McDonald's Menu Changes: Extra Value or Extra Fluff?

McDonald's is doubling down on value meals, adding the Sausage, Egg & Cheese McGriddles and 10-piece Chicken McNuggets to the roster. This comes on the heels of introducing the $8 Big Mac meal and the $5 Sausage McMuffin with Egg meal back in September. The timing is interesting, especially considering the reported sales decline earlier this year. Are they trying to lure back customers with lower prices, or is this a sign of deeper problems?

The Value Proposition: A Closer Look

The surface-level narrative is simple: McDonald's wants to offer more affordable options. The new Extra Value Meals are priced at $5 for the Sausage, Egg & Cheese McGriddles and $8 for the 10-piece Chicken McNuggets (though prices may vary in Alaska, California, and Hawaii). On November 9th, they're even offering a $2 McCrispy Sandwich through the app. But let's dissect this a bit. Menu prices are reportedly up 40% since 2019. So, are these "value" meals truly a bargain, or just a cleverly disguised return to pre-inflation prices?

And here's the part of the analysis I find genuinely interesting: McDonald's brought back the Extra Value Meal on Sept. 8, according to a news release on the McDonald's website. That means they had value meal options before this "new" announcement. What was the performance of those meals? Why the need for more? The press release doesn't explicitly state this, but the implication is that the initial value meal offerings weren't performing as expected. McDonalds adds more Extra Value Meals to its menu for limited time

Beyond the Burger: Diversification and Distraction?

It's not just about the value meals, though. McDonald's is also pushing new menu items like the Buffalo Ranch lineup and the CHIPS AHOY! Frappé. Alyssa Buetikofer, McDonald's chief customer experience and marketing officer, highlights the momentum in beverages, especially among Gen Z. The logic is sound - cold, flavorful drinks offer higher profit margins. But is this diversification a genuine attempt to cater to changing tastes, or a way to distract from potential issues with their core menu items?

Kevin Thompson, CEO of 9i Capital Group, notes the fast-food industry's exploration of revenue streams beyond traditional meals, citing rising food costs as a pressure on profit margins. This makes sense. Selling a $6 Frappé likely yields a higher profit margin than a $5 Sausage McMuffin meal. The question is, are customers buying it? Are these specialty items enough to offset the declining frequency of visits? Customer feedback surveys suggest that one in three people don’t visit McDonald’s as often as they used to. That's a significant chunk of their customer base.

The introduction of Boo Buckets alongside Happy Meals is an interesting, time-limited example of this diversification strategy. The return of this fan-favorite, with two new characters added for 2024 (The Cat and Zombie) is likely a low-cost, high-engagement marketing play. The impact on overall revenue, however, is likely minimal.

McDonald's will undoubtedly be monitoring the performance of these new items. If they are received positively, they could roll them out to international markets. But what defines "positive"? A slight increase in sales? A stabilization of customer visits? The criteria for success remain unclear.

So, What's the Real Story?

McDonald's is at a crossroads. The value meal strategy might provide a short-term boost, but it doesn't address the underlying issues of rising prices and changing customer preferences. The new menu items are a gamble – a potentially profitable one, but a gamble nonetheless. Without a clear understanding of why customers are visiting less often, these changes might just be rearranging deck chairs on the Titanic.