Are Happy Meal’s Hurting McDonald’s Brand Image?

McDonald’s Corporation (NYSE:MCD) has had a mediocre year so far. Its same store sales are up 0.2% through July in the U.S. while margins face downward pressure due to increased reliance on less profitable value meals. ^[1] Furthermore, there are reports suggesting that not all is well between the company and its franchisees. One of the reasons why sales at McDonald’s have slowed is because of the consumer predilection for healthier foods, something not usually associated with the chain. While it is true that McDonald’s was never a favorite among the health advocates, the problem is that some other restaurant chains have actually climbed the ladder in terms of brand perception.

Taco Bell recently removed kids’ meals and toys from all of its U.S. restaurants. For some time now, fast food chains have been under pressure to stop marketing aimed at children. Kids’ meals only account for a tiny portion of Taco Bell’s sales but the move will pass as one intended for the benefit of public health and help the restaurant chain gain some brownie points. Even Jack in the Box dropped its kids menu back in 2011. McDonald’s has been persuaded to stop marketing to children but continues to sell kids’ meals, which offers a toy at could come at the expense of public criticism.

See full analysis for McDonald’s Corporation

Bigger Picture

Restaurant chains want to distance themselves from any negative publicity arising as a result of kid-themed menus. Besides the PR (Public Relations) boost, another reason why the restaurant chains are dropping kids menus is to focus on the fresher-food seeking young adults. The restaurant chains that are doing well – Chipotle, Subway, Five Guys – all target millennials. In fact, according to a recent study, McDonald’s doesn’t even feature in the top ten chains for this demographic. ^[2]

While some restaurant chains might claim to be all fresh and healthy, people don’t necessarily buy all that. ^[3] Customers know that naturally there will be more calories if you add extra cheese or order an extra large cola, but if food is prepared in front of their eyes, it gives them some assurance that the meal is not all processed and junk.

To cash in on this trend, McDonald’s introduced the McWrap a few months back. The image features veggies oozing out of the tortilla wrap – emphasizing freshness and health. It is also an item that young adults are likely to consider as ‘comfort food’ and eat often without feeling guilty. Over the years, McDonald’s has also added salads and fruits to its menu.

But as long as McDonald’s is stuck to its marketing antics of using Ronald McDonald to lure children, it could continue to face negative press from health advocates and any attempts to overhaul the public perception may be difficult.

We have a $99 price estimate for McDonald’s, which is about 5% above the current market price.

Understand How a Company’s Products Impact its Stock Price at Trefis

1. MCD 8-k [↩]
2. Is McDonald’s Kid-Themed Business Model Obsolete?, August 23, 2013, huffingtonpost.com [↩]
3. Why the McWrap Is So Important to McDonald’s, July 3, 2013, businessweek.com [↩]