How McDonald's Lost Its Value Edge—and Is Trying to Claw It Back

Hindustan Times

25-07-2025

When Americans hit hard times, McDonald's has relied on a simple recipe to keep sales humming: being fast and cheap. PREMIUM How McDonald's Lost Its Value Edge—and Is Trying to Claw It Back
For many people these days, McDonald's is just fast.
'Bro what happened to McDonald's dollar menu?!?!' a Seattle woman asked on TikTok earlier this year, sharing images of a $12 McDouble meal and $3 fries.
The once-golden formula faltered. The number of fast-food customers who said the restaurant chain offered good value fell to its lowest point in a decade last year, according to a UBS Evidence Lab survey. Lower- and middle-income households have cut back on visits, contributing this year to the biggest drop in McDonald's quarterly U.S. sales since 2020.
The burger giant's leaders are all too aware there's a problem. Competition for the food dollar is stiff, with fast-food outlets fighting each other as well as higher-ticket options like Chipotle and Chili's, and even customers' own kitchens.
'There are better options,' said Kyle Elliott. The 30-year-old music producer from New York tends to visit Chick-fil-A, Shake Shack or the neighborhood food cart for a quick meal rather than McDonald's.
But the chain that pioneered the modern fast-food industry is caught between a corporate office that wants beefier, more attractive deals and many restaurant franchise owners who say their bottom lines can't absorb much lower prices.
Some operators warn that the kind of deals McDonald's is now promoting to draw in customers—some of which chop between 40% and 50% off the regular price—are eroding their already shrinking profits. Profit margins for the chain's U.S. restaurants started to decline last summer and haven't snapped back since, securities filings for McDonald's show.
McDonald's is on a mission to claw back sales—and its value edge.
In the middle of last year, it took a fresh shot at appealing to stretched consumers: a $5 meal deal that included a McDouble or McChicken sandwich, small fries, small soft drink and a four-piece Chicken McNuggets. Earlier this year it launched a new McValue menu, including options to add a second menu item for $1 after buying one for full price.
McDonald's has been pushing for beefier deals that will draw in more customers.
The $5 meal deal boosted visits. The add-an-item offer hasn't brought in as many customers so far.
McDonald's is now mulling other value options, recently testing a $3-and-less menu in some restaurants, according to company documents. A new round of Snack Wraps debuted at $2.99.
'We're probably still in the first inning' of the new value approach, McDonald's U.S. President Joe Erlinger said in an interview.
Value in the inflation era
At McDonald's corporate offices in Chicago, strategists analyze billions of dollars' worth of customer transactions to figure out what deals will entice repeat visits. Marketers and finance employees review promotions that franchisees use locally and test whether they could be replicated nationally. Effective deals typically need a discount of at least 30%, depending on how long they run, executives said.
Working with franchisees to test and implement the deals is a delicate dance, often requiring lengthy discussions. Franchisees own and operate 95% of the roughly 13,500 McDonald's locations in the U.S. They largely set their own prices and have raised them in recent years to compensate for higher hourly wages and more expensive supplies. They can, and at times have, voted against promotions advanced by the company.
In January 2024, McDonald's pitched franchisees in Kansas and Oklahoma on acting as a testing ground for new deals. Customers would be able to buy one item and get another for a dollar as well as obtain drinks for $1 or $2, according to an internal presentation viewed by The Wall Street Journal. Some U.S. franchisees had locally run versions of the buy-one-item deal prior.
The franchisee group voted against the proposal, fearing it didn't make financial sense. McDonald's executives started lobbying individual operators to reconsider. The group later reversed course.
Another test would come with a different meal deal. When franchisees in upstate New York ran a promotion starting in 2023 offering a bundle of food for a flat $5, McDonald's spotted a chance to take the deal nationwide. First, though, the company had to convince a national group of franchisees helping to oversee a roughly $1 billion advertising fund to back the promotion.
After a franchisee board committee voted against the proposal in April 2024, McDonald's leaders directly pitched franchisees for their support. Eventually the meal bundle made it out of committee and went up for wider approval.
McDonald's helped sweeten the deal by negotiating with Coca-Cola, its beverage supplier since 1955, to provide nearly $5 million in marketing funds. Restaurants would receive some reimbursement per meal, according to an internal message to franchisees asking for their support.
