The burger chain is overhauling its menu and seeking to deliver a 'clear and compelling value proposition'
U.S. visits to McDonald's declined 6.2% in the third quarter.
The fast-food industry's ongoing discount battle got an extra dose of drama on Wednesday as McDonald's said it planned to roll out new value meals next year.
Chris Kempczinski, the burger chain's (MCD) CEO, said on the company's earnings call that it had begun an eight-week test of two value menu formats last week in roughly 1,900 restaurants across a handful of regions in the U.S. He said the chain was testing mix-and-match combos and "fixed" bundles, or set combinations of items.
He said the results from those tests will determine that menu that customers like the most and that fits best with restaurant operations. The company hopes to bring the new program nationwide in early 2027.
"Our goal is straightforward: Customers should see a clear and compelling value proposition every time they consider McDonald's, whether they're looking for an affordable individual item, a complete meal or a digital offer in the mobile app," Kempczinski said on McDonald's third-quarter earnings call.
McDonald's detailed the plans as it works to overhaul its menu, declutter its value offerings and hold on to customers who are juggling higher costs of living and have shied away from dining out. According to Numerator, U.S. visits to McDonald's declined 6.2% in the third quarter. McDonald's U.S. same-store sales during that period slipped 0.2%.
However, Kempczinski on Wednesday said he was "encouraged by our baseline traffic trends in September and October." And he said that U.S. same-store sales turned positive in September, following a dip in July and August. Efforts to win over new and lapsed loyalty members with digital offers - such as a $2 breakfast sandwich, and free fries with a $1 minimum purchase - helped attract more customers.
Investors cheered the news. Shares of McDonald's were up 6.4% on Wednesday, and the stock was on pace for its biggest percentage gain since April 6, 2020, when it rose 10.42%.
However, shares are down 9.1% so far this year. The stock was trading at around $279, off highs of more than $340 reached earlier this year.
Management in August said changes to its McValue discount menu, combined with an array of different promotions, led to questions from consumers and complications for staff. Executives said then that the chain's most loyal customers were stopping by stores less frequently.
In September, executives announced what they said would be the company's biggest menu upgrade ever, with new chicken sandwiches, wings and wraps, hand-breaded chicken, fresher coffee and larger burgers. However, according to an analyst at BTIG, some franchisees complained about the costs of bringing hand-breaded chicken to menus and said the birds themselves might be too big.
Among McDonald's, Wendy's and Restaurant Brands International's $(QSR)$ Burger King, Numerator said that Burger King was the only chain to grow traffic in the third quarter, helped by higher-income households. Burger King also recently made big changes to its menu and restaurants, while Wendy's (WEN), which has been struggling to keep up in the burger wars, recently received a $1.4 billion takeover offer from Nelson Peltz's Trian Fund Management.
During Wednesday's call, McDonald's also called out its new specialty beverages as a bright spot. Chief Financial Officer Ian Borden said that checks that included one of those beverages were up roughly 50% compared with the full-day average, with most sold after lunch, when the traffic rush dies down.
He said the Red Bull Dragonberry Energizer had been particularly popular. Kempczinski said that the company was remodeling restaurants in part to increase space to offer more drinks.
For the third quarter, McDonald's reported adjusted earnings per share of $3.57, above FactSet estimates for $3.38. Revenue of $7.16 billion missed estimates for $7.28 billion. Same-store sales globally were up 1.5%.
-Bill Peters