McDonald's latest strategy confirms the death of the American middle class as we know it
McDonald's U.S. sales are soaring and customer traffic is up for the first time in five years.
Same-store sales at its U.S. restaurants rose 4.5% in the most recent quarter and same-store traffic increased 1%, the company said Tuesday.
The fast-food chain attributed its success to its revamped value menu, including its McPick 2 promotion and offer of any sized soft drink for $1.
McDonald's launched McPick 2 two years ago after customers protested the company's decision to reformulate the Dollar Menu by axing the $1 price ceiling and turning it into the "Dollar Menu & More" with items that cost up to $5.
The $2 McPick 2 deal brought McDonald's most popular value offering closer to the $1 price ceiling of the Dollar Menu.
McDonald's last month doubled down on its low-cost promotions and launched a $1, $2, and $3 menu. At the same time, McDonald's has been targeting upscale customers with the launch of more premium coffee drinks and fancy burgers like its kale and Sriracha burger.
The success of this strategy of targeting the high end and low end of the market — and the failure of the mid-priced Dollar Menu & More — is symptomatic of America's shrinking middle class.
"While consumers felt more optimistic about the economy and their finances, it was McDonald's focus on value and low prices that drove trade," Neil Saunders, managing director of retail consulting firm GlobalData Retail.
There's one problem with this trend, however: the discounts hurt profits, Saunders pointed out.
"We remain encouraged that McPick still has resonance, especially given the continued increase in the number of offers and deals from fast food rivals," Saunders said. "However, as much as the focus on value drives trade, it is also cannibalizing sales of higher priced menu items. This is inevitably creating some profit pressure for franchisees, and at the restaurants McDonald's owns itself."
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