McDonald’s Chicken and Beverage Growth Faces Competitors

McDonald’s is betting on chicken and drinks 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 its investor day in September, McDonald’s outlined plans to gain an additional 1.5 percentage points of global market share in chicken and beverages by 2030. The chain identified these categories as significant opportunities to expand its business beyond beef.

CEO Chris Kempczinski told CNBC that the size of these markets highlights the upside potential.

“Chicken is a $130 billion category. We have about a 20% share in chicken. Beverages are about a $230 billion category. We have a 10% share in beverages,” Kempczinski said, arguing that McDonald’s has more room to grow in those areas than in the $50 billion global beef category, where it has about a 40% share.

But new data indicates that McDonald’s may have a tough task securing spending from its chicken and beverage competitors. Most of the restaurant chains that generate the most spending from McDonald’s customers specialize in these two segments, according to proprietary data shared by Consumer Edge, which tracks credit and debit card transactions.

Among McDonald’s customers, Chick-fil-A gained 0.58 percentage points in spending at limited-service restaurants in the third quarter from a year earlier, making it the biggest gainer among the chains tracked by Consumer Edge.

Coffee companies are also capturing more spending from McDonald’s customers. Drive-thru-only chain 7 Brew added 0.4 percentage points, while Starbucks, Dutch Bros. Coffee and Dunkin’ also ranked among the top 10 gainers. Together, the four coffee chains added 0.88 percentage points of spending share.

McDonald’s remained by far the largest individual chain in overall customer spending at limited-service restaurants, but its share declined from the previous year. International restaurant brandsBurger King-owned Burger King, meanwhile, gained 0.24 percentage points, the largest increase among burger chains.

“There is a big battle to reduce restaurant spending as people become more selective in what they spend,” said Michael Gunther, senior vice president of Consumer Edge.

The data doesn’t say much about McDonald’s competitive landscape in the chicken and beverage sector, in part because it doesn’t track exactly what customers order at the counter.

“If they (McDonald’s) are able to attract customers with attractive options, it could work,” Gunther added.

As McDonald’s struggles with sluggish sales, executives said they saw signs of improvement toward the end of the third quarter. At its investor day, McDonald’s said its U.S. comparable sales were slightly negative in July and August, but the company said it expected September to turn positive.

Data from Consumer Edge also showed that McDonald’s year-over-year spending share decline narrowed across all income groups in September.

Wall Street also wondered how quickly the chicken and drinks strategy could be effective.

Bernstein analyst Danilo Gargiulo said after McDonald’s investor day that U.S. beverage launches had not generated enough sales to offset broader weakness, while the company’s upcoming chicken platform — which includes hand-breaded chicken and grilled chicken dishes — was further away than expected.

“The scale of investments required to realize (the company’s growth plan) McDonald’s Next was greater than our expectations and introduces additional pressure on earnings in the near term,” Gargiulo said in his note.

He has a Market Perform rating on the stock and a price target of $295. Shares closed around $235 on Friday.