According to insiders, McDonald's is planning to launch a package as low as $5 in the United States, and the hamburger chain is hoping that this low-priced package can attract budget conscious American consumers back to their stores.
According to a person familiar with the situation, this package may include a McChicken or McDouble double, as well as French fries and drinks.
In fact, during McDonald's first quarter earnings conference call, CEO Chris Kempczinski mentioned that given the increasing sensitivity of consumers to prices, McDonald's must be very focused on affordability for people. He pointed out that what is truly important is to note that all income groups are seeking value, and the company will then provide "entry-level packages" with "price attractiveness" for those familiar items to consumers.
After the news that McDonald's is expected to launch low-priced packages was announced, McDonald's stock price rose 2.63% in the New York market on Friday, marking the largest increase since January 2023.
Wendy's Co., McDonald's main competitor in the US market, experienced a decline of up to 2.2%, while Restaurant Brands International, the parent company of Hamburg, also experienced a decline of 0.5%.
At McDonald's, franchisees often need to cooperate with McDonald's to participate in major marketing activities. The insider said that earlier this year, McDonald's attempted to persuade franchisees to support the $5 package initiative, but it ultimately ended in failure. McDonald's operates approximately 95% of its 13400 restaurants in the United States through franchisees.
Some operators are concerned that the promotion, which will last for about four weeks, will bring losses, especially in states such as California, where the minimum wage for fast food workers jumped by 25% earlier this year, reaching $20 per hour. But McDonald's stated that since 2018, the cash flow of franchisees has increased by about 50% and is still on the rise.
This person familiar with McDonald's said that in order to increase the attractiveness of the package to franchisees, McDonald's has mobilized Coca Cola to help bear some financial costs, which may help alleviate the potential profit shrinkage of franchisees.
However, people familiar with the situation mentioned above stated that the scale of Coca Cola's investment has not been determined yet, and McDonald's itself is not expected to invest any funds. Coca Cola used to frequently provide financial support for customers' marketing plans.
Can a low price strategy work?
Currently, after years of stable sales and customer traffic performance, McDonald's is facing a loss of low-income consumers. For a long time, low-income consumers have accounted for a considerable proportion of McDonald's customer base.
McDonald's has previously stated that it has found that the low-income consumer group in the United States has started to reduce their visits to restaurants and instead cook at home in the past few months.
In response, Kempczinski complained during a recent earnings conference call that McDonald's previous strategy focused more on providing local discounts and bundled services, and could not conduct nationwide promotions like some competitors. For example, Burger King recently launched a limited time $5 two person package, and Wendy's also offered a $3 breakfast discount for two servings.
Mark Kalinowski, CEO of Kalinowski Equity Research, a consulting firm focused on the catering industry, said, "McDonald's sales have been very strong in recent years, to the extent that they have never needed to do so. But now, consumers have shown through their actions that they are becoming increasingly picky in spending money, and McDonald's has had to keep up with the times."
It is worth mentioning that earlier this year, an independent franchise group urged McDonald's to restore the packaging of snacks that have been discontinued. They believed that these products were "coveted, relatively simple to make", and could "easily meet the call for more affordable options on the menu.".