Can McDonald's Regain Cash-Squeezed Customers? Franchisee Weighs In

McDonald’s Corp MCD shares are trading down nearly 15% in 2024 amid inflation-related declines in demand.

Prices of items at McDonald’s have risen faster than those at other chains such as Chipotle Mexican Grill Inc. and Starbucks Corp. Customers aren’t happy about it.

Franchisee Weighs In: McDonald’s franchisee Scott Rodrick appeared on CNBC’s “Squawk Box” on Tuesday.

“We’ve certainly seen guest count pressure in terms of fewer customers coming to restaurants in general and those who do come into restaurants are spending less money than they were spending before,” Rodrick said. “Sometimes as a franchisee like myself, you have got to invest in margin; and so we are going to do that precisely this summer with the launch of the $5 meal deal and a revamping of the national value platform.”

Rodrick indicated that recent regionalized initiatives were insufficient and that a centralized, national value proposition was necessary for his franchises to gain market share.

“We collectively as a group of McDonald’s franchisees and the brand have decided to come together and launch a very substantive, impactful, inflation-busting value campaign that launches in literally about four weeks,” Rodrick said.

Why It Matters: McDonald’s has also seen margin erosion.

Rodrick noted that insurance costs, government regulation and the rising price of ingredients have cut into his locations’ profits. Although value deals may be costly for franchisees, the decision to launch them is a sign that franchisees are particularly concerned with consumer demand.

Bank of America analyst Sara Senatore weighed in on the ultimate implications of the McDonald’s plan in a report issued Tuesday.

“McDonald’s $5 combo addresses the lack of a national value menu but broader menu pricing also needs to moderate: since 2022, MCD’s 20% cumulative price increase leads Wendy’s Co (15%) and Burger King (16% at franchisee Carrol’s)…,” the analyst said. “…we see the $5 bundle as a placeholder for a more permanent value offer.”

Senatore holds a Neutral rating for MCD with a lowered price target of $288.

MCD Price Action: McDonald’s shares were trading at $252.94, down 2% at time of publication.

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