants or require additional ingredients or preparation techniques. That aim is more vital than ever given price volatility.

The company’s 30,000-foot view going into the rest of the calendar, Kempczinski said, as it’s been in recent quarters, is “share-taking mode.” As much as the company’s daypart trends and mix can be dissected, it’s the overall quick-service picture McDonald’s is measuring against.

With burgers, Kempczinski said, McDonald’s owns a little over a third of the market from a U.S. share standpoint on beef. It’s picked up about a share point versus where it was in 2019. For chicken, McDonald’s gained roughly half a point compared to pre-Crispy Chicken Sandwich. “And our thing is, with our Accelerating the Arches strategy, we’re focused on chicken, coffee, and burgers,” he said. “It’s those three areas and we maniacally track share on all three of those categories across all of our markets.”