McDonald's says its value meals have become too complicated

By Bill Peters

The fast-food chain said too many promotions at once led to muddled messaging for staff and customers alike

McDonald's reported quarterly results on Tuesday.

McDonald's executives said on Tuesday that recent discounting initiatives didn't exactly work out as planned and even pushed away some of the restaurant's biggest fans.

The fast-food chain said changes to its McValue discount menu, along with a series of promotions only weeks apart, led to questions from customers about which offers were still in effect. They also complicated matters for restaurant workers.

The recent efforts included the addition of items priced at less than $3, as well as decisions to pull back on digital offers and remove a $1 buy-one, add-one deal. New meals launched in tandem with the World Cup also didn't meet expectations.

In the process, the chain's most loyal customers were stopping by stores less frequently, executives said during McDonald's earnings call on Tuesday. U.S. same-store sales crept a mere 0.8% higher during the second quarter and were "slightly negative" in July.

Against a backdrop marked by cautious consumers and higher development costs, the company said it is also delaying its target for 50,000 global restaurant locations to 2028. It previously intended to hit that milestone by the end of next year.

"We don't have a strategy problem," CEO Chris Kempczinski said on the call. "We simply didn't execute at the level we needed to in the second quarter."

He added that the number of promotions and menu changes - including a "KPop Demon Hunters" meal, changes to its McValue menu, new drinks, and World Cup offerings - required staff training and led to lots of questions from consumers.

"So you can imagine the number of questions that a customer asks as they pull up into the drive-thru or they go to the front counter and they ask, 'Well, where is this deal? I used to get this deal,'" he said.

He said that the launch of new drinks in May amounted to a whole new product range. That, too, required new training, merchandising and marketing. He added that the moves, taken together, were a lot to throw at a restaurant.

"You've got a 'KPop Demon Hunters' message," he added. "Then you have a value message. Then you have a beverage message. Then you have a FIFA message. It's tough to drive awareness when you're sort of jumping around."

McDonald's said it had appointed Skye Anderson, a 26-year veteran of the company, as president of its U.S. business. Part of Anderson's main focus in the months ahead will be fine-tuning the chain's current discount offerings, Kempczinski said.

The CEO noted that the $3 promotion - under which McDonald's locations offered 10 items for less than $3 - left "a wide range of potential price points for individual items" that made for inconsistent execution and messaging. As the chain juggled an array of other promotions, those $3 offerings didn't break through with customers, and around a third of McDonald's franchisees hadn't delivered against the guidelines the company had set around those offerings, executives said.

McDonald's said it would work with franchisees to get them on board and would launch a program in October to retrain its U.S. restaurant crews. The company also said it would be leaning into more personalized digital marketing and offerings to bring back frequent visitors.

Piper Sandler analysts said in a Tuesday note that they expect the plans to be "an area of heightened investor focus." More details on McDonald's progress are likely at its investor day in September.

Shares of McDonald's (MCD) were up 0.1% on Tuesday afternoon after paring earlier gains. However, the stock is down around 13% so far this year and is now trading at around $265 a share, having fallen from highs of more than $340 earlier this year.

For the second quarter, McDonald's reported adjusted earnings of $3.38 a share, above FactSet analyst forecasts for $3.32. Revenue of $7.099 billion rose 4% year over year but missed analyst estimates for $7.13 billion. Same-store sales overall rose 1.3%, in line with estimates.

McDonald's reported the results as its rivals are also working to entice shoppers with aggressive discounts. Meanwhile, the restaurant industry overall has struggled with a cyclcospora outbreak over the past month that has sickened thousands of people in the U.S. and has been linked to two deaths.

-Bill Peters

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08-04-26 1713ET