McDonald’s is showing signs of recovery from two rare negative quarters in Q4 and Q1. The company reported a second quarter same-store sales increase of 2.5% in the U.S. business before the market Wednesday, driven by the McCrispy Strips launch, the Minecraft Meals promotion, and “good progress on value offerings,” according to chief executive officer Chris Kempczinski.
“Our $5 Meal Deal continues to resonate as we recently celebrated the one-year anniversary of the program,” he said during the company’s earnings call. “We’re also getting incrementality from our McValue platform.”
Chief financial officer Ian Borden added that the Minecraft promotion — the company’s largest global campaign ever — boosted guest counts in its more than 100 markets, with collectibles running out faster than anticipated.
Further, the McCrispy Strips launch in early May led to a “groundswell” in sales and higher levels of customer satisfaction, Borden said. It also laid the groundwork for the much-anticipated return of the Snack Wraps in early July, which has generated a positive consumer response.
Despite these positive trends, executives remain wary about the general state of consumers, specifically low-income consumers, with whom the chain overindexes.
“Overall, QSR traffic remained challenging and visits by low-income consumers declined by double-digits versus the prior-year period,” Kempczinski said. “Re-engaging low-income consumers is critical as they typically visit more frequently. This bifurcation is why we remain cautious about the near-term health of the consumer and will be agile about value offerings.”
The evolution of value continues
This agility was recently illustrated with the addition of the premium Daily Double Burger to the McValue platform. On that platform, there is just 8% of crossover between $5 Meal Deal customers and buy-one-get-one for $1 customers, which provides more room for adjustment.
“We’re going after two very different occasions and users, but (McValue) is compelling to both,” Kempczinski said.
The company is also pushing strong value offerings through its MyMcDonald’s loyalty program. The program currently includes about 185 million 90-day active members globally, or about one-fourth of all guests, with a goal of reaching 250 million by 2027. Those members visit nearly three times more than non-members.
“We have exceptional value and affordability scores among those (loyalty) consumers. You see an uptick in frequency when we have a loyal consumer, from 10 visits from those who are non-members to 26 visits with loyalty members,” Kempczinski said. “So, we feel good about loyalty and where we are with McValue.”
That said, both programs only account for about 50% of all McDonald’s guests. The other 50% is where the company is focused on core menu pricing.
“Too often, that (other 50%) consumer, they’re seeing combo meals priced at over $10 and that is shaping value perceptions in a negative way,” Kempczinski said. “We’ve got to get that fixed. The single biggest driver of what shapes consumers’ overall perception of value is on the menu board.”
Executives added that such pricing requires a balance between core items to protect margins, as well as national value price points that are “significantly incremental.” The nationally advertised pricing requires deep collaboration with franchisees, who recently voted to extend the $2.99 Snack Wraps price point to the end of this year.
The spotlight turns to beverages
McDonald’s is also “rapidly moving forward” on a more robust beverage platform, with a 500-restaurant test planned in early September that is expected to move quickly into a national rollout. There are plenty of reasons for having such urgency.
“There is a really large market opportunity for beverages. It’s growing and it’s more profitable than food, so there are a lot of things to like, which is why us and a few of our competitors are excited about this,” Kempczinski said.
To maintain an edge amid that intensifying competition, McDonald’s is leveraging learnings from its CosMc’s beverage concept, which first opened in December 2023 before growing to about eight locations and closing in June.
“What we learned is that (beverages are) not nearly as complicated as we thought,” Kempczinski said. “Consumers aren’t looking to design a beverage from a blank slate. They want to be given a recipe and make adjustments around the edges. We feel good about the operational elements of this. I don’t see us going from 500 to 1,000. This is 500 to full market potential.”
The beverage test begins in the third quarter and is part of a broader calendar closing out the year that includes “exciting news across value, menu, and marketing,” Borden said, providing some bullishness following a challenging few months.
“However, traffic, especially for QSR, remains challenging,” Borden said. “We will leave no stone unturned when exploring guest count-led growth and we’re working closely with our franchisees to evaluate opportunities to improve our core menu offerings.”
Contact Alicia Kelso at [email protected]
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