Bernstein analyst Danilo Gargiulo called its first national value offering since 2018 a “continuation” of the trend that investors saw in the second half of 2024.
“Affordability [and] value matters,” Gargiulo said. In the past year, McDonald’s has been challenged by consumers saving money by eating at home, other fast food giants rolling out more value offerings, and fast-casual chains like Chipotle (CMG), Cava (CAVA), and Sweetgreen (SG) gaining market share.
Franchise operators are fairly certain that the McValue platform will lure in customers, offsetting any hit to margins.
“There may be a margin challenge where we are providing food at a great value, but if we can bring more people in, then it will take care of that. That’s our goal,” McDonald’s franchise operator David Costa, who operates 18 locations in Florida with his father, told Yahoo Finance over the phone.
The McValue platform includes a $5 meal deal that launched last June, which led to a slight boost in foot traffic but was later disrupted by the E. coli outbreak that began in October. It also has a buy one, add one for $1 option. Lastly, there will be local deals and in-app exclusives like 20% off $10 or more.
All US locations will begin offering the McValue platform starting this Tuesday.
Furthermore, McDonald’s is partnering with 16 brands in the first few weeks of 2025 for additional deals, such as one free month of YouTube TV (GOOG) and even a Tinder Gold Premium Access subscription (MTCH). Customers can access them through advertising campaigns on various platforms.
A franchise owner, who asked to stay anonymous but frequently posts on X as McFranchisee, told Yahoo Finance “margins will be compressed, but we do believe with the [increase] of guest counts that it yields overall positive cash flow to the restaurant.”
The franchise owner also shared “how difficult” it was to create a value platform that works across various regions in the US.
Wedbush analyst Nick Setyan doesn’t expect the value platform to be a big profit driver, but getting more customers in the door could result in some diners trading up to more expensive items on the menu.
“As long as [the franchisees are] not losing money, they’ll be happy,” he told Yahoo Finance over the phone.
The menu could be a “big transaction driver,” potentially music to investors’ ears, as even a 2% same-store sales growth would be “good enough” in this competitive value environment, according to Setyan.
For comparison, last quarter McDonald’s US posted a 0.3% year-over-year jump in same-store sales.
Gargiulo said it will take time to see results on the balance sheet, once it laps the original launch of the $5 meal last June.
“Moment of truth really is going to be the third quarter … we will know whether this is actually incremental to the $5 meal deal or they are in this new normal,” he said.
McDonald’s, Taco Bell seen as leaders in value
Jefferies analyst Andy Barish expects more competition this year.
In 2025, value will be “more noticeable and more heavy” following the traditional promotional periods like the holidays and summer.
“Two brands that typically win with everyday, affordable prices … McDonald’s and Taco Bell,” said Barish, who has a Buy rating on McDonald’s and Hold on Taco Bell’s parent company, YUM! Brands (YUM). Last year was a “pause” for McDonald’s “significant market share gains” in the US.
Barish called the McDonald’s McValue platform “not good news” for players like Burger King (QSR) and Wendy’s (WEN), who have to ramp up their own value deals.
BTIG analyst Peter Saleh, who has a Neutral rating on McDonald’s, said launching a value platform is now “kind of a necessary evil” for fast food giants.
“When McDonald’s discounts, everybody has to do the same. It’s like a game of follow the leader … [and] discounting is never great for profitability,” said Saleh, who expects the first two months of this year to be heavily promotional.
Earlier in the week, Subway introduced its Meal of the Day deal, which includes a six-inch sub for $6.99 or a footlong for $9.99, along with two cookies or a bag of chips and a small beverage.
Saleh noted Chipotle (CMG) as a stock to own in the space. The burrito chain posted mixed third quarter earnings after a string of winning quarters but has maintained superior value perception.
The average chicken burrito is still under $10, even with a recent 2% price increase.
“We think about value very differently [than competitors] at Chipotle,” CEO Scott Boatwright told Yahoo Finance’s Opening Bid podcast.
“I think about it as an equation, as benefit over price,” he said. “As price moves up, benefit has to improve at the same pace to keep value the same for the consumer.”
On Friday, the fast-food chain unveiled the “McValue” menu, a new, budget-friendly category that will roll out at US restaurants on January 7, 2025. The popular $5 meal deal, unveiled earlier this year, will be the centerpiece of it. The menu will also feature a new “Buy One, Add One for $1” option that includes breakfast.
McDonald’s is trying to reignite growth after a dismal few quarters. The value perception of the chain has dimmed among its cash-conscious customers because the average price of its menu items has soared around 40% over the past five years, in line with rising costs according to the company.
“When it comes to value, we know there’s no one-size-fits-all. We’ve worked closely with our franchisees to create a new platform that will let our customers define value on their own terms,” Joe Erlinger, president of McDonald’s USA, said in a statement.
The chain had been making some progress before an E. coli outbreak in October caused sales and traffic to nosedive. McDonald’s announced last week that it’s pumping $100 million into marketing and aid to franchises most heavily affected by the health scare.
Also on the McValue menu are more in-app offers, plus local food and drink deals organized by its franchisees.
The new menu category is McDonald’s largest value-minded effort since 2018, when it priced some items from $1 to $3.
But the dollar menu proved relatively unpopular compared to the far more successful $5 value meal, which rolled out this summer. Customers weren’t necessarily shopping for inexpensive food as much as more bang for their buck.
Ultimately, inflation has all but wiped out the items found at the lower end of that pricing tier. The McValue menu will replace what’s left of it.
