Dive Brief:
- McDonald’s franchisees noted mixed sales recovery three months after more than 100 people were sickened by Quarter Pounders that contained E. coli-contaminated onions. Sales were also impacted by a cold January, according to a BTIG report emailed to Restaurant Dive.
- During the first half of October, McDonald’s operators reported strong momentum with comparable sales in the mid-single digits as value messaging helped drive traffic and sales in Q2. Comps fell 17% to 20% in the back half of October, however. Some operators returned to positive mid-single digit sales growth in December, but others remained negative, BTIG said.
- Traffic also stayed down during the last three months of the year, according to Placer.ai data. During November, traffic was at its worst for the chain for 2024, declining 4.2%. Traffic improved to negative 0.6% in December, outperforming the QSR industry, which had a decline of nearly 3%.
Dive Insight:
McDonald’s previously said it would invest $100 million in supporting operators heavily impacted by October’s E. Coli incident. Of that investment $35 million was put toward marketing programs to help drive traffic.
But following comparable sales declines and food safety concerns, franchisee sentiment has dwindled. Some operators told BTIG that the cost-cutting measures under Accelerating the Arches may have led to food safety issues.
“McDonald's previously had a manager for just about every major supplier, overseeing product and processes,” BTIG said. “Under the new scheme, many of those positions have been eliminated in favor of supplier or third-party oversight, under the guise of ‘self-managed excellence.’ It's impossible to determine if this food safety issue could have been avoided with greater oversight; franchisees couldn't definitely say so, but noted it has been several decades since the system had a major food safety incident.”
McDonald’s did not respond to a request for comment regarding these franchisee accusations by press time.
In the months following the outbreak, value offers appear to be helping with sales. BTIG calculated that the Buy One, Add One offer under the McValue menu, which launched in January, made up a mid-teens percent of sales. The $5 Meal Deal accounts for a low double-digit percent of sales. Along with app and loyalty discounts, the total discount mix is 30%. However, the true impact of McValue has yet to be seen given the harsh weather franchisees faced in January.
“This discount mix is about 3x recent historical levels, and the highest it's been in modern history, leading to some concern from franchisees about the overdependence on discounts,” BTIG said.
Menu innovation could also help with sales recovery, as it helped traffic last year. The Chicken Big Mac last October helped drive a 7% increase in visits in the week of the launch and a traffic increase of 8.7% in the full week after the launch, according to Placer.ai data.
December’s McRib return appears to have done well, said BTIG, adding that the company also plans to offer new menu items, including chicken tenders, in late-April and snack wraps in June/July, BTIG said. These items will be at full price.
One of the chain’s biggest challenges for the year may be weaning customers off of discounting, especially with more premium priced items coming in the near future. Some franchisees told BTIG that their food costs as a percentage of sales hasn’t been this high in six to seven years, indicating operators are facing margin pressures.
Several franchises increased their prices on BOGO offers prior to the deal as a way to protect margins, BTIG said. Margins could remain under pressure through summer, with the $5 Meal Deal expected to last through July and possibly to the year's end.
BTIG said it expects comparable sales increases of 0.5% in both the fourth quarter of 2024 and the first quarter of 2025. McDonald’s reports Q4 and year-end earnings next week.
