(Bloomberg) -- McDonald’s $5 meal deal drove a “notable” bump in diner traffic and is helping to capture customers from rivals, according to a company memo to franchisees.
The burger chain said it recorded an “incremental lift” of nearly 3% in guest counts during the promotion, which started on June 25. More diners have tried the deal than the company had anticipated and lower-income households showed the most interest, according to the memo, which was viewed by Bloomberg News.
“Our same-store traffic share is growing, as more of our fans choose us over the competition,” said National Field President Myra Doria and Chief Marketing Officer Tariq Hassan in the memo.
McDonald’s shares slipped 0.2% at 3:20 p.m. in New York trading. Shares of competitor Wendy’s Co. extended their decline following news of the bundle’s performance.
The $5 meal deal, which includes a McChicken or McDouble, four chicken nuggets, small fries and a drink, is a key part of the company’s plan to restore its status as an affordable dining destination as guests cut back on burger outings. In the US, traffic fell in the second quarter from a year ago, contributing to the first decline in same-store sales since 2020. The company expects consumer weakness to continue.
McDonald’s Corp. franchisees voted to extend the promotion, though not in all markets. Operators have raised concerns about profitability, fearing that regulars would trade down from pricier meals to the discounted bundle, hurting margins. Third-party data suggests that average order values declined from the prior year in the weeks overlapping with the campaign.
In its memo, McDonald’s said the average check size was over $10 during the time of the promotion and that the deal was profitable for 96% of restaurants. Brand perceptions are also improving, according to the message.
“We can’t afford to give an inch to the competition — and our competition will have a very hard time keeping up,” Doria and Hassan said, urging franchisees to focus on value as the company launches new products in the fall.
The memo is likely intended to bolster support among the company’s franchisees, who operate 95% of the chain’s US locations. Their reactions to the promotion have included “interest, misinformation, and, at times, confusion,” according to the memo, which sought to provide a “single view of the results.” Operators pay into an advertising fund and get to weigh in on major marketing campaigns such as the national $5 meal deal, so McDonald’s needs them on board.
The bundle is being reviewed by an advertising committee made up of franchisees and is “moving through the traditional voting process,” according to the memo.
‘Value Perception’
The 3% bump in traffic is welcome, but an even greater increase is needed for profits to be sustainable, said John Gordon, a restaurant analyst who runs his own consulting firm.
“The key now is whether there is more lift or if has petered out,” he said in an email.
McDonald’s US President Joe Erlinger said on an earnings call Monday that higher visits haven’t yet translated into more sales.
“There is still much work to be done for McDonald’s to improve its value perception,” KeyBanc Capital Markets analyst Eric Gonzalez said in a note to clients following the company’s quarterly earnings.
The Chicago-based company is eyeing a broader “value reset,” Chief Executive Chris Kempczinski said Wednesday in an interview with CNBC. The number of $1, $2 and $3 menu offerings has shrunk in recent years as prices have climbed.
“I would consider the $5 meal deal a bridge value program, and then what we’ll be doing is putting in place a more permanent value program, much like we had previously,” he said, according to a transcript of his remarks.
(Updates with analyst commentary starting in eleventh paragraph.)
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