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McDonald’s may be willing to lose money on $5 meal deals if it means winning back disgruntled cash-strapped customers

In Business
May 14, 2024

McDonald’s diners have not pulled any punches in saying how they feel about the burger behemoth ratcheting up prices to $8 for a chicken sandwich and $18 for a Big Mac meal—a phenomenon they’ve begrudgingly dubbed “McFlation.”

“It’s $25.39 for a 40-piece nuggets and two large fries. You couldn’t even throw in the Sprite?” one TikToker grumbled.

Now the fast-food giant is avoiding further beef with its customers, planning to introduce a $5 meal deal to U.S. customers for a limited time, Bloomberg reported. The meal bundle could include a McChicken or McDouble, fries, and a drink—resembling similar promotions from the chain in other countries, such as Germany’s McSmart Menü. Coca-Cola will reportedly contribute funds to the fast-food chain to offset potential losses in profitability.

McDonald’s USA told Fortune that the company has always offered similar meal deals, with 90% of franchisees selling meal bundles for $4 or less. The company declined to comment on a potential $5 meal deal.

The move would deliver on CEO Chris Kempczinski’s promise on increasing cost-effective menu items after McDonald’s missed earning expectations for the first time in almost four years in 2023’s fourth quarter, in part because of price hikes. Kempczinski admitted consumers making less than $45,000 per year—once McDonald’s core customer base—were no longer dining at the burger chain, opting instead to cook at home thanks to the cooling inflation of groceries.

“I think what you’re going to see as you head into 2024 is probably more attention to what I would describe as affordability,” Kempczinski told analysts in February. “The battleground is certainly with that low-income consumer.”

McDonald’s weak sales in its 2024 first quarter reiterated the need for a push toward affordability. While the company continues to be hit by boycotts related to the ongoing conflict in Israel and Gaza, McDonald’s also attributed its 1.9% comparable sales growth, which just missed Bloomberg’s expectations, to low-income customers pulling back. Kempczinski further hinted at economical menu deals, calling online promotions effective but “very fragmented.”

Franchisee skepticism

Despite customer calls for cheaper food, the new $5 meal deal is not universally beloved. Bloomberg reported that some franchisees worry about the company losing money on the promotion. Some restaurant operators, who get an input in McDonald’s marketing campaigns, did not approve of a $5 meal-deal initiative earlier this year. An independent franchisee instead pushed for the reintroduction of products like the snack wrap, which, in addition to being more affordable, are also easier to make.

In states such as California—which recently raised the minimum wage for fast-food workers to $20—franchises have repeatedly warned customers of raising prices to offset increased labor costs and inflation. The California Restaurant Association said last month that fast-food prices have increased up to 8% since the enactment of the law.

But trends of inching up fast-food prices over increased restaurant operating costs is a persistent story in the industry, particularly at McDonald’s. In 2008, the chain did away with its $1 double cheeseburger, replacing it instead with a $1.19 burger with two hamburger patties and only one slice of cheese, attributing the change to increased beef and bun prices.

Small changes for the chain add up: McDonald’s has seen a 100% increase in menu prices since 2014, according to credit-card consultancy FinanceBuzz, a trend replicated across the entire fast-food industry. Popeye’s is close behind the golden arches with an 86% rise in prices in the same period, with Taco Bell increasing prices by 81%. That price swelling has far outpaced the inflation rate of 31% in the last 10 years.

McDonald’s refuted the FinanceBuzz reports, saying “pricing is set by individual franchisees and varies by restaurant,” but did not provide alternative data of its own.

But history hints that fast-food chains have been rewarded for listening to penny-pinched customers in times of economic strain. Harry Balzer, a restaurant industry analyst at the NPD Group, predicted after the death of McDonald’s $1 cheeseburger that fast-food chains conscious of customer pain points would be the ones to come out on top.

“We’ve seen an uptake in a number of restaurants that are enjoying a lot of success because of their value offerings,” Balzer told ABC at the time. “Right now, consumers are clearly looking for a deal, and those that are offering one that is new and noticeable are winning.”

This story was originally featured on Fortune.com

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