The change will look like this: Each co-op in McDonald’s system is required to have a $1 any size drink and $2 small McCafe drink. The rest, however, will now effectively be up to local co-ops to determine at the ground level what works and what doesn’t when it comes to value. They still have to offer products at the $1 $2 $3 tiers, but there will be different items depending on where you are throughout the country.
Ozan said some of these changes have taken place already while others are in the midst of updating.
What is the menu achieving?
Industry pundits probably didn’t expect this, but McDonald’s $1 $2 $3 Dollar Menu actually lifted average order size. What ended up happening, Ozan said, is many customers ordered their typical meal and then used the value offering to pick an add-on item. McDonald’s found that transactions with any product from the Dollar Menu actually produced higher check than those without.
If you look at this past year, on the U.S. side, comparable guest counts (transactions at restaurants open for at least 13 months) dropped 2.2 percent compared to a 1 percent uptick in 2017. McDonald’s reported positive traffic in each of its geographic segments outside of the U.S. Same-store sales in Q4 rose 2.3 percent stateside, “driven by growth in average check resulting from both product mix shifts and menu prices increases.” Customers paid 4.7 percent more in 2018 for their orders than 2017. This was due to a few changes, including deals like the 2 for $5 and 4 for $6 rollout.
Ozan said these kinds of promotions lift core product buys, even when they’re not part of the deal. And they’re going to anchor the $1 $2 $3 Dollar Menu changes in 2019.
McDonald’s menu and promotions will be designed with a national framework, Ozan said, but now executed at the local level. At the same time, it will pulse “a few times a year” national deals like the 2 for $5 that will help the brand strike a balance between local and national that’s been missing over the past year.
For McDonald’s, the goal will be to grow traffic and ticket, and boost franchisee profitably, Ozan said. The chain’s overarching strategy—the Velocity Growth plan—is built on increasing guest count. “So ultimately, all of this has to drive traffic in the long term. But some of these do drive average check in the near term that does help operator cash flow on a near-term basis,” he said.
John Ivankoe, managing director of J.P. Morgan Chase & Co., who hosted the Q&A with Ozan, pointed out that, typically, franchisees would be pleased with same-store sales driven by higher tickets. Normally, they “would really be up in arms,” he said, if traffic was positive and ticket was flat (again, McDonald’s mixed traffic and ticket negative 2.2 percent and positive 4.7 percent, respectively. So it did the opposite).