McDonald’s Corporation is set to intensify the fast-food price war with the launch of a new $5 value meal, aimed at attracting budget-conscious customers who have cut back on fast food due to inflation.
On June 25, McDonald’s will begin a nationwide marketing campaign to promote the new meal deal, which includes a McDouble or McChicken sandwich, small fries, a four-piece chicken nuggets, and a small soft drink. Joe Erlinger, president of McDonald’s US, emphasized the company’s commitment to “winning the value war” in an interview with Bloomberg News.
The move comes in response to similar value-oriented promotions from competitors. Burger King announced plans to roll out its $5 value meal, and Wendy’s introduced a $3 breakfast offer, mocking its rivals on social media. Even Starbucks joined the fray with a $6 breakfast combo.
Despite the competition, Erlinger remains confident, citing McDonald’s vast size and marketing capabilities as significant advantages. He highlighted that the incremental cost of adding fries and a drink to a sandwich is minimal, giving McDonald’s the ability to offer competitive deals without heavily impacting franchisee profits.
However, not all franchisees are on board. An independent franchisee group representing about 1,000 members expressed concerns that the $5 value meal might lead to customers trading down from more expensive options, like the $9 Big Mac combo, potentially impacting profits. The group emphasized that a 30% discount model might not be sustainable long-term.
Despite these concerns, McDonald’s reported success with a local $5 promotion in upstate New York, attracting lower-income consumers while also driving additional sales among wealthier customers who purchase more than just the meal deal.
For McDonald’s, this promotion is not just about boosting sales. The campaign also aims to counteract the perception that the chain has become too expensive, following viral social media images of an $18 Big Mac combo meal in Connecticut. Erlinger clarified that such high prices are anomalies and noted that McDonald’s prices have increased by an average of 40% since 2019 to offset rising costs.
Customers like Dylan Covington from Fort Wayne, Indiana, illustrate the challenge McDonald’s faces. Covington, who used to visit McDonald’s weekly, now goes only every two or three months due to price hikes. He opts for local restaurants where he can get better value for his money.
As disposable income growth stalls and debt piles up, many Americans are dining out less, making fast food more of a special treat. McDonald’s competitors have been quicker to introduce value deals, with Arby’s and White Castle launching similar promotions earlier this year.
Bank of America analyst Sara Senatore noted that McDonald’s seemed slow to respond to the growing demand for value meals. However, Erlinger stated that customers are now more discerning about their spending, prompting McDonald’s to propose a larger national deal to its franchisees. Initially hesitant, franchisees eventually supported the promotion, encouraged by additional funds from Coca-Cola Co.
McDonald’s is also leveraging its mobile app to offer additional promotions like free fries, which have proven effective in increasing order frequency and boosting sales.
While the $5 meal promotion may not provide an immediate fix, McDonald’s history with value menus, such as the original dollar menu launched in 2002, suggests that it could drive strong results over time. CEO Chris Kempczinski indicated that the 2018 value menu took a while to gain traction but eventually succeeded.
Looking ahead, McDonald’s plans to remain competitive in offering value and affordability beyond the $5 meal deal. Competitors, including Burger King, see the increased focus on value as a potential boost for the entire industry, with Patrick Doyle of Restaurant Brands International hoping it will encourage more customers to return to fast food.
In summary, McDonald’s new $5 value meal is a strategic move to reclaim budget-conscious customers amid a fierce fast-food price war, leveraging its scale and marketing power to stay competitive while addressing concerns about affordability and value.
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