Does McDonald’s Need a $1 Meal?

By Douglas A. McIntyre Published Jul 30, 6:40AM EDT

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Does McDonald’s Need a $1 Meal? — © Joe Raedle / Getty Images News via Getty Images

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McDonald’s Corp. (NYSE: MCD | MCD Price Prediction) second-quarter report shows the $5 meal deal failed to improve same-store sales.
Will McDonald’s need to cut the price of the low-priced meal again?
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Based on McDonald’s Corp. (NYSE: MCD) earnings, the $5 meal did not bring enough customers into its stores to make a difference at the top line or for same-store sales. Perhaps among people who still can’t afford a $5 meal, McDonald’s may need to cut the price of the low-priced meal again. How low can it go? That depends on whether it wants a loss leader to bring in more people. It would be like Costco’s $1.50 hot dog. Its purpose is to get people through the door and hope they buy something more expensive.

In the second quarter, McDonald’s same-store sales dropped 1%, revenue was flat at $6.9 billion, and net income declined 12% to $2 billion. McDonald’s President Joe Erlinger said that $5 brought in low-income customers, spending an average of $10. Nevertheless, bringing in enough people to improve revenue was not enough. (The $5 bundle is a McDouble or McChicken sandwich, small fries, a small soft drink, and a four-piece Chicken McNuggets.) It failed to turn same-store sales positive.

McDonald’s may continue to struggle because, although a $5 meal is a bargain, the daily costs of low-income families continue to rise. Last year, the Federal Reserve of Dallas reported that “Drawing upon recent household survey data, we show that high inflation is disproportionately hurting low-income households, including Black and Hispanic households and renters.”

McDonald’s shares are down 11% over the past year. Same-store sales show that it still needs more foot traffic. It needs a better hook to draw customers, and the $5 meal may be too expensive.

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About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.