McDonald's franchisees expect new Dollar Menu to boost sales in early 2018

  • McDonald's franchisees see same-store sales growth in 2018, buoyed by McDonald's new $1 $2 $3 Dollar Menu.
  • However, many franchisees fear that the new menu will drive checks lower, diminish the franchisees' ability to control menu prices and raise their food costs.
  • McDonald's is expected to report fourth quarter earnings on Jan. 30 before the opening bell.
McDonald's launches fresh beef quarter pounders.
Source: McDonald's
McDonald's launches fresh beef quarter pounders.

McDonald's new value menu will likely boost sales in the first half of 2018, but franchisees are wary about its staying power.

In a recent survey by Nomura, 26 U.S. golden arches' franchisees, who own about 286 stores collectively, estimated that same-store sales had risen about 4 percent in the fourth quarter.

Franchisees said the company had gained momentum in 2017 from its signature burgers' launch and its drink promotions. McDonald's introduction of $1 and $2 soft drinks and McCafe beverages in April of last year has been cited by the company as part of the reason sales have been strong in recent quarters.

"The second half of 2017 generated quite a bit of momentum," one franchisee said. "Sales really shifted in 2017."

Here is how the franchisees' estimates break down by geographic zone for the fourth quarter:

Based on these results, Mark Kalinowski, a Nomura analyst, lowered his same-store sales estimate by 50 basis points to 4 percent.

"While McDonald's U.S. business likely outperformed many of its quick-service counterparts during Q4 in terms of same-store sales growth, perhaps consensus expectations for this key business segment may have gotten a touch too high in the near term," Kalinowski wrote.

Franchisees said that McDonald's new $1 $2 $3 Dollar Menu will likely drive sales in the first part of the year, but many fear that the new menu will drive checks lower, diminish the franchisees' ability to control menu prices and raise their food costs. The new menu kicked off at the start of January.

"The $1 $2 $3 Dollar Menu does give customers choices, but it isn't profit-oriented," one franchisee told Nomura Instinet. "It's good for buying guest counts."

Nomura Instinent polled the same domestic franchisees about the first quarter of 2018 and, in aggregate, they expect same-store sales to be up 3.5 percent.

Here's how their estimates break down by geographic zone for the first quarter:

McDonald's is expected to report fourth-quarter earnings on Jan. 30 before the opening bell.