McDonald's needs $1 million a store from the franchisees its deal blitz irritated

A 0.8% gain in US comparable sales ^[7] sits awkwardly beside Placer.ai's estimated 4.5% drop in first-half visits ^[1]. The two periods do not match exactly, and a McDonald's spokesperson said the company is "unable to corroborate or validate third-party data" ^[2]. If the traffic estimate held into the latest quarter, the average check rose about 5.5% ^[26]. On those numbers, sales held up because the customers who still came spent more each time. The $5 and $6 deals ^[3] were meant to raise the number of customers, and visits reportedly fell in every quarter this year ^[4].

McDonald's size makes the gap wider in dollars. Its US sales are five times Burger King's ^[20], and a QSR magazine ranking gives it 11% of the US fast-food market ^[19]. If each chain's comparable growth applied to its whole sales base, McDonald's added about 4 units of sales for every 8.5 that Burger King added, so a rival a fifth its size gained roughly twice the dollars ^[23]. Kempczinski has said where growth must come from. "To succeed...growth must come from capturing greater (market) share," he told investors ^[21].

Kempczinski's own view is that the strategy is sound and only the execution failed ^[9]. There is some support for that: in August he conceded that too many menu and deal launches had overwhelmed restaurants and harmed service ^[6], so a slower pace of launches might let the deals work. A second view blames the environment, since Wendy's, Popeyes and Papa John's are struggling too ^[16]. Fortune wrote that the results point to more than a few tactical errors ^[10], and its main evidence is Burger King. That chain has remodeled about 12.5% of its fleet a year ^[24] and rebuilt its flagship burger for the first time in a decade ^[18]. I think Fortune's view fits the evidence best, because the same sector pressures did not stop Burger King growing 8.5% ^[7]. Against that, McDonald's > Next already borrows the remodel playbook, with aims to serve better food, improve service and make restaurants easier to run ^[11]. So the gap may be one of timing, or rather of order: the deal blitz came before the request for remodel money ^[8].

That order matters because franchisees own 95% of the restaurants ^[22] and the $1 million per store is their money ^[8]. McDonald's is also holding back on price. Kempczinski said beef costs had nearly doubled over five years in the company's biggest markets ^[14], a compound rate of just under 15% a year ^[25]. He has said price hikes are on the table, but the company lost customers when it raised prices during COVID ^[15]. Holding $5 and $6 price points against that cost curve ^[3] comes out of restaurant margins, and the remodels come out of operators' capital. The reporting does not give franchisee margins or remodel sign-up rates.

The US is 40% of McDonald's revenue, or $10 billion a year ^[12]. The case against the strategy fails if visits there turn positive while the current deals are still running.