Popularity of McDonald’s all-day breakfast slowing down sales growth

The popularity of McDonald's all-day breakfast menu and McPick 2 promotions has had an unintended consequence that is bad for its business.

McDonald's introduced all-day breakfast and McPick 2, which allowed customers to choose two items for $5, in order to increase traffic to its restaurants.

The strategy had worked and McDonald's US same-stores sales increased 5.4 per cent in the first quarter of the year, marking its best quarterly performance in over four years.

However, now comparable sales growth was slowing, falling to 1.8 per cent in the second quarter, as customers increasingly "exploit" the promotions to trade  down to cheaper menu items, according to retail research agency Conlumino CEO, Neil Saunders.

"Average transaction values for lunch and dinner have fallen as a consequence, something that has put a dampener on overall sales growth, even if it has been helpful to volumes," Saunders wrote in a research note yesterday. "In most markets the pricing differential between breakfast items and lunch and dinner items is fairly pronounced, and this may be something McDonald's needs to assess over the next six months to see if there is any way to remedy the down-trading trend without losing customers."

Franchisees had warned that customers were trading down to cheaper breakfast menu items during lunch and dinner, with breakfast now available all day.

The introduction of all-day breakfast nationally last fall, was perceived as a potential solution to the company's flagging sales.

The results were almost immediately obvious, the new menu options attracted customers who would not normally eat at McDonald's, and sales increased sharply in the fourth quarter of 2015 and into 2016.

However, on the basis of this week's earnings report from McDonald's, in which the company posted weaker-than-expected growth, the ''All-Day Breakfast Effect'' appeal appeared to be flagging. 

Even as it played up ''continued contributions from All Day Breakfast and McPick 2'' promotions, McDonald's noted ''softening industry growth during the quarter'' as one of the reasons behind lacklustre sales growth.