McDonald’s (NYSE:MCD) rocked the fast-food sector with reports last week that the cost of 8 combo meals will be set at 15% below the sum of the individual items’ prices. The new combo meal pricing will take effect in early September.
Weighing in on the restaurant sector development, UBS expects a bigger impact from reports that McDonald’s (NYSE:MCD) is bringing back Extra Value Meals at $5 for breakfast and $8 for the Big Mac meals in September and Chicken McNuggets meals in November meals. “We anticipate national marketing support for value plans will drive better value perceptions, while financial support for franchisees likely eases any profitability burden for owner-operators,” noted analyst Dennis Geiger. “While MCD has not officially announced or commented on the reports, our initial franchisee discussions highlight an overwhelmingly positive response to the new plans, with a view that this will help reset everyday value in the U.S.” he added.
Looking ahead, McDonald’s (MCD) new pricing architecture and upcoming value bundles are seen by Geiger and his team as likely to support market share gains over time while placing some increased value pressure on fast-food peers.
However, while UBS expects value activity and intensity could further increase across the restaurant segment as a result of the McDonald’s (MCD) value push, the firm believes more significant investor concerns that the rest of the segment will meaningfully underperform with margins incrementally pressured are moderately overblown.
Geiger noted that Taco Bell (NYSE:QSR) is already seeing success with its $5, $7, and $9 Luxe Boxes. Burger King (NYSE:QSR) is seen as remaining well positioned for continued momentum and market share gains due to benefits from current initiatives. UBS expects Wendy’s (NASDAQ:WEN) could lean in and increase focus on menu value following the McDonald’s (MCD) development.