A McDonald’s chicken sandwich photographed on May 6, 2021 in Chicago, Illinois.
Scott Olson | Getty Images
McDonald’s is betting on chicken and beverages to fuel its next phase of growth, but new consumer spending data suggests the fast food giant faces stiff competition from rivals specializing in those areas.
At an investor day in September, McDonald’s outlined plans to gain an additional 1.5 percentage points of global market share in both chicken and beverages by 2030. The McDonald’s chain recognized these categories as significant opportunities to expand beyond beef.
CEO Chris Kempczinski told CNBC that the size of these markets highlights upside potential.
“Poultry is a $130 billion category. Chicken has about a 20% share. Beverage is a about $230 billion category. Beverages have a 10% share,” Kempczinski said, noting that McDonald’s has more room to grow in these areas than in the global $50 billion beef category (about 40% share).
But new data shows McDonald’s may face a tough challenge winning spending from its chicken and beverage rivals. Many of the restaurant chains that capture the most spending from McDonald’s diners specialize in these two segments, according to exclusive data shared by Consumer Edge, which tracks credit and debit card transactions.
Among McDonald’s customers, Chick-fil-A increased limited service restaurant spending by 0.58 percentage points in the third quarter compared to the same period last year, making it the largest increase among chains tracked by Consumer Edge.
The coffee industry is also capturing more spending from McDonald’s customers. Drive-thru-only chain 7 Brew increased by 0.4 points. starbucks, dutch brothers coffee Dunkin also ranked in the top 10 for increases. Combined, the four coffee chains increased their spending share by 0.88 percentage points.
McDonald’s remains by far the largest individual chain in overall customer limited-service restaurant spending, but its share has declined from a year ago. restaurant brand internationalMeanwhile, Burger King, owned by Burger King, rose 0.24 percentage points, the biggest increase among hamburger chains.
“As people become more selective about what they spend, there’s a huge fight to spend less at restaurants,” said Michael Gunther, senior vice president at Consumer Edge.
This data doesn’t tell us much about McDonald’s competitive situation in the chicken and drinks space. One reason for this is that McDonald’s doesn’t accurately track what customers are ordering at the counter.
“If they (McDonald’s) can attract customers with interesting options, it might work,” Gunther added.
McDonald’s has been struggling with weak sales, but executives said they were seeing signs of improvement toward the end of the third quarter. McDonald’s said at its investor day that U.S. comparable sales were slightly negative in July and August, but are expected to turn positive in September.
Consumer Edge data similarly showed that McDonald’s year-over-year spending share declines in September narrowed across all income groups.
Wall Street also has doubts about how quickly the chicken-and-beverage strategy can take effect.
Bernstein analyst Danilo Gargiulo said after McDonald’s investor day that its U.S. beverage launches haven’t generated enough sales to offset the broader recession, while the company’s next chicken platform, which includes hand-breaded and grilled chicken menu items, is farther away than expected.
“The scale of investment required to realize[the company’s growth plan]McDonald’s Next exceeds our expectations, placing additional pressure on near-term earnings,” Gargiulo said in a note.
He has a market perform rating and a $295 price target on the stock. Shares closed Friday around $235.
