McDonald’s, Wendy’s, and the rest of quick service are heading into what promises to be another hectic earnings season. The former’s U.S. same-store sales slipped 0.7 percent in Q2, announced in late July, thanks to a discerning customer who’s buying fewer items per visit, purchasing lower-priced options, and choosing to eat at home instead.
That cautious guest, reacting to multiple years of price hikes, has prompted brands to flood the market with value. McDonald’s $5 Meal Deal didn’t arrive until five days before Q2 ended. So its impact was immaterial in that report. But management shared brand perceptions around value and affordability were rising. And trial rates in households under $45,000 and between $45,000–$75,000 climbing. Lastly, diners tapping the deal were ending up with a $10 average check, meaning it was serving as an effective entry point at the bottom rung of the barbell, with people adding-on, yet still offering an option if they were seeking value.
U.S. president Joe Erlinger said traffic and guest counts, as he’s seen throughout his 22 years at McDonald’s, typically come before sales. It will soon be clear how much of that traffic growth translated to the top line (McDonald’s reports Q3 earnings on October 29).
MORE: Why McDonald’s $5 Meal Deal is a Short-Term Answer to a Longer-Term Problem
Data-driven research and analytics firm M Science ran a report on the days following the $5 launch. It showed McDonald’s witnessed higher consumer interest in its value deal compared to a similar $5 promotion offered by Burger King. About 25 percent of McDonald’s customers ordered the $5 Meal Deal in the weeks following June 25 compared to roughly 10 percent of Burger King guests in the period following its June 10 $5 introduction, M Science said.
McDonald’s offer also helped return lapsed customers. Twelve percent of diners who purchased the meal had not been to McDonald’s the previous month, per the report. About 5 percent were new customers.
Also, in the weeks after the $5 Meal Deal hit stores in late June (it’s since been extended multiple times), M Science discovered orders with the bundle had 12 percent higher checks than those without it. The promotion, in other terms, as McDonald’s hinted, was ordered more frequently as an add-on to other items rather than as a standalone purchase.
What’s important to recognize about McDonald’s recent performance as well is, although the 0.7 percent drop marked the first negative run in 16 quarters, going back to COVID, it was comping against a three-year stack of 38 percent. That suggests softness owed to macro challenges instead of something brand related.
Another way to look at it is this graph from Placer.ai below. During the first three quarters of 2024, McDonald’s, and Wendy’s for that matter, posted visit levels generally on par with those reported last year. There’s been minimal year-over-year variation. Despite a minor drop for McDonald’s in Q2 (negative 2.2 percent compared to 2023), the overall difference in visit levels for both chains was less than 1 percent across the remaining quarter.
So, “soft” results could more accurately be labeled “steady” given the economic backdrop.
Getting back to the promotions, of which there have been a bevy of throughout quick service of late, Placer.ai examined McDonald’s Chicken Big Mac launch on October 10 and Wendy’s Krabby Patty Kollab, which celebrated the 25th anniversary of SpongeBob Square Pants.
Of the two, Wendy’s deal, complete with Krabby Patty Collab Burger and a Pineapple Under the Sea Frosty, produced the more pronounced effect. It jumped visits 26.4 percent on the Tuesday of its launch, compared to a year-to-date Tuesday average. The following Wednesday and Thursday also saw increases of 20.7 and 23.9 percent, respectively, measured against the year-to-date daily baseline average.
McDonald’s release of the Chicken version of its staple leapt visits 7.9 percent compared to its year-to-date Thursday average.
Wendy’s more recently made drinks $1 for any size for a limited time. The brand is coming off a Q2 where its same-store sales inched 0.6 percent, year-over-year. Those comps consisted of 4 percent pricing, negative traffic of a little less than 2 percent, and a slightly negative mix of a little more than 1 percent. The company also announced in February it would spend $55 million worth of incremental advertising on breakfast in the U.S. and Canada, split evenly across 2024 and 2025.
Speaking of the early morning rush, Placer.ai broke down some data around McDonald’s offering at breakfast. Recent moves to expand options, offering healthier alternatives, and rolling out LTOs, helped boost visits. In 2024, 24.8 percent of McDonald’s daily visits, Placer.ai said, occurred between 5 and 11 a.m.—compared to just 8.5 percent for Wendy’s.
Wendy’s 11 a.m. to 2 p.m. slot accounted for 27.5 percent of trips versus 21.2 percent for McDonald’s.
A look on the fast-casual side
Naturally, CAVA isn’t going to compete in the “value wars” side of quick service with its large-scale, fast-food counterparts. Its customer base targets a premium price point from the outset, so there isn’t the same kind of ladder-up goal in play. Put simply, “value” tends to be defined differently; it’s more a quality, innovation, and convenience package than a cost one.
Whatever the parameters, though, CAVA has been an outlier. Its same-store sales popped 14.4 percent in Q2, including traffic growth of 9.5 percent. Revenue soared 35.2 percent, with AUVs at $2.7 million. Adjusted EBITDA was $34.3 million, an increase of $12.7 million from last year. Net income was $19.7 million and restaurant-level profit margin 26.5 percent.
CAVA also opened 18 net new locations in Q2 to bring the system to 341 restaurants.
Partly as a result of recent expansion, CAVA’s foot traffic continues to lift as awareness does. It achieved double-digit year-over-year visit expansion during every month of the year so far, according to Placer.ai. September visits hiked 24.9 percent. The line was well ahead of the broader fast casual arena.
Individual stores are drawing more traffic, too, Placer.ai added. In all but one month in 2024 (January and its weather issues), the average number of visits to each CAVA unit upped “significantly.” In August and September, visits per restaurants grew by 15 and 9.9 percent, respectively, against last year.
Placer.ai also found CAVA’s customer base seems to be diversifying (understandable as it reaches new audiences through net unit growth). Analyzing changes in CAVA’s captured market over time with demographics from STI: PopStats showed the median household income of the brand’s visitor base dropped over the past few years (this is obtained by weighting each census block group in a brand’s trade area according to share of visits). In Q3 2021, the median HHI of CAVA’s captured market was $107,500—well above the nationwide result of $76,100. But as it’s scaled nationwide, CAVA’s median HHI has steadily come closer to the norm, reaching $92,300 by Q3 2024.
Using the Spatial.ai PersonaLive dataset, Placer.ai also looked at the psychographic makeup of CAVA’s trade areas. It revealed the share of “ultra-wealthy families” in its captured market has declined—from 22.9 percent in 2021 to 17.1 percent this year. At the same time, the share of “young urban singles” increased from 5.4 to 7.3 percent.
The brand is becoming more accessible.
This should only continue if CAVA climbs toward its previously touted goal of 1,000 units. CAVA said in August it was appreciating trade down from full service and trade up from fast food, as well as trade over from legacy fast casuals. CEO Brett Schulman credited the movement to increased awareness from going public in 2023 and swift and consistent unit expansion.
“One of the things we talked about when going public was that this was an opportunity to put our brand and the category we’re creating in the public sphere,” Schulman said at the time.. “And that’s certainly amplified awareness around the country.
