In a bid to rejuvenate traffic among its budget-conscious consumers, McDonald's is expanding its value menu offerings. Part of this comeback strategy includes creating a "more holistic U.S. value platform" starting as soon as next year.
There has been weakness in the lower-income consumer for the better part of the last 18 to 24 months, according to Sara Senatore, senior restaurant analyst at Bank of America.
The issue is "lower income consumers do constitute a disproportionate amount of the customer base for McDonald's," Senatore told FOX Business, noting that the way to drive them back into restaurants "is through value."
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Senatore said there are certain macroeconomic factors outside a company's control and McDonald's can focus on "sharpening their value proposition" to combat the slump in traffic.
In its third-quarter earnings call, McDonald's CEO Chris Kempczinski said the quick-service restaurant sector had faced slowing traffic in back-to-back quarters as consumers continued to eat at home more often.
While the company "anticipated a challenging environment in 2024," its performance so far this year has fallen short of its expectations, Kempczinski said.
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He said its customers see it as the top choice for value compared to its main competitors, but recently, its "value leadership gap has shrunk." In response, Kempczinski said the company "moved with urgency in partnership with our franchisees" to improve its value offerings in most of its major markets.
Senatore believes that this "holistic value platform" the company referenced alludes to a value menu that includes low-priced items, possibly starting at $1, budget-friendly meal bundles, like a $5 combo, and breakfast options.
She also noted that its $5 meal deal "may become a permanent menu item."
McDonald's CFO Ian Borden credited the $5 meal deal for "drawing customers back" into restaurants throughout the quarter.
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"We saw increased traction, particularly with low-income consumers successfully growing traffic share with this group for the first time in over a year," Borden said, adding that the company, alongside its U.S. franchisees, is extending the $5 meal deal into December.
McDonald's reported margin pressure in company-operated restaurants in its latest fiscal quarter because of this emphasis on value, Senatore noted.
Bank of America expects that the fast-food giant will continue to see modest cost inflation in the year ahead and that these margin trends will persist.