McDonald’s is falling short, needs to win over low-income consumers, key exec tells operators in memo

After a challenging second quarter, McDonald’s executives told restaurant operators and analysts they are refocusing on how to recapture consumers with deals as they pushed for an extension of the its $5 value meal 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 struggled to sell diners on affordability, adding that he expects “industry and competitive challenges” to continue throughout the year. Erlinger encouraged operators to look ahead to building momentum for next year, adding that “channeling a long-term mindset is crucial” to the company’s success. 

“Reversing the narrative and re-establishing our position as the leader on value and affordability is possible, but it cannot be done overnight,” he wrote. “It will happen through sustained and coordinated actions that show the customer we’re on their side.”

The company reported results that missed analysts’ estimates Monday on the top and bottom lines. Same-store sales declined in all segments, including its key U.S. market, where they fell 0.7%. The company had forecast the challenges last quarter, and the stock rose Monday on the results.

Erlinger also acknowledged areas where the company was “falling short” in the U.S. this quarter. He noted that same-store guest counts were negative for the fourth straight quarter, and declines in the number of items per transaction hit check averages.

“We continue to lose traffic share of low-income consumers,” he wrote. But he added that trial rates for the value meal launch were highest among low-income consumers, and sentiment around McDonald’s value has started to improve.

The company will extend its $5 value meal beyond its initial four-week window in most of its U.S. markets as the fast-food giant says the offer is driving 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 past its original end date late this month. The memo said the majority of locations will extend through August, or plan to vote on whether to do so.

Erlinger seemingly alluded to upcoming decisions around extensions and future value offerings in Monday’s memo. On the call, executives said franchisees in the U.S. are in a strong financial position to invest in the value offering and they are working with owners now to assess its overall profitability.

In the memo, Erlinger wrote, “Value and affordability have been part of our DNA since we first opened our doors, but we have an affordability gap to close and we must continue to take actions that show our customers we are listening. … We have a solid plan for the second half of the year, but there are several important decisions coming up that will set us up to compete and build greater momentum these final five months and into 2025.”

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