RBC: McDonald's hyped its new Dollar Menu so much that the real game changers were overlooked (MCD)

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March 12, 2018 8:21 PM

RBC Capital Markets says the menu is stealing the spotlight from other new food offerings that could help the chain.

RBC Capital Markets says the menu is stealing the spotlight from other new food offerings that could help the chain.

McDonald's has been promoting its new dollar menu replacement — the $1, $2, $3 menu — like crazy, and so far, it doesn't appear to be working out.

Now, one Wall Street analyst says the chain hawked the new menu so much that other new items, like buttermilk chicken tenders, are getting left out to dry.

"We continue to believe that the opportunity cost of advertising the $1, $2, $3 menu has been significant," RBC Capital Markets analyst David Palmer said in a note to clients Monday, reiterating his skepticism around the revamped menus.

"So far in 2018, marketing of the new $1, $2, $3 menu diverted attention away from the return of the Tenders. In addition, the new value menu marketing has stolen thunder away from the Big Mac Trio and $1 coffee promotions that were successful in 1Q last year."

Despite the possible menu blunder,RBC expects the chain to learn from its mistakes and take advantage of more promising initiatives like the buttermilk chicken tenders, soon-to-be-launched fresh-beef Quarter Pounder, and mobile ordering and delivery to boost a turnaround in the US.

The bank maintains its outperform rating for the stock with a $170 price target — 7.6% above where shares were trading Monday afternoon.

"We are nudging our 2018 US same store sales growth estimates 50bp higher," RBC said. "While the long-term efficacy of the $1, $2, $3 menu remains in-question, we believe improvement will continue with food, asset, and convenience upgrades."

Shares of McDonald's have declined 8.8% so far in 2018.

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