McDonald’s Corp. is looking to launch a $5 meal deal in the US that the burger chain is betting can lure penny-pinching consumers back in.
The deal could include a McChicken or a McDouble along with fries and a drink, according to a person familiar with the matter who spoke on the condition of anonymity. On the company’s first-quarter earnings call, Chief Executive Officer Chris Kempczinski said McDonald’s had to be “laser-focused on affordability” given how price-weary diners have become. The company’s results were weaker than expected.
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“What we don’t have in the US right now is a national value platform,” Kempczinski said, prompting questions from analysts about what such an offer might entail.
At McDonald’s, franchisees pay into an advertising fund and get to weigh in on major marketing campaigns, including promotions such as the viral Grimace Shake. A prior attempt to get operators who run about 95% of US stores to endorse the $5 meal initiative failed earlier this year, the person said.
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Some operators were concerned about losing money on the roughly four-week promotion, particularly in states such as California, where the minimum wage for fast-food workers jumped 25% to $20 an hour earlier this year. McDonald’s has said that franchisee cash flows are up about 50% since 2018 and are still on the rise, though an independent group representing operators has raised concerns about the cost of labor and investments to freshen up stores.
To sweeten the deal, McDonald’s enlisted money from Coca-Cola Co. that could help cushion a potential profitability hit for franchisees, the person familiar said. The size of the beverage company’s contribution hasn’t been decided, and the burger chain wasn’t expected to put up funds. Coca-Cola, which often contributes to customers’ marketing programs, declined to comment.
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McDonald’s declined to elaborate beyond Kempczinski’s prior comments. John Palmaccio, the chairman of the operators’ advertising fund, said in a statement to Bloomberg News that the company, franchisees and suppliers are coming together to deliver “great value and affordability” now that “our customers really need it.”
Catching up
After years of solid sales and traffic results, McDonald’s is now grappling with a pullback from low-income consumers, who account for a substantial portion of its clientele.
Kempczinski bemoaned in the most recent earnings call that the company was offering local deals and bundles rather than national promotions, as some competitors do. Restaurant Brands International Inc.’s Burger King, for example, has a limited-time $5 duo, and Wendy’s Co. a two-for-$3 breakfast deal.
“McDonald’s has had such strong sales in recent years that they didn’t really need it,” said Mark Kalinowski, CEO of Kalinowski Equity Research, which focuses on restaurants. “Now that the consumer has shown by action that they’re demanding value more than they were even six months ago, McDonald’s is changing with the times.”
Earlier this year, the independent franchisee group urged the company to bring back the discontinued snack wraps, arguing they’re “craveable, relatively simple to produce” and could “easily satisfy the call for more affordable options on the menu.”
The organization cautioned against discounting the chain’s “iconic” menu items and nudged the company to expand its beverage lineup. McDonald’s has opened a handful of beverage-focused CosMc’s locations in part to experiment with new drink combinations.
