Value meals helped improve McDonald’s U.S. sales in the third quarter, but that rebound could be reversed in the final months of the year due to an E. coli outbreak linked to the company’s Quarter Pounder burger.
U.S. same-store sales — or sales at stores open at least a year — rose 0.3% in the July-September period, the company said Tuesday. McDonald’s launched the $5 Meal in late June after a disappointing second quarter, and said the deal attracted lower-income consumers to McDonald’s and improved customers’ perceptions of value.
The $5 deal was so successful that McDonald’s recently extended it through December in most of its US stores.
But last week, there was a crisis. McDonald’s has pulled its Quarter Pounder burger from the menu in about 3,000 stores after the U.S. Food and Drug Administration determined that sliced raw onions in the burger were the likely cause of the E. coli contamination. The outbreak has killed one person and infected at least 75 others in 13 states.
Chris Kempczinski, McDonald’s chairman, president and CEO, apologized for the outbreak on Tuesday in a conference call with investors. He said this is the first major public health issue linked to McDonald’s in more than 40 years.
“Nothing is more important to us than the safety of our customers,” Kemptzinski said. “The recent wave of E. coli cases is deeply concerning, and hearing reports about how this is impacting our customers has been distressing for us.”
McDonald’s said it has stopped sourcing onions from that supplier and expects to return the Quarter Pounder to all its US menus within the week, although it will be served without onions in 900 stores.
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“I’m relieved that this situation appears to be contained and I remain confident in the safety of dining at McDonald’s,” Kempczinski said.
However, the company admitted that the outbreak hurt its sales momentum. The company did not share sales data, but Placer.ai, which tracks retail traffic using cell phone data and other signals, said it saw a 9% year-over-year decline in American visits to McDonald’s last weekend.
Kempczinski said the company hopes to win back customers by acting quickly to contain the outbreak, cooperating with authorities and promoting its offers, such as the $5 meal deal and a limited-time Chicken Big Mac. But he said it would take further action if necessary.
Outside the United States, McDonald’s struggled during the third quarter. Chinese demand has been weak as that country’s economy slows, as customers opt for cheaper competitors, and the company has also been hit by the war in the Middle East. To reverse the slowdown in French sales, the company introduced a €4 ($4.32) Happy Meal offer in August. It also sells $1 coffee in Canada.
McDonald’s same-store sales fell 1.5% companywide during the third quarter. That was worse than the 0.6% decline Wall Street had expected, according to analysts polled by FactSet.
The focus on value will remain in the United States in the first quarter of next year, but the company and franchisees are still deciding what that will look like, Kempczinski said. He said it will likely be a mix of lower-priced items, meal deals and digital offers. The company may also offer a McSmart menu for meal deals, as it has done in markets such as Germany and Australia.
McDonald’s revenue rose 3% to $6.87 billion during the quarter. This was slightly higher than analysts’ expectations of $6.82 billion.
McDonald’s net income fell 3% to $2.25 billion. After adjusting for one-time items, including costs associated with acquiring McDonald’s business in Israel, the company earned $3.23 per share, higher than the $3.21 per share Wall Street had expected.
McDonald’s shares rose 1% in morning trading Tuesday.
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