McDonald’s is considering a $5 value bundle in a bid to bring inflation-weary consumers back into its restaurants.
The fast-food burger chain is working to convince franchisees to OK a $5 meal deal that would last for a limited time. Customers would get their choice of a McChicken or a McDouble, along with a four-piece Chicken McNuggets, fries and a drink. Bloomberg first reported the offer and several sources confirmed it to Restaurant Business.
Operators two weeks ago turned down a $5 offer through OPNAD, or the Operators National Advertising Fund. McDonald’s returned with an offer sweetened with the help of Coca-Cola.
Franchisees we spoke with expect the deal will ultimately get approval in a field vote set for this week. The National Owners Association (NOA), an independent group of 1,000 McDonald’s owners, praised Coca-Cola for stepping in, though it did not explicitly endorse the offer.
“NOA believes the current strategy demonstrates an unwavering commitment by McDonald’s franchisees and our incredible supplier Coca-Cola to address the immediate financial challenges our consumers are facing by offering this phenomenal value to our guests,” the association said in a statement to Restaurant Business.
“There are additional value tests being conducted across the country as we seek even more value options to help our customers during these challenging times,” NOA added. “The franchisees are committed to our guests and are making significant investments to bring these values to them.”
The inclusion of Coca-Cola into the value process is notable. It’s not uncommon for major franchises to seek financial assistance from major suppliers, in the form of rebates or other incentives, to convince franchisees to go along with major ideas. McDonald’s and its beverage supplier have long been close partners.
NOA, however, argues that the third leg of McDonald’s famous “three-legged stool” featuring the franchisor, franchisee and suppliers, should step up financially, too. Historically, the group said, the company helped with such strategies. “The only disappointment is the lack of any financial contribution by McDonald’s to assist with bringing these incredible value offerings to our customers,” the statement said.
Consumers have been reducing the number of visits to restaurants in recent weeks, frustrated by rising prices and overall inflation. McDonald’s executives have made it clear in recent earnings calls that they want to address this issue.
CEO Chris Kempczinski said in early February that the brand was losing lower-income customers to grocery stores that were starting to look inexpensive in comparison to restaurants.
McDonald’s has had deals, but they have largely been local offers or confined to the company’s mobile app. Executives believe a national offer would be more effective in giving customers the value they’re looking for.
Earlier this month, CFO Ian Borden said the company needed a “street fighting” mentality to win a war for a shrinking number of restaurant visits. And executives have argued that franchisee cash flow has improved enough that operators should be able to produce a value offer.
“Clearly, everybody’s fighting for fewer customers,” Borden said. “We’ve got to make sure we’ve got that street fighting mentality to win regardless of the context. Our system is positioned with the strength and capability.”
Franchisees in the McDonald’s system largely determine prices, with help from the accounting firm Deloitte and based on local market conditions. And they’ve been raising prices in recent years because their own costs have taken off. Franchisees worry that more aggressive value will hurt profitability.
Operators are paying more for labor, food, insurance and other expenses. Many franchisees also argue that the company has passed on expenses to the operator base with their own cuts to corporate overhead.
Meanwhile, about 9% of the chain’s restaurants are in California, where fast-food restaurants like McDonald’s are required to pay workers $20 per hour, a 25% increase in wage literally overnight starting on April 1.
The owners association in February argued that store cash flow would be $24,000 per location higher than it was last year had it simply kept pace with inflation.
The group, an independent organization of store owners, argued that the company should examine value-engineered items, such as the McDouble, which was created coming out of the Great Recession to give customers a $1 item that didn’t hurt franchisees. One item the group wants: A return of the Snack Wrap.
Major fast-food brands have been competing increasingly at that $5 price point, using bundled offers to balance the need for lower prices with operator profitability. Taco Bell, Wendy’s and Burger King have all used such bundles to get traffic. And now, apparently, will McDonald’s.
UPDATE: This story has been updated from its previous version with changes throughout, to include a statement from a franchisee association. The story has also been corrected to note that NOA did not endorse the proposal.
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