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After a rocky week marked by an E.coli outbreak that sent customers fleeing, McDonald’s plans to flip the script with a red carpet rollout of deals for bargain hunters.
With a revamped value platform aimed at regaining trust, the fast-food giant is confident that its $5 meal deal and new offerings like the Chicken Big Mac will bring diners back to the Golden Arches.
“Hearing the reports of how this has impacted our customers has been wrenching for us,” said McDonald’s CEO Chris Kempczinski during the company’s earnings call on Tuesday.
Following the outbreak, year-over-year visits to the chain plummeted by 6.4% nationwide on Oct. 23, the day after the announcement, with declines of 9.1% and 9.4% on Oct. 24 and Oct. 25, respectively, according to foot traffic analytics firm Placer.ai. In Colorado, where the outbreak was most severe, visits dropped by nearly 33% by the third day.
Kempczinski confirmed that slivered onions from the Taylor Farms Colorado Springs facility were likely the cause of the contamination. McDonald’s has stopped sourcing onions from this facility “indefinitely.”
The Colorado Department of Agriculture also reported no E.coli in samples of beef patties from the restaurants and has no further testing planned. So far, 75 illnesses have been reported, up from 49, including one fatality. The numbers may continue to rise as it takes time to link illnesses to outbreaks.
But McDonald’s isn’t backing down. Instead, the chain plans to double down wallet-friendly deals. It’s most recent quarter saw a 0.3% increase in same-store U.S. sales, evidence that savings remain top of mind for consumers. “We’re laser-focused on delivering value and affordability,” Kempczinski said.
The crown jewel of McDonald’s strategy? It’s extended $5 meal deal. Kempczinski indicated the chain is prepared to”supplement as needed” with additional promotions “to make sure we get customers back into restaurants.”
Whether it’s the classic Big Mac or new menu items like the Chicken Big Mac, these promotions have been designed to lure patrons back. CFO Ian Borden, noted that deals combined with “great marketing,” are key increasing visits and spending, pointing to promotions like the Collector’s Cups and a collaboration with Crocs (CROX+1.13%) as prime examples.
While the outbreak comes on the heels of a solid third quarter, where McDonald’s has seen year-over-year visitation increases, it also highlights the challenges of recovering from food safety concerns. Historically, such events can impact visitation trends for an extended period, with Chipotle (CMG-0.86%) serving as a cautionary example.
However, R.J. Hottovy, head of analytical research at Placer.ai, believes McDonald’s ability to identify the source of the outbreak and communicate preventative measures should help mitigate the long-term effects. The chain plans to return Quarter Pounders, minus the onions, back to its menu soon.
The road to recovery may be bumpy, but McDonald’s executives are optimistic that the health scare will have “no material impact on the business.” As the dust settles from the outbreak, its clear that McDonald’s is ready to reclaim its spot as America’s go-to fast-food stop, proving that a little creativity and a lot of value can go a long way.
“We will prioritize the right price points for our customers, but we won’t overlook the intangibles that contribute to great value,” Borden said. “Delivering an excellent experience, especially now, is essential.”