McDonald's is positioning itself to grow through chicken and beverages, but recent consumer spending data indicates it faces significant competition in these areas.
During its investor day in September, McDonald's announced plans to increase its global market share in chicken and beverages by an additional 1.5 percentage points by 2030, identifying these categories as key opportunities for expansion beyond its beef offerings.
CEO Chris Kempczinski emphasized the potential of these markets, noting that chicken represents a $130 billion category where McDonald's holds about a 20% share, while beverages account for a $230 billion market with a 10% share. In contrast, the global beef category is valued at $50 billion, where McDonald's commands a 40% share.
However, new data suggests that McDonald's may find it challenging to attract spending from its chicken and beverage competitors. Exclusive data from Consumer Edge shows that chains specializing in these segments are gaining ground with McDonald's customers.
Chick-fil-A, for instance, gained 0.58 percentage points of limited-service restaurant spending in the third quarter compared to the previous year, making it the top gainer among the chains tracked by Consumer Edge. Additionally, coffee chains like 7 Brew, Starbucks, Dutch Bros. Coffee, and Dunkin' collectively captured 0.88 percentage points of spending share.
Despite being the largest chain in overall limited-service restaurant spending, McDonald's saw its share decline compared to a year ago. In contrast, Burger King, owned by Restaurant Brands International, achieved a 0.24 percentage point increase, the largest among burger chains.
"There’s a big battle for a smaller amount of restaurant spend as people become more selective in what they spend," stated Michael Gunther, senior vice president at Consumer Edge.
The data provides insights into the competitive landscape for McDonald's in the chicken and beverage sectors, although it does not specifically track customer orders at the counter. Gunther added, "If they [McDonald's] are able to attract diners with interesting options, it could work.”
While McDonald's has faced sluggish sales, executives noted signs of improvement towards the end of the third quarter. The company reported slightly negative U.S. comparable sales in July and August but anticipated a positive turn in September.
Consumer Edge's data also indicated that McDonald's year-over-year spending share declines were narrowing across all income groups in September. However, Wall Street analysts have raised concerns about the pace at which the chicken and beverage strategy can yield results.
Bernstein analyst Danilo Gargiulo remarked that U.S. beverage launches had not generated sufficient sales to counteract broader weaknesses, and he noted that the next chicken platform, featuring hand-breaded and grilled items, was further off than he had anticipated. He described the investment needed for McDonald's growth plan as exceeding expectations, which adds pressure on near-term earnings, maintaining a market perform rating with a $295 price target, while shares closed around $235 on Friday.