McDonald's Targets Chicken and Drinks Amid Rising Competition

McDonald's faces growing competition in chicken and beverages as it seeks to expand its market share by 2030, with consumer spending data showing rivals attracting more purchases from its customers. The fast-food chain outlined its growth strategy at an investor day in September, but figures from Consumer Edge indicate that established chicken restaurants and coffee chains are gaining ground.

McDonald's aims to increase its global market share in both chicken and beverages by 1.5 percentage points by 2030. Chief Executive Officer Chris Kempczinski identified the categories as major opportunities beyond beef, where the company already holds a stronger position.

Kempczinski said chicken represents a $130 billion market in which McDonald's holds about 20% share. Beverages account for approximately $230 billion, with the company capturing 10%, compared with a $50 billion global beef market where its share is about 40%.

Consumer Edge, which tracks credit and debit card transactions, found that Chick-fil-A recorded the largest increase in limited-service restaurant spending share among McDonald's customers in the third quarter. The chicken chain gained 0.58 percentage points compared with the same period a year earlier.

Coffee chains also captured a larger portion of spending by McDonald's customers. Drive-thru-only chain 7 Brew gained 0.4 percentage points, while Starbucks, Dutch Bros. Coffee and Dunkin' also ranked among the 10 biggest gainers. Combined, the four coffee chains increased their spending share by 0.88 percentage points.

McDonald's remained the largest individual chain in overall limited-service restaurant spending among the customers tracked, although its share fell from a year earlier. Burger King, owned by Restaurant Brands International, gained 0.24 percentage points, the largest increase among burger chains.

Michael Gunther, senior vice president at Consumer Edge, said the competitive environment reflects consumers' increasingly selective spending habits.

"There's a big battle for a smaller amount of restaurant spend as people become more selective in what they spend," Gunther said.

Gunther cautioned that spending data alone cannot establish which menu items customers purchase at individual restaurants. That limitation makes it difficult to determine precisely how much of the competitive shift reflects demand for chicken or beverages.

He said McDonald's could still benefit from expanding its menu with appealing new products.

"If they [McDonald's] are able to attract diners with interesting options, it could work," Gunther added.

McDonald's has faced sluggish sales, although executives reported signs of improvement toward the end of the third quarter. At its September investor day, the company said U.S. comparable sales were slightly negative in July and August but projected a return to positive growth in September.

Consumer Edge's figures showed that year-over-year declines in McDonald's spending share narrowed across every income group in September. The data suggested some improvement in spending trends, even as competing chains continued to gain share.

Analysts have also questioned whether the company's planned product launches will generate enough sales to support its broader growth ambitions. McDonald's plans to introduce hand-breaded chicken products and bring grilled chicken back to its menu as part of its expansion beyond beef.

Bernstein analyst Danilo Gargiulo said in a note following the investor day that U.S. beverage launches had not generated sufficient sales to offset broader weakness. He also said the next chicken platform, including hand-breaded and grilled chicken items, was further away than he had expected.

Gargiulo warned that the investment needed to execute the company's growth strategy could weigh on near-term earnings.

"The scale of investment required to deliver [the company's growth plan] McDonald's Next was above our expectations and introduces additional pressure on near-term earnings," Gargiulo said.

Gargiulo maintained a market perform rating on McDonald's stock and a $295 price target. The shares closed at around $235 on Friday.