Earlier this year, McDonald’s CEO Chris Kempczinski said the fast food giant needed a national value proposition as it was losing out on low-income traffic.
The company had been successful driving traffic in other regions of the world by introducing value menus. So in June, it rolled out a $5 Meal Deal in the U.S. that included small fries, four-piece Chicken McNuggets, a small drink and the choice between a McDouble or McChicken sandwich.
It’s unclear if this value offering, which is expected to be short-term, is actually helping the chain drive sustainable traffic, sales and profitability. After conversing with operators, analyst firm BTIG found that the $5 Meal Deal was creating slightly positive sales and was bringing in some lower-income guests. But it wasn’t creating measurable incremental traffic, Peter Saleh, BTIG managing director and restaurant analyst, said in a July report.
“In our view, this new deal is an investment in McDonald's value perception, seeking to change the media narrative away from the brand's outsized pricing to refocus on deep(er) value offering,” Saleh said.
Operators in roughly 55 regions in the U.S. said they plan to extend the value meals into August and September. Franchisees had to adjust the offering since customers were doubling down on the discount using a 20% off deal on digital orders.
“Opinion was pretty consistent that this deal is considered a bridge to a longer-term national value menu that is being tested and slated for early September,” Saleh said. “This suggests to us that the price wars and deep discounting will continue through the summer and likely for the balance of this year.”
McDonald’s is not alone in leaning heavily on value options. A long list of fast food chains have offered value meals over the past few months, including Carl’s Jr., Burger King, Sonic, Del Taco, Jack in the Box and Taco Bell. While second quarter earnings will reveal how and to what extent these menu items have started to impact sales, some chains have seen mild traffic boosts. But it is unclear if those increases will be long term or have a significant impact on earnings.
Check out how chains are competing in the value wars.
