McDonald's tweaks value marketing after visits fall

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Morning Meeting: Breakfast at McDonald's
Morning Meeting: Breakfast at McDonald's Credit: McDonald's

McDonald's is emphasizing specific products on its Dollar Menu rather than the menu itself after it found patrons were buying the items when they were in the restaurant -- but the menu did not step up visits to its U.S. locations.

The Golden Arches has also started to promote a value play on certain breakfast sandwiches after seeing competition heat up during that very important time of day. The shifts in value marketing suggest that even as McDonald's sees sales increasing it's feeling pressure as competitors step up advertising.

"We feel pretty good that we battled through a tough quarter," CEO Steve Easterbrook said Monday on the company's quarterly call. That said, it can do more. McDonald's can increase its marketing spending, he hinted, teasing it has "gunpowder" it "left dry" in the first quarter.

The so-called $1 $2 $3 Dollar Menu, which anchors McDonald's value strategy in the U.S., is performing in line with expectations as awareness of the line continues to grow, Easterbrook said.

Still, while McDonald's sales grew more than expected, the number of people visiting its U.S. restaurants fell in the first quarter. That suggests a reversal, considering that the number of visits, or guest count, rebounded to rise 1 percent for the full year of 2017 after falling 2.1 percent in 2016.

"I'm not thinking there's share going to any particular competitor," Easterbrook said after an analyst asked about the decline in visits, the softness in the breakfast time and the new value menu. "It's just a market share fight overall."

It's a fight that's been heavily focused on pricing. Value tends to be hyped across the industry early in the year to lure diners who may have overspent during the holiday season. McDonald's "heavy value messaging," Wells Fargo analyst Jeff Farmer said in a note to investors, "was lost in a sea of sameness as many competitors aggressively pivoted to promote low price points early in the year."

It takes customers a while to get familiar with a new menu and the company will "keep finessing" how it uses the $1 $2 $3 Dollar Menu, Easterbrook said. Customers are aware of the menu itself but are less aware of the products on it. McDonald's has been changing the media weights of the ads and the creative to have some of the stronger items pop a little more, he said. The campaign comes from We Are Unlimited, McDonald's dedicated Omnicom creative agency. The emphasis on national value marketing comes as McDonald's eliminated most local value offers.

The January debut of the $1 $2 $3 Dollar Menu was promoted with ads to get the idea of the menu across, such as the guy who goes to McDonald's after discovering his lunch was swiped from the office fridge.

Now, McDonald's has begun focusing on certain products. The $2 Bacon McDouble got its own ad in mid-March.

A separate one focused on the $1 McChicken sandwich began airing in early April.

McDonald's began promoting a 2 for $4 breakfast sandwich deal after feeling pressure in what it called a "very competitive breakfast daypart." Once McDonald's noticed the more competitive time of day, it devised the deal and rolled out it in mid-March.

McDonald's didn't mention any competitors by name, but chains advertising breakfast items include Taco Bell's $1 breakfast foods and Dunkin' Donuts GO2s, such as 2 for $2 Egg & Cheese Wake-Up Wraps, 2 for $3 Egg & Cheese English Muffin Sandwiches, or 2 for $5 Bacon, Egg & Cheese Croissants.

One of the Golden Arches' most heavily-run TV spots in recent days, according to iSpot, is this one promoting breakfast.

The company isn't only emphasizing price. Next week is the national launch of McDonald's fresh beef Quarter Pounder patties. The Quarter Pounder and other burgers that use the same-sized patty aren't available on the $1 $2 $3 Dollar Menu.

First-quarter U.S. comparable sales, or sales at longstanding locations, rose 2.9 percent, topping analysts' average forecast of 2.7 percent growth, according to Consensus Metrix. On average, people spent more per visit due to a mixture of price increases, trading up to its more premium products, and ordering a higher number of items when ordering from the $1 $2 $3 Dollar Menu, McDonald's said.

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