The value menu war is on, and McDonalds is set to come out on top
- Fast-food chains are coming out with new iterations of their value menus in 2018.
- McDonald's is spending more on advertising to keep its current sales trends alive, and Credit Suisse thinks the company will do well with their new menu.
- Watch McDonald's trade in real time here.
The value menu has been a staple at many fast-food restaurants for years, and it's about to go through a renaissance.
McDonald's is set to revamp its dollar menu on January 4, with new offerings at the $1, $2, and $3 price levels. The new menu will face stiff competition when it launches, as Taco Bell is offering a new 20-item dollar menu and Jack in the Box is planning on spending more to make customers aware of its cheaper menu options.
"Fast food competitors are gearing up to combat this new value effort from MCD, setting up 2018 as a potential year for intensive discounting in the fast food space, particularly in the first part of the year," Jason West, an analyst at Credit Suisse said in a note to clients.
In the coming value menu battle, West thinks McDonald's has the upper hand.
McDonald's franchises have agreed to contribute more to the company's advertising budget in the coming year, resulting in an increase of about 20%. Some franchises are expecting an uptick in sales because of the new value menu offerings, and others say the sales impact will be minimal at first, but grow over time like the original dollar menu, according to West.
Sales in the fourth quarter are looking strong for McDonald's, and West says this might translate into continued success in the beginning of 2018. West rates the company an "outperform" relative to other fast-food restaurants, with a price target of $185.
McDonald's has risen 44% this year and was down 0.49% on Tuesday after West released his note.
