"Analysts predict that, in light of the ongoing competitive pricing strategies employed by major fast-food chains such as McDonald's, other players in the industry will likely adopt similar approaches."
In response to last year's efforts by fast-food chains to attract cost-conscious customers during inflation, McDonald's Corp. has commenced 2025 by unveiling its latest initiative: the "McValue" menu. This new offering aims to provide greater flexibility for customers to customize their meal choices, along with additional benefits.
While the change could enhance the marketing power and increase foot traffic for the burger chain, experts suggest it also highlights the challenges the fast-food sector faces in appealing to consumers. Additionally, they note that the updated menu raises questions regarding how McDonald's competitors may react.
In a report released last month, BTIG analyst Peter Saleh highlighted the imminent introduction of the McValue platform. He expressed his expectation that the start of this year would mirror that of the previous year, as restaurant chains aim to attract customers once again through an array of enticing deals.
"The restaurant sector has traditionally emphasized value during the months of December to February, as customers tend to splurge during the holiday season and seek to cut back in other areas," he noted. "With major quick-service giants like McDonald's consistently pushing value, we anticipate that the rest of the industry will align with this trend, intensifying their focus on value at least through the first quarter of 2025, and probably continuing into the summer months."
The McValue platform has introduced an exciting new "buy one, add one" deal for just $1, complementing its popular $5 Meal Deal. This launch on Tuesday was supported by a shout-out from actor and WWE superstar John Cena. Additionally, customers can look forward to more promotional offers during the early weeks of this year, such as a complimentary month of YouTube TV and a subscription to Tinder Gold Premium Access.
On Tuesday, RBC analyst Logan Reich, who analyzes companies such as Wendy's Co. (WEN) and Jack in the Box Inc. (JACK), highlighted that Subway is introducing new meal deals, while KFC, a subsidiary of Yum Brands Inc. (YUM), has reintroduced its $5 bowls.
"According to Reich's research note released on Tuesday, McDonald's is rolling out its much-anticipated value platform today, although we are approaching our quick-service coverage with some caution due to the possibility of losing market share."
"It's somewhat uncertain what adjustments, if any, might be made to our coverage's value strategies, especially if they face a significant decline in traffic as we anticipate consumers will remain focused on value," he added. "We believe this will be a major point of interest for investors as we approach earnings reports."
In the wake of pandemic-related challenges and a surge in food prices nearly three years ago, the restaurant sector has faced difficulties in reconciling profitability with rising expenses for labor and ingredients. In particular, the increases in menu prices, especially in the fast food segment, have turned away customers, notably those from lower-income brackets.
In the previous year, restaurant chains attempted to regain consumer loyalty by offering more affordable options. However, this strategy of lowering prices results in reduced profit margins for these establishments.
In October, McDonald's announced that its $5 Meal Deal successfully attracted customers back to its locations in the third quarter. Nevertheless, the company faced challenges due to an E. coli outbreak during the same period, which deterred some patrons. CEO Chris Kempczinski expressed his apologies regarding the situation.
In the last year, McDonald's stock has decreased by 0.5%. On Tuesday, the shares fell by 1%.
-Bill Peterson
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01-07-25 2055 Eastern Time
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