McDonald's Replaces US Chief, Revamps Value Strategy as Sales Growth Slows

McDonald's Corp. is implementing a leadership change and rethinking its value strategy in its largest market after U.S. growth slowed to its weakest pace in over a year. The moves come as the company's stock has fallen 19% year-to-date, increasing pressure on management to address concerns over pricing and competition.

Strategic Overhaul

In a memo to operators, McDonald's announced it will work with franchisees in the coming weeks to develop a "longer-term" plan to attract value-conscious customers. In the interim, the company is launching a "short-term transitional plan" featuring temporary products and digital-only deals, such as a $2 breakfast sandwich or free fries with a minimum $1 purchase through its app.

The strategic shift is one of the first major initiatives under new U.S. President Skye Anderson, who was appointed last month to bring "focus and urgency" to the domestic business. As part of the new approach, McDonald's will also pause some temporary store visits for franchisees through March 31 to implement targeted training focused on improving hospitality and product consistency.

Market Pressure and Performance

Last quarter, McDonald's reported that U.S. comparable-store sales grew just 0.8%, its weakest performance since early last year. The slowdown has contributed to significant underperformance in its stock and heightened investor scrutiny ahead of the company's investor day, scheduled for September 23.

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In a recent note to investors, Jefferies analyst Andy Barish called the upcoming event a "key 'clearing' event" for management. "To get the stock to rebound, management must convince investors that the recent same-store sales slowdown is (soon) fixable," Barish wrote.

Context and Competition

The changes address a growing perception among consumers that the chain has become too expensive. On an August 4 earnings call, CEO Chris Kempczinski noted that many franchisees, who have autonomy on pricing, had not followed the company's recommendations, which hurt performance. The company also previously scaled back app-only offers and ended its "buy one, get one for $1" promotion.

Meanwhile, McDonald's is facing intensified competition from rivals like Burger King, a unit of Restaurant Brands International, which has seen its growth accelerate following improvements to its signature Whopper and ongoing store renovations. According to credit and debit card data tracked by Second Measure, McDonald's U.S. sales declined in both July and August.