McDonald's is rolling out a special $5 value menu next
month to try to lure some prices price conscious consumers
back to its restaurants as inflation sticks around.
Will it work? That's the question of the morning and
John Ford is here
to weigh in. What do you think?
Well, Andrew, yes, a $5 value meal and a national
ad campaign.
I'll have people loving it again.
The problem is, consumers at the lower end of the
income spectrum have just been painfully stretched lately.
As we saw in Wednesday CPI report,
rent prices are hogging family budgets,
leaving less for splurges like eating out.
It's not just McDonald's issue.
Remember Starbucks earnings 2 weeks ago?
Ugly. More consumers looking for deals.
Same with fast food rival Wendy's,
where the CFO recently backed off the idea of hiking
and prices during busy times.
The sure Chipotle is doing well,
but they're still in growth mode compared with McDonald's,
which is everywhere. So what will
$5 at McDonald's and a value menu get you?
Well, it sounds great. You get a sandwich,
either a chicken or a Mcdouble,
which I had never heard of,
but apparently it's a budget double cheeseburger with only one
slice of cheese,
small fries, small drinks, 4 Nuggets.
Now, getting this value menu approved by the franchisees was
like passing an amendment to the Constitution.
They sent it back, said the numbers don't work.
Coca-Cola had to break the deadlock by kicking in a
few $1,000,000 of incentives.
But now McDonald's can do a national ad campaign with
a simple message with a low price that people want
Andrew
subsidized. Yeah, that's hilarious. It's like more than $4 million
Coke. Yeah. OK. So that might boost traffic in June,
but the question is, is this going to linger,
right? Is this discount what's going to happen when it
goes away?
Well, Andrew, on the other hand,
the challenge for McDonald's goes a lot deeper than foot
traffic and discounts.
CEO Chris Kamczynski argued on the earnings call that a
national deal with an ad campaign will do wonders.
But that's not going to fix the fact that labor
costs have risen,
food costs are staying high,
and there's a lot more competition for the fast food
dollar from fast casual on the higher end and from
groceries on the lower end.
The real set up to this problem was Q1 of
last year when McDonald's raised menu prices to cover costs
and the average ticket size went down.
That was a warning that a reckoning was coming.
Now there's a bright spot on the technology side.
The touch screen kiosks that are now in one in
four stores are allowing more low cost sales and smartphone
ordering and delivery are catching up.
And that's where the fix is going to come from
for McDonald's,
not from value meals and ad campaigns.
Franchisees almost blocked the $5 menu because it pinches profits.
Yes, McDonald's is going to have to ramp loyalty programs
to boost frequency and refresh menus to boost spending.
But with labor costs higher thanks California,
the company needs tech, maybe even AI,
to boost productivity. Not just lower prices.
Lower costs Until we really get
automated and robots and everything.
I feel bad for people that there are people that
that's where that's their first experience with work.
It's an entry level position and they're going to go
away.
They're going to go away.
If you got to pay
$25.00, will they go away or will there just be
fewer people per restaurant and maybe more restaurants?