That $5 McDonald's value deal might not be cheap enough
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- McDonald's said it got an early boost from its $5 meal deal promotion.
- But fast-food chains need more than limited-time offers to get diners back, an analyst said.
- Other restaurant chains, such as Taco Bell, have come out with revised permanent value menus lately.
Fast-food restaurants are getting an important reminder lately: They need more than temporary deals to get customers in the door after years of inflation.
After annual double-digit price increases at many fast-food chains over the past couple of years, companies are now offering some discounts.
On Monday, for example, McDonald's pointed to some early success with its latest value meal offering: A $5 meal that it initially planned to sell for a month starting at the end of June. The deal has drawn customers to its stores and even convinced them to buy more than just the meal, judging by the average order value of $10, executives said during an earnings call.
However, McDonald's executives also conceded that they still need to do more to attract budget-conscious consumers.
"We have an opportunity to improve our value execution," CEO Chris Kempczinski said on Monday's earnings call.
"Consumers still recognize us as the value leader versus our key competitors, but it's clear that our value leadership gap has recently shrunk," Kempczinski added later.
McDonald's is one of several national chains that has offered temporary discounts this year amid slower foot traffic at restaurants. Wendy's offered a $3 breakfast meal, and even some sit-down chains like Chili's debuted their own cheap meals.
Many chains scrambled or adjusted their long-standing value menus as food prices climbed higher over the last few years.
Last year, for instance, diners called out McDonald's on TikTok as items that cost $1 each disappeared from the chain's tiered value menu. At the time of its introduction in 2018, McDonald's value menu included multiple items at each of three price points — $1, $2, and $3.
Inflation has "disrupted long-running value programs and led consumers to reconsider their buying habits," Kempczinski said during Monday's call.
McDonald's is still figuring out what its permanent value offerings will look like in the US, he added later.
A successor to McDonald's previous value menu won't improve sales overnight, BTIG analyst Peter Saleh wrote in a research note after McDonald's reported earnings. Instead, it "could take several months of sustained advertising" of a new permanent menu before customers take notice.
"We agree that McDonald's needs a broader value platform, and trying to move the consumer with a narrow offering like the $5 meal is not sufficient," Saleh wrote.
Other fast-food chains have been making changes to their set value offerings.
In January, Taco Bell launched its new Cravings Value Menu, which includes items that cost $3 or less, such as Loaded Beef Nachos ($2.99), a Spicy Potato Soft Taco ($1.19), and a Cheesy Roll Up ($1).
Burger King re-launched its own $5 value meal shortly before McDonald's launch date of June 25. Like McDonald's version, Burger King's meal includes a sandwich, fries, chicken nuggets, and a soft drink.
But unlike McDonald's, Burger King plans to run the promotion "for several months," according to a memo reported by Bloomberg.
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