But pressure was building. Labor costs and wholesale prices on everything from beef to eggs continued to rise for operators, while economic uncertainty kept more Americans' purse strings tied. Angry consumers had gone after fast-food companies since prices started to escalate through the pandemic—and kept climbing afterward.
Executives warned about the inflation fatigue and the need to offer more affordable meals.
'Our relative superiority on affordability has declined,' CEO Chris Kempczinski said during an earnings call in April 2024.
A year earlier, the brand had become an inflation punching bag. A social-media post showing a Connecticut restaurant's menu—items included roughly $18 Big Mac and McCrispy meals—went viral, fueled by consumer rage over sharply rising prices.
'We got offsides' on prices, said Erlinger, the company's U.S. president.
Operators are dealing with rising prices on everything from beef to eggs, as well as higher labor costs.
The average cost of a large Big Mac meal in the U.S. crossed the $10 mark for the first time last year, according to market-research firm Technomic. Prices for the signature burger meal rose 27% between 2019 and 2024, McDonald's said.
With some people online saying Big Mac prices had doubled in that time, Erlinger decided to write an open letter to 'our U.S. fans' in May 2024 to shoot down that math. He denied the chain was gouging consumers and said most U.S. franchisees sold meal bundles for $4 and less. He also teased coming deals.
That same month, McDonald's gathered enough operator support to offer the $5 meal deal nationally for roughly a month. Some franchisees pushed to keep the promotion limited, arguing it was too expensive to run long-term and that McDonald's needed to provide more financial backing.
'To provide the consumer with more affordable options, they must be affordable for the owner,' the National Owners Association, an independent advocacy group of McDonald's franchisees, wrote to its hundreds of members.
Mark Kalinowski, an industry analyst who surveys McDonald's franchisees, said operators remain concerned about the value approach as it relates to their profits.
'Great sales cures a lot of ills, at least temporarily, and great sales are hard to come by these days,' Kalinowski said.
The $5 meal deal carries a discount of around 40% to 50% of the cost of the items purchased a la carte, said Tom Dillon, finance chief for McDonald's U.S. operations. However, he added, the promotion is a moneymaker for operators. It's been extended and is driving some of the highest increases in customer visits in company history.
'The total check is still very profitable from a franchisee perspective,' Dillon said.
Discounts, dollar menus and divisions
McDonald's has staked its name on affordability since Richard and Maurice McDonald in 1948 devised an assembly line-style cooking system that allowed them to sell 15-cent burgers to San Bernardino, Calif., families.
Longtime leader Ray Kroc's rapid expansion through franchising supercharged the formula. 'A McDonald's bought more buns, more catsup, more mustard, and so forth, and this gave it a terrific position in the marketplace,' Kroc wrote in his book on the company, 'Grinding It Out.'
From early on, McDonald's set a precedent of fast, affordable food.
McDonald's low-cost position was challenged in the late 1980s when an expanding Taco Bell released a menu of 59- to 99-cent options. McDonald's responded with its own range of $1 items.
In the 2000s, New York City McDonald's franchisees were looking for a way to prop up sagging sales in the wake of the Sept. 11 terrorist attacks. Jim Lewis, then a franchisee, backed a controversial idea: a dollar menu of about a dozen items sold across the day.
'We fought like crazy,' Lewis said. 'Some of this we could afford, but how long can we sell stuff for a dollar?'
Instead of a slow boost in sales, the new dollar menu delivered results within months, Lewis said. President Trump, then a real-estate developer and New York celebrity, appeared in ads in 2002 hawking the Big N' Tasty burger's turn on the dollar menu. McDonald's later rolled it out nationwide, boosting sales and winning new fans.
Around 2008, with the U.S. economy headed into another recession, McDonald's started promoting $1 cold drinks in some locations. The deal expanded to beverages of all sizes in 2010.
The discounts helped McDonald's sales rise between 2008 and 2011—growth that outpaced the overall fast-food industry, Technomic said.
But franchisees were having a harder time affording it. By 2012, inflation had driven consumer-goods prices up by 28% compared with 2002.
Other chains were facing similar issues. In 2009, Burger King franchisees sued the Miami company over its $1 double-cheeseburger promotion, saying they lost money on it. Burger King pushed up the price in 2010. Three years later, Wendy's bumped up some prices on its 99-cents menu.
In November 2013, McDonald's followed suit, rebranding its offering as a 'Dollar Menu & More' with items ranging from a buck to $5.
