Beyond better burgers, McDonald's wages a new menu battle

McDonald's used to own the value market, at least when it came to the fast-food hamburger space. 

The chain's famed "Dollar Menu," which launched in 2002, gave customers a cheap way to add to their meals or a low-cost option to make their own meals.

The idea wasn't unique: Both Wendy's and Burger King had $0.99 menus that predated McDonald's (MCD) offering, but those companies lacked their rival's signature products.  

Related: Another popular craft beer brand files for Chapter 11 bankruptcy

It's one thing to sell a Wendy's baked potato or even Burger King's fries at $1, but it's actually special to get McDonald's' famed fries at that price point. The same logic applied as the chain used some of its signature items including its fries, Chicken McNuggets, and various versions of the beloved Egg McMuffin.

McDonald's, however, began moving away from its classic Dollar Menu in 2013, when it introduced the "Dollar Menu & More, which featured items that cost more than $1. That was the first of many lackluster attempts to move customers away from low-cost, low-margin items.

In many ways, McDonald's has ceded the value space to Wendy's,  (WEN)  which has built its low-cost offering around the high-value 4 for $4 and its $5 Biggie Bags. Those aren't single-item offers, but they're low-cost meals that offer a lot of food for the price.

Yum Brands'  (YUM)  Taco Bell has also made sure to focus on value with its Cravings Menu, which has items priced between $1 and $2.99.

McDonald's CEO sees a new menu battleground

McDonald's CEO Chris Kempczinski talked about how some of his chain's customers have been ordering. During the company's fourth-quarter-earnings call, he noted some meaningful changes

"Where you see the pressure with the U.S. consumer is that low-income consumer. So call it $45,000 and under. That consumer is pressured. From an industry standpoint, we actually saw that cohort decrease in the most recent quarter, particularly, I think, as eating at home has become more affordable," he said.

Kempczinski said that he wasn't seeing ordering changes or a drop in customers from the middle- and high-income wage groups.

"The battleground is certainly with that low-income consumer. And I think what you're going to see as you head into 2024 is probably more attention to what I would describe as affordability," he added.

McDonald's currently has been focusing its marketing on its improved burgers, using its classic Hamburglar character to promote its "Best Burger" changes. 

McDonald's has value-menu plans

McDonald's does have value offerings, including its $1, $2, $3 menu. Kempczinski suggested that the chain has to get better at sharing those deals with potential customers, and he opened the door to new value offerings.

"Think about that as being absolute price point being probably more important for that consumer — a lower absolute price point to get them into the restaurants than maybe a value message, which is a 2 for 6 or something like that, he said. "Those probably are going to resonate a little bit less in 2024, particularly, we think, in the front half."

Going forward, he expects the chain to lean on its low-cost menu more.

"We are set up well to be able to go after that," he said. "We have our D123 platform, as you know, and I think you're going to see probably some activity there in the U.S. at the local level to make sure we continue to provide good value for that low-income consumer." 

McDonald's has also been offering special deals to customers via its app. In those cases the chain adds value by growing its digital-customer numbers and enabling it to market directly to them.

Chief Financial Officer Ian Borden outlined how the chain has approached digital deals outside the U.S.

"Canada, for example, maintained their McMuffin-and-hot-coffee pairing this quarter, providing an affordable bundle during a critical day part and helping to drive market share gains in breakfast," the executive said. "The UK followed a similar playbook by expanding their Saver Meal deals to offer smaller bundles during the morning day part for just a few pounds."