According to The Street, After several shaky months, the restaurant industry is beginning to show signs of recovery for struggling businesses. High inflation over the past two years has led to increased prices across various sectors, prompting consumers to be more mindful of their spending habits. As a result, diners are now prioritizing value when selecting their next meal, seeking options that provide the most bang for their buck.
Shifting Consumer Spending Habits
This change in spending behavior has encouraged restaurants, particularly in the fast-food sector, to develop innovative ways to offer great deals while still achieving positive profit growth. According to an industry study from Black Box Intelligence, dismal comparable restaurant sales numbers are expected to reverse and turn positive in Q4.
In August, same-store sales decreased by 0.4% year-over-year, marking the third consecutive month of negative growth. However, they increased by 2% compared to the previous month. Same-store traffic also reported a 3.6% decline from last year, the second-worst since January, yet showed a 1.1% increase month-over-month. Notably, while fine dining has performed the best overall, fast-casual restaurants are also seeing positive growth.
Fast-Food Chains Embrace Value-Centered Deals
Fast-food chains are responding to customer requests by incorporating more value-minded deals into their menus, which has garnered positive responses. During McDonald’s Q2 earnings call for 2024, CEO Christopher Kempczinski highlighted that due to inflation, the company is focusing on broadening its value offerings for long-term benefits rather than pushing one-time or limited-time promotions.
Recently, McDonald’s extended its $5 value meal deal, which was initially planned for just a few weeks during the summer, through the end of the year. Additionally, the chain is currently offering free large fries with a minimum $1 purchase when customers download its mobile app, along with Free Fries Friday with a minimum $1 purchase for online orders.
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McDonald’s Performance Amid Challenges
Despite reporting a 1% decline in global comparable sales and flat net revenues compared to the previous year, the $5 Meal Deal is proving to be a successful promotion. The deal has increased traffic and boosted sales, particularly among lower-income customers. McDonald’s President Joseph Erlinger noted in an earnings call, “We’ve seen a lot of enthusiasm, and the number of $5 meal deals sold is above expectations. Trial rates of the deal are highest among lower-income consumers, and sentiment towards the brand regarding value and affordability has begun to shift positively.”
Focus on Staffing and Efficiency
McDonald’s commitment to its menu and staffing could potentially steer the fast-food chain back on track. The same study indicates that restaurants fully staffed in back-of-house positions, such as kitchen and storage staff, reported a 3.6% traffic increase. Those with complete front-of-house staffing—customer-facing employees like servers—experienced even greater sales growth of 4.6%.
Last month, McDonald’s announced plans to introduce cash kiosks in addition to its existing cash-less kiosks, stating that this move would not lead to workforce cuts but would instead enhance efficiency.
Market Outlook
Although McDonald’s has missed analysts’ EPS expectations in the last two quarters, its stock is up 2.18% year-to-date as of Tuesday’s market close. The company is set to release its Q3 earnings report on October 29, and many are watching to see how these value-driven strategies impact its overall performance.
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