McDonald’s committed to winning burger wars with the help of the $5 meal deal

McDonald’s (NYSE:MCD) is committed to reclaiming its standing as a value proposition to consumers, reassuring franchisees that the $5 Meal Deal is attracting consumers from other chains and is profitable for 96% of restaurants.

According to a memo viewed by Bloomberg, the reception to the value meal was better than the company expected, providing an “incremental lift” of 3% to guest counts during the promotion. And consumers are choosing McDonald’s (MCD) over rival fast-food chains, the company said.

“We can’t afford to give an inch to the competition,” National Field President Myra Doria and Chief Marketing Officer Tariq Hassan said in the memo, adding that, “our competition will have a very hard time keeping up.”

During the company’s most recent earnings call, executives remained upbeat about the promotion despite a decline in Q2 comparable store sales, its first since the pandemic. While the timing of the Meal Deal has not been fully absorbed into quarterly results, and comparable sales are likely down due to lapping of the successful Grimace Birthday Meal promotion last year, the decline spooked investors and warranted a response from the company’s CEO.

“Relative to the $5 meal deal, it’s really performed and done exactly what we wanted it to do,” McDonald’s CEO Chris Kempczinski said on the call, especially with lowest income cohorts. Kempczinski acknowledged that the success of the promotion has not yet translated into sales, but the average check has been over $10 for the $5 Meal Deal, indicating strong add-ons as part of the program and securing profitability for the restaurant.

Kempczinski sees the $5 Meal Deal as “bridge value program” before putting in place a more permanent value program with the hope it will restore traffic to the chain and continue to lure consumers from its competitors.

“McDonald’s has defined value in our industry, and we are taking meaningful actions across the world to assert our leadership. The hallmark of a great company is its ability to perform in good times and in bad, and we are resolved to reignite share growth in all our major markets regardless of the prevailing market conditions,” he said.

But the turnaround is hardly assured, despite cheap menu prices. “There is a chance that McDonald’s could return to positive comp growth in the second half of the year,” Seeking Alpha investor group The Asian Investor writes, adding that, while it remains uncertain if the company can lure in more customers in a lower-inflation world, “I believe it is safe to say that shares will have a hard time moving higher unless McDonald’s achieves a turnaround in comp sales.”

Shares of McDonald’s (MCD) are down 10% YTD compared with a 16% increase in the S&P 500. Its competitors are experiencing similar share performance with Wendy’s (WEN) down 19% YTD, Burger King (QSR) down 10%, and Taco Bell (YUM) lower by 4%.