“Healthy” Food Options In The Core Menu Can Drive Revenues For McDonald’s
Better known for calorie-laden fast food, McDonald’s (NYSE:MCD) is now working on initiatives to provide healthier menu options and add nutrition to its offering. In a recent interview to Business Insider, the company’s chef Jessica Foust listed several measures to improve its menu, including increased personalization, removing unhealthy choices from the kid’s menus and adapting to local preferences. While healthy food options such as salads and whole wheat wraps can appeal to a section of consumers, they could also lead to higher priced a menu. McDonald’s is known for its “value” and it is essential for the company balance its value conscious and health conscious consumers. The company claims that the switch from margarine to butter in McMuffins doubled their sales, indicating the preference for healthier ingredients. However, if healthier ingredients translate into higher prices, it could impact the company negatively in the long term. We believe that, if McDonald’s is able to separate its health menu from its regular menu, its “healthy” initiatives can drive revenues in the long term.
See Our Complete Analysis For McDonald’s Corporation
10% Upside To Our Price Estimate If Average Spend Per Customer Visit Increases To $ 4
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We believe health conscious customers visiting McDonald’s will be willing to shell out a little extra for healthier ingredients and a healthy menu selection. By balancing its menu with both options (healthy and regular), McDonalds can attract consumers who are looking for salads or want to replace fries with fruit while retaining its value conscious consumers who are looking for a cheap meal. This can lead to an increase in the average spend per customer visit at its restaurants, impacting the company’s valuation positively. As per our estimates, the average spend per customer visit at McDonald’s franchise restaurants will increase marginally from $ 3.35 in 2016 to $ 3.42 by the end of our forecast period.
With high priced healthy menu options, if this spend increases rapidly and reaches $4.00 by the end of our forecast period, there can be a 10% upside to our price estimate.
McDonald’s is walking the thin line of retaining its identity as a value fast food chain while adapting itself to changing consumer preferences for healthier food. While its initiatives to make its food healthier have shown a positive response, the company needs to protect its image of a “value chain”. We believe a dual strategy which provides both menu options can work well for the company. Allow customers more flexibility to choose their invidual meal items will also help maintain this balance. A right mix that allows the company to protect its image and compete with other fast food giants on price, while at the same time providing healthier food options, should work to the advantage of McDonald’s.
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