A chicken sandwich from McDonald's is shown in Chicago, Illinois, May 6, 2021.
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McDonald's is betting on chicken and beverages to fuel its next phase of growth, but new consumer spending data suggests the fast-food giant faces stiff competition from rivals that specialize in those areas.
At its September investor day, McDonald's outlined plans to gain an additional 1.5 percentage points of global market share in both chicken and beverages by 2030. The chain identified the categories as significant opportunities to expand its business beyond beef.
CEO Chris Kempczinski told CNBC the size of those markets underscores the potential upside.
"Chicken is a $130 billion category. We have about a 20% share of chicken. Beverages is about a $230 billion category. We have a 10% share of beverages," Kempczinski said, saying McDonald's has more room to grow in those areas than in the $50 billion global beef category, where it has about a 40% share.
But new data indicates McDonald's could have a tough task in gaining spending from chicken and drink rivals. Many of the restaurant chains winning the most spending from McDonald's diners specialize in those two segments, according to exclusive data shared by Consumer Edge, which tracks credit and debit card transactions.
Among McDonald's customers, Chick-fil-A gained 0.58 percentage points of limited-service restaurant spending in the third quarter compared with a year earlier, making it the biggest gainer among the chains tracked by Consumer Edge.
Coffee businesses are also capturing more spending from McDonald's customers. Drive-thru-only chain 7 Brew added 0.4 percentage points, while Starbucks, Dutch Bros. Coffee and Dunkin' also ranked among the top 10 gainers. Together, the four coffee chains added 0.88 percentage points of spending share.
McDonald's remained by far the largest individual chain in customers' overall limited-service restaurant spending, but its share declined from a year earlier. Restaurant Brands International-owned Burger King, meanwhile, gained 0.24 percentage points, the largest increase among burger chains.
"There’s a big battle for a smaller amount of restaurant spend as people become more selective in what they spend," said Michael Gunther, Consumer Edge senior vice president.
The data says only so much about the competitive landscape for McDonald's in the chicken and drink spaces, in part because they don't track exactly what customers are ordering at the counter.
"If they [McDonald's] are able to attract diners with interesting options, it could work,” Gunther added.
While McDonald's has struggled with sluggish sales, executives have said they saw signs of improvement toward the end of the third quarter. At its investor day, McDonald's said U.S. comparable sales were slightly negative in July and August, but the company said it expected September to turn positive.
Consumer Edge data similarly showed McDonald's year-over-year spending share declines narrowing across every income group in September.
Wall Street has also questioned how quickly the chicken and beverage strategy can deliver.
Bernstein analyst Danilo Gargiulo said after McDonald's investor day that U.S. beverage launches had not generated enough sales to offset broader weakness, while the company's next chicken platform — which includes hand-breaded chicken and grilled chicken menu items — was further away than he expected.
"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," said Gargiulo in his note.
He has a market perform rating on the stock and $295 price target. Shares closed around $235 on Friday.