McDonald’s (NYSE:MCD) is extending its $5 value meal promotion with the company crediting the meal deal for “driving guests back to our restaurants,” according to a memo cited by Bloomberg.
To meet demand from price-sensitive consumers and to burnish the company’s reputation for raising prices significantly more than other fast-food chains, McDonald’s introduced the Meal Deal for a limited time, offering either a McDouble or McChicken sandwich, small fries, four-piece Chicken McNuggets and a small soft drink for $5. The promotion began June 25 and was intended to last for 4 weeks.
However, more than 90% of the company’s locations have committed to extending the offer, with some likely to keep the promotion in place until August. “Consumer response to the low-price value offers appears to be mostly favorable,” Stifel analyst Chris O’Cull says, tempering his optimism with questions whether the transaction growth “has been sufficient enough to generate more profit dollars for franchisees.
As Domino’s has demonstrated, the key to a successful low-price value message is generating enough volume to offset the discount so dollar profits increase, O’Cull adds. If customers continue to lean towards the promotion and not add in full-priced menu options, profits will erode.
McDonald's (MCD) reports Q2 results before the open on July 29, expected to report an adjusted profit of $3.07 per share on $6.63B in sales. McDonald’s (MCD) shares are 0.5% higher in Monday’s premarket trading.