Analysts’ channel surveys indicate the platform could be tweaked if it is extended
McDonald’s Corp. franchisees are divided on the positive impact of the $5 Meal Deal, even though most have endorsed extending the value platform for at least another month, analyst surveys of the group indicate.
Many McDonald’s units in the United States will be extending the $5 Meal Deal — intended originally for late June and July — into August, according to news reports this week.
The Chicago-based quick-service chain kicked off the $5 Meal Deal on June 25, offering a choice of a McDouble burger or McChicken sandwich, small fries, a four-piece Chicken McNuggets, and a small soft drink.
Ahead of McDonald’s releasing earnings before the market opens Monday, July 29, several stock analysts conducted surveys of the brand’s franchisees to assess their reactions to the Meal Deal.
“We asked our franchisee contacts to quantify by what percentage their sales are expected to be incrementally helped by the $5 Meal Deal,” said Mark Kalinowski, CEO and president of Kalinowski Equity Research.
“The average response was 1.3%, with a median response of 1%,” he said. “Five respondents said ‘0%,’ while the largest response (two instances) was 3%.
“These responses may suggest that the $5 Meal Deal should be viewed as an initiative that may help prevent some customers from going elsewhere, as opposed to a big sales builder,” Kalinowski noted.
Peter Saleh of BTIG issued a note last week that indicated incremental traffic had yet to materialize.
“Our conversations indicated mixed results from the $5 Meal deal,” Saleh noted. “The deal is generating transactions, but with greater trade down and fewer incremental guest visits than expected. Geographically we heard that performance was mixed with stronger sales in more urban environments that cater to a lower-income demographic.”
Saleh noted that some McDonald’s operators reported selling more than 200 units per day (double the projection) with 20% to 25% of transactions including this $5 Meal offering.
“That said, savvy consumers are utilizing the 20% digital coupon to purchase this meal, which is materially impacting franchisee gross margins,” Saleh said. “Our checks suggest that 20% of customers are ordering this meal deal with an additional 20% discount.
“While we appreciate the need to encourage app adoption, we believe this double-dipping will likely be eliminated at some point in the future as franchisees look to extend this promotion into the fall or even until year-end,” Saleh noted.
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