McDonald’s Value Strategy to Boost Growth by 2025

McDonald’s Corporation (NYSE: MCD) reported its Q2 2024 earnings on July 28, 2024, failing to meet consensus expectations in the top and bottom-line estimates.

Source: Visible Alpha consensus (September 04, 2024)

For the first time since the COVID-19 pandemic, McDonald’s reported a negative growth in comparable sales across all divisions. Total comparable sales shrank -1.0%, missing Visible Alpha consensus estimates by 166 basis points (bps). As consumer traffic declined across all major markets, comparable sales across international developmental licensees & corporates (IDLC), international operated, and U.S. segments declined by -1.3%, -1.1%, and -0.7%, respectively, in Q2 2024. The fast-food giant reported second-quarter net income of $2.02 billion, down from $2.31 billion last year, while revenue remained relatively flat at $6.49 billion.

With the broader quick-service restaurant (QSR) industry expected to see continued weaker customer traffic due to broad-based consumer pressures, analysts have revised their forecasts for McDonald’s downward. According to Visible Alpha consensus, McDonald’s 2024 revenue estimates have been revised down to $26.1 billion, reflecting a 2.95% decrease from Q1 2024 estimates and a 1.84% drop from pre-Q2 earnings projections. Comparable sales estimates have also been reduced, with Visible Alpha consensus indicating a decline of 151 bps from pre-2Q estimates and a 296 bps drop from the estimates in Q1 2024.

Source: Visible Alpha consensus (September 04, 2024)

Despite the Q2 2024 results falling short of expectations and a sluggish near-term outlook, McDonald’s stock price—which had dropped 15% by July 26, 2024—has rebounded by nearly 14% since the Q2 2024 results were announced.

This recovery is largely attributed to McDonald’s new value-based pricing strategy. In May, the company introduced $5 “value meal” promotions in the U.S., similar to moves by competitors like Burger King of Restaurant Brands International (QSR). This initiative has resonated with inflation-sensitive consumers, with 93% of U.S. franchisees extending the offer into August. Although this deal had minimal impact on Q2 sales, McDonald’s is optimistic about increasing customer traffic and expects sales to improve in Q4 2024.

In international markets such as Australia, Germany, and France, McDonald’s has launched the McSmart platform, offering value meals with two sandwich options, fries, and a drink—similar to the U.S. $5 value meal that comes with a sandwich, a four-piece order of Chicken McNuggets, fries, and a drink. Additionally, McDonald’s plans to expand its global footprint by opening 10,000 new restaurants, aiming to reach approximately 50,000 restaurants by the end of 2027.

Looking ahead, analysts anticipate that these value-focused strategies will drive positive comparable sales growth for McDonald’s in 2025 and beyond. Visible Alpha consensus projects a 2.76% increase in comparable sales in 2025, compared to a modest 0.35% growth in 2024, with total revenue expected to rise by 5.1% year-over-year to $27.4 billion.