'We knew we couldn't maintain the $1 price point,' Peter Bensen, then McDonald's chief financial officer, said in 2014.
'Three-legged stool'
Kroc, who continued to be involved in McDonald's until his death in 1984, described his corporate philosophy as a 'three-legged stool.' One leg stood for McDonald's franchisees, the second its suppliers and the third the company's employees. The stool was only as strong as its legs.
The fast-food industry's brutal economics mean those factions don't always get along.
McDonald's and its franchisees have tussled over the past decade as the chain has asked operators to invest millions of dollars in restaurant upgrades and scrutinized their operations.
After escalating costs for wages, ingredients, utilities and materials prompted franchisees to raise prices in 2021 and 2022, operators said they couldn't afford to sell dollar drinks anymore. McDonald's eventually relented. Restaurant worker salaries at McDonald's had ballooned around 40% since 2019, while costs for food, paper and other goods were up 35%, McDonald's said last year.
As franchisees' expenses continued to climb, corporate employees coached operators to limit price increases to less visible parts of the menu like sauces, cheese or other extras, and to particular locations rather than across all of their restaurants, one former executive said. But McDonald's affordability image suffered.
'Fast-food in general and McDonald's specifically no longer feels like the good value that it once did, the kind where you can get a filling meal for $5 to $8,' said Terry Wu, 36.
The healthcare worker, who lives in Pittsburgh, said the price increases don't seem as bad when compared with other living expenses such as groceries and rent. But, he added, that's mostly because of the new discounts. Still, Wu consciously reduced his visits to McDonald's after the jump in prices—and the habit stuck.
By last fall, a few months after launching its $5 meal deal, McDonald's said the promotion was helping improve the brand's perception among consumers. That was crucial as the company worked to recover from an October E. coli outbreak that resulted in one death and over 30 hospitalizations.
McDonald's wanted to broaden the offering to include the buy-one, add-one for a dollar deal it had tested earlier in the year. Franchisees voted to back the expanded McValue menu, and this January, the promotion debuted with actor John Cena sitting down in ads with trays of breakfast sandwiches, hash browns and fries.
But even the WWE champion hasn't been strong enough to cut through customers' concerns around continued economic uncertainty. McDonald's in May reported its U.S. same-store sales in the recent quarter declined 3.6% from last year. Burger King and Wendy's also reported U.S. declines for the three months, though by lesser degrees.
In a January survey of 400 McValue customers, 44% said they planned to go to McDonald's regardless of the value menu's presence, market-research firm Numerator said. Eight percent of those surveyed said they hadn't planned to eat fast-food until they heard about the deals menu.
'Most customers are looking for the next deal with very little brand loyalty,' said Jana Zschieschang of Revenue Management Solutions, a consulting company that is telling restaurant clients to better tailor deals so they stand out.
Mansur Shaheen, a 27-year-old New Yorker, eats out several times a week and regularly turns to McDonald's deals. Compared with a Cava bowl or Just Salad in Manhattan, a $7 McDonald's sandwich is a better deal, he said. 'It isn't cheap but not expensive,' he said.
Erlinger said McDonald's has put its consumer-science acumen behind McValue in a way that makes it distinct.
Some McDonald's operators say the company is showing increased urgency in working with franchisees to draw in more customers in other ways, too.
A Happy Meal tied to 'A Minecraft Movie' this spring sold out weeks earlier than anticipated. The company in July brought back chicken tenders rolled in tortillas after customers lobbied for them, and some operators said initial sales were so strong they ran low on toppings to dress them. New beverages, particularly cold ones catering to Gen Z, are on tap for testing.
'It's a tough environment, and we are going to step up,' said Danielle Marasco, a Texas-based McDonald's owner who heads the chain's official U.S. operators group, the National Franchisee Leadership Alliance.
McDonald's is still pushing for discounts. Corporate officials also want franchisees to continue selling the existing $5 meal deal at the current price.
In July, some franchisees intended to push up prices on some of their premium meal deals to $6. The costs, particularly on the McDouble burger, have gotten too high, they said.
McDonald's says its $5 meal deal helped improve the brand's perception among consumers.
Write to Heather Haddon at [e-mail]
How McDonald's Lost Its Value Edge—and Is Trying to Claw It Back
How McDonald's Lost Its Value Edge—and Is Trying to Claw It Back
How McDonald's Lost Its Value Edge—and Is Trying to Claw It Back