McDonald’s Finds Cheap Food Is Too Expensive

24/7 Insights

• The $5 meal was supposed to bring back consumers who thought McDonald’s Corp. (NYSE: MCD) menu was too expensive.
• Investors don’t appear to think it will reverse McDonald’s fortunes.

The $5 meal was supposed to bring back consumers who thought McDonald’s Corp. (NYSE: MCD) menu was too expensive. For years, fast food was an alternative to full-service restaurants or eating at home. Even management said that customers wanted what McDonald’s used to have. That was often unhealthy, high-calorie meals that tasted good and were available for $10 or less.

The $5 meal was complete, at least as far as McDonald’s management was concerned. It includes small drink, a sandwich (chicken or beef), and French fries. The meal has 1,000 calories, just more than the Double Smoky BLT Quarter Pounder with Cheese, which has 900 calories.

The $5 meal was supposed to help the entire industry. Wendy’s and Burger King launched them, but the companies’ management did not say much after that.

Investors must think the $5 meal will not reverse McDonald’s fortunes. Its stock is down over 12% this year, while the S&P 500 is 17% higher.

When McDonald’s last announced earnings, CEO Chris Kempczinski said. “As consumers are more discriminating with every dollar they spend, we will continue to earn their visits by delivering leading, reliable, everyday value and outstanding execution in our restaurants.” On the next earnings call, he needs to say something more optimistic. In the most recently announced quarter, revenue rose only 5% to $6.2 billion. Net income was up 7% to $1.9 billion. It wasn’t good enough.

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