(Bloomberg) — McDonald's is looking to launch a $5 meal deal in the U.S., which the burger chain is betting can lure hard-spending consumers back.
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The deal could include a McChicken or McDouble with fries and a drink, according to a person familiar with the matter who spoke on condition of anonymity. On the company's first-quarter earnings call, CEO Chris Kempczinski said McDonald's had to “focus on affordability” given how diners are stressed out by prices. The company's results were weaker than expected.
“What we don't have in the United States right now is a national value platform,” Kempczinski said, raising questions from analysts about what such an offering might include.
McDonald's shares rose as much as 2.7%, the most since January 2023, in New York trading on Friday following Bloomberg's initial report on the meal deal efforts. Wendy's Co fell as much as 3.7%, and Restaurant Brands International Inc, Burger King's parent company, fell 1.3%.
At McDonald's, franchisees push into an advertising box and participate in major marketing campaigns, including promotions like the viral Grimace Shake. A previous attempt to convince the operators — which operate about 95% of U.S. stores — to approve the $5 meals initiative earlier this year failed, this person said.
Some operators were concerned about losing money in the roughly four-week promotion, especially in states like California, where the minimum wage for fast food workers jumped 25% to $20 an hour earlier this year. McDonald's said franchisees' cash flows have risen about 50% since 2018 and are still rising, although an independent group representing operators has raised concerns about the cost of labor and investments to modernize stores.
To sweeten the deal, McDonald's has tapped money from Coca-Cola, which could help cushion the potential profitability hit for franchisees, the person familiar with the matter said. The size of the beverage company's contribution has not been determined, and the burger chain was not expected to commit funds. Coca-Cola, which often contributes to customer marketing programs, declined to comment.
McDonald's declined to go into details beyond Kempczinski's previous comments. The company, franchisees and suppliers are coming together to offer “great value and affordability” now that “our customers really need it,” John Palmaccio, president of the Operators Advertising Fund, said in a statement to Bloomberg News.
Catch
After years of strong sales and traffic results, McDonald's is now grappling with the decline of low-income consumers, who represent a large portion of its customers.
Kempczinski lamented on the most recent earnings call that the company was offering local deals and packages instead of national promotions, as some competitors do. For example, Burger King has a limited-time $5 two-for-one deal, and Wendy's has a two-for-$3 breakfast deal.
“McDonald's has had such strong sales in recent years that it didn't really need them,” said Mark Kalinowski, CEO of Kalinowski Equity Research, which focuses on restaurants. “Now that the consumer has shown through action that they demand more value than they did even six months ago, McDonald's is changing with the times.”
Earlier this year, a group of independent franchisees urged the company to bring back the discontinued snack rolls, arguing that they are “relatively easy and simple to produce” and could “easily answer the call for more affordable options on the menu.” The organization warned against discounting the chain's “popular” menu items and pushed the company to expand its beverage lineup. McDonald's has opened a number of beverage-focused CosMc locations in part to experiment with new drink combinations.
–With assistance from Brett Polley.
(Updates with arrows in fourth paragraph.)
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