McDonald’s began watching its traffic slow down last year as low-income diners pressured by inflation began changing their habits. By this year traffic had worsened enough that in the second quarter its operators couldn’t make up for it with higher prices.
To fix it, the Chicago-based burger giant plucked an offer used by an operator in upstate New York: Either a McChicken or a McDouble along with a four-piece Chicken McNuggets, small fries and a small drink, all for $5.
That deal kicked off late last month, too late to have much impact on the company’s quarterly earnings. Same-store sales declined 0.7% in the U.S. But, said McDonald’s USA President Joe Erlinger, “We’ve seen a lot of enthusiasm and the number of $5 Meal Deals sold are above expectations.”
A system message sent on Wednesday, and seen by Restaurant Business, provides more insight into the results.
The “take rate,” or the percentage of orders featuring the deal, was 10%. But it was higher among lower-income consumers, those in households making $45,000 or less.
The company also argues there was a “nearly 3%, incremental lift” in guest counts for three weeks during the promotion.
The guest count “gap” compared with the chain’s nearest competitors “exceeded 3%,” after it was “roughly flat” going into the promotion. “That means our same-store traffic share is growing, as more of our fans choose us over the competition,” Myra Doria, national field president for McDonald’s USA, and Tariq Hassan, U.S. chief marketing officer, said in the message.
They also argued that the program was profitable in 96% of the system during the time in which the offer ran, and that it generated $305 per week in incremental cash flow per restaurant during that period. Franchisees’ biggest concern about the offer was whether it would generate a profit.
“The facts are clear: This program is performing well,” Doria and Hassan said. “It’s having a clear impact on our business at a time when we can’t afford to give an inch on the competition.”
Doria and Hassan sent the message after they heard “interest, misinformation and at times confusion around the power and performance of the $5 Meal deal.” And they noted that the deal is “right for our customer, right for our business and right for our brand.”
McDonald’s needed to spend some time talking franchisees into approving the deal when they proposed it to the system in May, ultimately winning approval after Coca-Cola agreed to provide some incentives to help franchisees underwrite the cost.
Coke’s inclusion was not necessary when the deal was recently extended by 93% of the chain’s domestic markets. But sources have told Restaurant Business there was some extended pressure on operators to approve the extension, including weekend phone calls with some franchisees.
Yet there’s little question that McDonald’s needs some sort of value effort to regain customer traffic.
Franchisees raised their prices 40% since the pandemic, a clear response to rising costs for food and labor. Customers noticed this, and it influenced traffic.
McDonald’s sales slowdown this year frustrated both the company and its franchisees. Some operators we spoke with, in fact, wonder why there was no value effort earlier to head off this sort of slowdown.
Various consumer surveys have indicated that quick-service restaurants, and McDonald’s in particular, had lost their reputation for value. Surveys have shown consumers now consider fast food a “luxury” and fewer consider such meals affordable.
McDonald’s believes its marketing can change that, so it found the upstate New York $5 Meal Deal and expanded it nationally.
Other data appear to back that up. According to Civic Science, 28% of U.S. adults have tried the offer and most of them would get it again. Only Wendy’s “Biggie Bag,” which has run for much longer, has been more popular.
“We wanted to see a change and improved brand perceptions around value and affordability, and it’s done that,” Erlinger said. “We wanted to make sure that it connected with the single user, especially the lower-income consumer, and we’ve seen that through increasing trial rates by that consumer base.”
McDonald’s sales slowdown likely means the company will continue to find value efforts the rest of the year to get customers back in the door. Erlinger himself said that operators have the profit margins to “invest” in value.
“We have a great lineup of exciting products and menu items coming this fall, but we must maintain our focus on value at the same time,” Doria and Hassan said.