McDonald’s admits it has made mistakes when it comes to its value offerings.
“In late April, we augmented our McValue program with a new under $3 Every Day Affordable Price or EDAP menu. Similar offerings have been consistently successful across our top international markets,” CFO Ian Borden said during the chain’s second-quarter earnings call. “We also added a $4 Breakfast Meal Deal.”
The company, he noted, made some mistakes with implementing those offers.
“Inconsistent restaurant level execution of the EDAP menu and consumer awareness levels below target resulted in lower incrementality than we expected. At the same time, the business pulled back on digital offers and removed our Buy One, Add One for $1 feature to offset the investment behind McValue,” he added.
Those mistakes helped drag down the company’s results.
“In combination, all of these factors negatively impacted visits from some of our most loyal customers. We estimate that these value execution factors accounted for about 2/3 of the customer traffic underperformance relative to our expectations for the quarter,” Borden shared.
Consumers, however, may not like the changes the company will make to fix those problems.
McDonald’s has a plan to fix its value offerings
Borden said the chain would redirect some of its promotions to make sure its best customers are rewarded.
“We’re launching more national digital flash offers to reenergize our high-frequency customers. In addition, we’re going to target our most loyal users with more personalized digital offerings,” he said.
The company also plans to focus more on its pricier Extra Value Meals.
“We’ll also be reallocating marketing dollars throughout the second half of the year to increase support behind our proven value offerings such as Extra Value Meals. While we’ve been pleased to see our value and affordability scores improve significantly since last year, we remain ready to adjust as needed. We have been consistent. We will not get beaten on value,” he added.
That quiet comment tells customers that McDonald’s is moving away from EDAP to its pricier Extra Value Meals offerings. EDAP was an effort to go cheap, while Extra Value Meals represent a broader take on value.
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McDonald’s joins a growing trend
McDonald’s, Wendy’s, Burger King, and Subway have all pivoted their advertising away from pushing low prices, QSR Magazine reported.
That’s intentional, U.S. Bancorp BTIG Analyst Peter Saleh said in an emailed report.
“Absent in these ads is a price point or deep value offering,” Saleh wrote, “which is a significant pivot in message and tacit admission, in our view, that deep value offerings have failed to drive traffic gains.”
The change, he noted, is because extreme value did not drive profits.
“While we don’t expect any of the quick-service operators to abandon value, we think the deep value war is over, and all have lost.”
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McDonald’s has dropped its $3 EDAP menu.
“Looking ahead, we expect more brands to moderate their deep discounts as this strategy has not resulted in incremental traffic, but rather weaker margins and substantially lower stock prices,” Saleh added.
“We are optimistic that fewer, less frequent deep discounts will result in higher margins as the prior strategy degraded margins with little to no offsetting traffic gains.”
McDonald’s pushes value, not low prices
McDonald’s Extra Value Meals are bundled offerings that include a sandwich, a drink, and a side dish. The breakfast menu includes a small coffee or soft drink, a hash brown, and a sandwich.
Breakfast prices in my South Florida market range from $6.09 for a Sausage McMuffin with no egg to $10.99 for the Steak Egg Cheese Bagel Meal. When it comes to lunch and dinner, meals come with a medium fries and a medium soft drink, along with a sandwich.
Prices range from $9.59 for a special offering that comes with two cheeseburgers to $14.29 for the Double Bacon Quarter Pounder with Cheese. A Big Mac Extra Value Meal rings in at $10.59.
McDonald’s does not set prices for its franchise operators, so your local prices could be different.
As a consumer, although not a regular McDonald’s visitor, these prices seem high. I could eat a better burger at Chili’s for around the same money or get multiple meals from a local pizza chain for about double the price.
McDonald’s is calling this “Extra Value,” but to me, it feels overpriced for what you’re getting.
RTM Nexus CEO Dominick Miserandino said that McDonald’s has to walk a narrow line when it comes to price.
“McDonald’s built its business on being affordable. Somewhere along the way, customers started questioning whether a simple meal was worth the price. They don’t necessarily need everything to be cheap. They need to walk in, order lunch and not feel like they overpaid. If the customer doesn’t feel ripped off, they’re good,” he told TheStreet.
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