The top fast-food chain in the country is facing inflation pressures and is suffering the repercussions of customers' more cautious spending habits.
McDonald's increasing prices and customer backlash prompted the launch of a deal that was so tempting it seemed nearly impossible to sustain.
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What started as a summer special will now last until winter, mirroring an ongoing struggling economy that has yet to recover fully.
A bitter-sweet announcement
In June, McDonald's (MCD) announced the roll-out of the $5 value meal deal, which consists of its customers' favorite menu items.
The deal includes a McDouble or McChicken sandwich, small fries, four-piece Chicken McNuggets, and a small soft drink, all for just $5.
Initially, the limited-time deal would last until the end of summer and be available only at select locations, but McDonald's was quick to change its mind after quarterly earnings did not perform as expected.
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According to McDonald's Q2 earnings report for 2024, global comparable sales decreased by 1%, and net revenues remained flat compared to the year prior.
In the Q1 earnings call of 2023, McDonald’s CEO Chris Kempczinski warned that inflation was putting more pressure on the restaurant industry due to customers' more conscious spending.
Although the meal deal was initially only supposed to run until July, this decline led to its extension through the end of August, with 93% of franchisees voting to keep it going.
On Thursday, McDonald's announced that the $5 value meal will be extended into December but will be offered in fewer U.S. locations than previously.
80% of franchisees voted for the new $5 value meal extension. However, since the voting is ongoing, more locations may be added.
According to McDonald's President Joseph Erlinger in the mid-year earnings call, the $5 meal deal has been successfully boosting sales thanks to its outstanding performance with lower-income customers.
"We've seen a lot of enthusiasm and the number of $5 meal deals sold are above expectations. Trial rates of the deal are highest amongst lower-income consumers, and sentiment towards the brand around value and affordability has begun to shift positively," said Erlinger.
The fast food industry battles inflation
The decision to extend the McDonald's value meal emerged in an effort to win back its lower-income consumers due to customers' complaints about the increase in the chain's prices.
“Together with our franchisees, we’re committed to keeping our prices as affordable as possible, which is why we’re doubling down with even more ways to save,” said Erlinger.
More McDonald's:
- McDonald’s new $5 Meal Deal isn’t going as planned (so far ...)
- McDonald's president flags a worrisome trend, shifting outlooks
Nonetheless, McDonald's is not the only fast-food chain using discounts and deals to regain customers.
Other fast food chains have also adopted the deal-offering tactic to increase sales, including Subway with its $6.99 Any Footlong Deal, Starbucks's (SBUX) with its Starbucks Run Saturdays, and Burger King (QSR) with its $5 "You Way" meal, which directly competes against McDonald's value meal.
McDonald's' new value approach
The inflation gap between groceries and restaurants is around 3%, with inflation for food at home increasing by nearly 1% and food outside of home prices increasing by 4%.
During McDonald's Q2 earnings call, McDonald's CEO Christopher Kempczinski said that due to the inflation gap, McDonald's is looking to broaden value that will be more beneficial in the long run rather than push one-time or limited-time deals.
Although McDonald's will continue to push deals, it will focus on improving its marketing and cutting costs to bring the business back to positive numbers.
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