McDonald’s playbook, created to negate rare traffic and sales slippage among low-income consumers, was working as planned until the company’s E. coli outbreak impacted a big chunk of its domestic system last week.
The $5 Meal Deal, launched in June, improved the chain’s value perception, for example. It also connected with lower-income, single-user consumers, drove guest counts, and generated an average check of $10, which cleared the profitability bar for franchisees. Additionally, the traffic gain among low-income consumers marked the first time the chain achieved that metric in over a year.
“The $5 Meal is doing exactly what we set out to have it achieve. Those things are coming to life,” chief financial officer Ian Borden said during the company’s earnings call Tuesday morning.
The $5 Meal Deal, combined with strong marketing campaigns such as the Collector’s Cups – which sold out in two weeks – created significant momentum for the chain toward the end of the quarter, executives said.
“While QSR slowed, we were encouraged by signs of progress in Q3 – consistent market share traction, especially in the U.S., strong, compelling value platforms, menu innovation, which excited customers, and strong marketing prowess that drove engagement on higher margin core items,” chief executive officer Chris Kempczinski said during the call.
That said, Kempczinski acknowledged the company’s performance isn’t good enough.
“The QSR sector has meaningfully flowed with industry traffic declines and low-income consumers are choosing to eat at home more often,” he said. “That trend continued in Q3 where QSR remained pressured. We anticipated a challenging year in 2024, but our performance this year has fallen short of expectations.”
McDonald’s and its franchisees are employing longer-term value strategies to gain more traffic and market share, including what it calls EDAP (every day affordable price) – or entry-level price points to bring consumers into the restaurants – paired with meal deal programs, and overlayed with in-app and digital offers.
“Blending EDAP and meal bundles allows us to invest in and build recognition so when consumers are thinking about affordable options for food, we’re top of mind. That’s the general framework of how we think about value and learn from what works,” Kempczinski said.
We can expect to see such strategies put into place during the first quarter of 2025. We’ll also see a continuation of marketing campaigns – the Collector’s Cups drove high-check, full-margin customers into restaurants, for instance – and new menu news, like the October launch of the Chicken Big Mac.
Notably, McDonald’s momentum in late Q3 and early Q4 included more customers visiting and spending more during those visits, driving check and profitability. Borden said the U.S. market was outperforming the broader QSR segment with comp sales and guest counts at the highest point since the beginning of 2023.
That momentum, however, came to an abrupt halt with the E. coli outbreak, which has hit traffic by more than 9% in impacted markets and 31% in Colorado, where the outbreak was most widespread, according to data from Placer.ai and reported by CNN. Kempczinski opened the earnings call by apologizing to guests for the outbreak, adding that the company is working to reinforce the trust it gained prior to the outbreak, noting that the last safety compromise from the chain happened more than 40 years ago.
“We have to be very transparent on this issue. We’ve worked collaboratively and decisively with health authorities and took swift and decisive actions,” he said. “I think we’re past this and on the road to getting back to serving customers.”
How McDonald’s shifts its focus from here is by continuing its $5 Meal Deal, releasing more menu news, and driving digital engagement.
“We stand ready to do more if we need to, to make sure we’re bringing the full resources of McDonald’s to re-engage our customers,” Kempczinski said. “We can make sure we’re communicating the steps we’re taking and if there is lingering unease out there, we can address that while at the same time driving value and marketing news. We have ample resources to address whatever the business opportunity is, and we’re prepared to do that.”
McDonald’s Q3 by the numbers
- Global comp sales decreased 1.5%
- U.S. comp sales increased 0.3%, reflecting average check growth and partly offset by slightly negative comp guest counts
- International Operated Markets segment decreased 2.1%, impacted by negative comp sales across several markets, driven by France and the United Kingdom
- International Developmental Licensed Markets segment decreased 3.5%, impacted by the war in the Middle East and negative comp sales in China
- Consolidated revenues up 3%
- Systemwide sales were flat
Contact Alicia Kelso at [email protected]
