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mcdonalds kiosk Jonathan Maze

McDonald’s plans to pump up the value in 2018

Chain to offer $1, $2 and $3 items in battle for budget-conscious customers

McDonald’s Corp. plans to make a bigger, national value push in 2018 with items priced at $1, $2 and $3, executives said on Tuesday. 

Chris Kempczinski, president of McDonald’s U.S. market, said on the company’s third-quarter earnings call that the chain is planning the newer value offering as part of an effort to remain more “competitive” in the battle for budget-conscious customers.

“We don’t have to win on value,” he said, “but we can’t lose on value.”

The company didn’t provide details, but Kempczinski said McDonald’s plans to offer items at $1, $2, and $3, and that “deals will pulse in and out throughout the year as a result of that.”

The comments confirm some reports from analysts earlier this year about a potential new value offer.

McDonald’s believes it could offer a more competitive value strategy even though its same-store sales have been outpacing many of its competitors. The company on Tuesday said that its same-store sales increased 4.1 percent in the U.S. in the third quarter ended Sept. 30. Executives said that its same-store sales outperformed other QSR sandwich chains by 480 basis points.

McDonald's new value meal features some of the chain's most popular sandwiches.

Those sales included increased traffic for the second straight quarter, and executives credited the performance in part to the success of value offers — including $1 soft drinks and its McPick value menu. 

McDonald’s has been playing with value in recent years since its shift away from the Dollar Menu, which executives have said was part of the reason same-store sales fell between 2013 and 2015.

The company debuted a McPick menu in 2016, which enabled McDonald’s to offer bundles of two items at different price points, such as $2 or $5. Items on that menu frequently changed and many local areas made their own offers.

“It’s no surprise that over the last three or four years, since we rolled off the Dollar Menu, we weren’t as competitive as we needed to be on value,” Kempczinski said. “We think we still have an opportunity to get more competitive on value.”

Kempczinski said that while much of the McPick menu was locally driven, the new value offer would be national in scope, to take advantage of McDonald’s biggest strength — its massive size. 

“That plays to our strength from a marketing communications standpoint,” he said. 

The push for national value is part of a wealth of strategies McDonald’s is planning this year and next year in a bid to generate more consistent same-store sales growth.

Steve Easterbrook, the Oak Brook, Ill.-based company’s CEO, said that he wants to see the company build “sustaining growth” for the long-term.

“What we’re looking at, and we’ve seen it successful in many markets, is that if you can build platforms of growth it gives you long-term sustaining growth,” he said. “We’re not in the short-term cycle. We think we’re building sustaining platforms.”

One of those platforms includes delivery. McDonald’s has delivery in 3,700 U.S. locations, with plans to expand that to 5,000 by the end of the year. Kempczinski said that delivery is more successful in “dense, urban” metro areas. 

Worldwide, delivery is in 8,500 restaurants, or about 20 percent of the chain’s restaurants, with plans to get to 10,000 by the end of the year. Easterbrook said that delivery is “profitable” and generates “incremental business.”

“It’s a meaningful contributor in restaurants that offer delivery,” Easterbrook said. He said the company has opportunities to improve delivery in the future, including bundling and packaging.

The move to fresh

Another platform is the expected debut next year of fresh beef quarter-pound burgers, made to order — which McDonald’s calls “Hot Off the Grill.” 

McDonald’s and its operators are already converting markets to fresh beef. Before they do, the company is providing operators, and their employees, six weeks of training on the new system. 

He said the training would temporarily impact margins in the short-term.

“If we invest a little more in the shorter term … we can get execution right in the medium term,” Easterbrook said. “Getting execution right is our primary focus.”

In addition to the value, delivery and fresh beef, McDonald’s is upgrading its restaurants to the “Experience of the Future,” or EOTF, which includes self-order kiosks and other elements. At this point, 13 percent of McDonald’s 14,000 U.S. restaurants have been upgraded, and “that will increase significantly the next couple of years.”

The investments and the value have led to some concern that some operators are leaving the system.

Kempczinski said there is “no concerted effort to change the franchisee base.”  But, he added, the chain does have expectations for performance.

“Running better restaurants is expected,” he said, “and we’ve outlined an exciting, ambitious growth plan — one that requires investment. As you put those two together, the performance expectations and the investments, we’re seeing some owner-operators who say that now is a good time to exit the system.”

Contact Jonathan Maze at [email protected]

Follow him on Twitter at @jonathanmaze 

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