McDonald’s is an industry giant known for adapting its menu and pricing strategies to stay relevant. One such strategy—the $5 Value Meal Special—seemed like a no-brainer. Offering a perceived bargain for budget-conscious customers, McDonald’s sought to drive sales while addressing growing concerns over affordability. However, this promotion has had mixed results.
In the second quarter of this year, McDonald’s same-store sales dropped 0.7%. It was the first time sales had dropped in four years. To combat that weakness, they initiated the $5 Meal Deal which launched June 25th through the summer months but will now end sometime in December. 1.
When sales slow, retailers often use the time-worn trick of offering one item at a steep discount to get feet in the door. It can be a successful strategy, if those customers also buy other non-discounted items at a normal or better than normal rate.
The Price Perception Problem: Why $5 Might Not Feel Like a Deal Anymore
Restaurants and particularly fast-food have been seeing negative sales recently due to inflated menu prices that were a result of increased labor and supply costs.
According to the U.S. Bureau of Labor Statistics, inflation for food-away-from-home has increased 3.9% so far this year versus 1.3% for food-at-home. That means eating out this year has increased three times faster than eating at home. Consumers have noticed the difference.
McDonald’s customer base tends to be working middle class and below. This demographic doesn’t necessarily feel the benefit of a booming stock market or low employment. Their wages haven’t gone up as fast as inflation. They may understand that the rate of inflation has gone down, but if they buy a meal out, the cost is significantly higher now than how they remember it a couple of years ago.
Mixed Data on Success: Has the $5 Meal Deal Boosted Sales?
While McDonald’s saw a bump in sales soon after the June 25 launch, the promotion had not impacted sales as of July. There is evidence that consumers’ interest in the deal was better than in competitors’ value promotions.
According to an M Science digital purchase data report.
McDonald’s meal deal also helped bring back lapsed customers. Twelve percent of customers who purchased the meal had not been to the chain during the previous three months, per the report. Roughly 5% were new customers.
In the weeks after the $5 Meal Deal launch, M Science found that orders with the bundle had 12% higher checkers than orders without it. The promotion has been ordered more frequently as an add-on to other items rather than as a standalone purchase.
The data also points out that a high percentage of “regular customers” are adding the special to their order rather than substituting it for other higher-priced options. If this proves to be the case, it will allow McDonalds to be less aggressive in pricing other menu items.
The Road Ahead for McDonald’s—and Fast Food in General
So far the data has yet to prove that McDonald’s has made any significant shift in consumer’s perceptions of the company’s value. According to research company HundredX:
As of August, customer perception on price fell 16% year over year and continues a downward trend despite evening out during the summer.
…Comparatively, HundredX reported a 4% decline year over year in customer price perception for the quick, fast casual segment (QFC) in August.
Despite McDonald’s challenges, it is outperforming its competitors as a whole. The pressure on menu prices is an industry-wide problem and one that will not go away anytime soon.
While offering a value meal may seem like a straightforward way to boost sales, customer sentiment is shifting rapidly. Other brands would do well to take note: when it comes to pricing, perception is as important as reality, and both must be managed carefully to ensure long-term success.
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