Leaders Address Value and Pricing

After a difficult second quarter, McDonalds Executives told restaurant operators and analysts they are refocusing on how to win back consumers through deals as they push for an expansion of their $5 meal deal platform.

In a memo to the U.S. system obtained by CNBC on Monday, the company’s U.S. president, Joe Erlinger, said McDonald’s was struggling to sell its products at affordable prices, adding that he expected “industry and competitive challenges” to persist throughout the year. He encouraged operators to look ahead and build momentum for next year, adding that “channeling a long-term mindset is crucial” to the success of the business.

“It is possible to turn this situation around and re-establish our leadership position in value and affordability, but it will not happen overnight,” he wrote. “It will be done through sustained and coordinated actions that show the customer that we are on their side.”

The company reported results Monday that missed analysts’ expectations for both revenue and net income. Same-store sales declined across all segments, including in its key U.S. market, where they fell 0.7%. The company anticipated the challenges in the latest quarter, and shares rose Monday after the results.

Erlinger also acknowledged that the company had “gaps” in some areas in the U.S. this quarter. He noted that same-store customer traffic was negative for the fourth consecutive quarter and that the decline in items per transaction hit the average check.

“We continue to lose market share among low-income consumers,” he wrote. But he added that trial rates for the launch of value meals were higher among low-income consumers and that sentiment around McDonald’s value was starting to improve.

The company will extend its $5 meal deal beyond its initial four-week period in most of its U.S. markets as the fast-food giant says the offer is bringing traffic back to restaurants. In a memo to the U.S. system obtained by CNBC last week, executives wrote that nearly every business unit, encompassing 93% of its restaurants, voted to extend the promotion beyond its original end date at the end of the month. The memo said the majority of locations will extend through August, or plan to vote to do so.

In his Monday memo, Erlinger apparently hinted at upcoming decisions regarding expansions and future value offerings. On the call, executives said U.S. franchisees are in a strong financial position to invest in the value offering and are currently working with owners to assess its overall profitability.

In the memo, Erlinger wrote: “Value and affordability have been part of our DNA since we opened our doors, but we have an affordability gap to close and we must continue to take steps that show our customers we are listening. … We have a strong plan for the second half of the year, but several important decisions ahead will position us to compete and build greater momentum over these last five months and into 2025.”

McDonald’s did not immediately respond to CNBC’s request for comment.