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McDonald's (MCD) beat profit and revenue expectations during its third quarter as consumers continue to prioritize value when dining out. Morningstar analyst Sean Dunlop joins Morning Brief to discuss the success of the fast-food giant's value offerings and some of the biggest challenges ahead. Dunlop expects McDonald's to continue pushing its value meals and other deals: "When you see restaurants struggle with comparable store sales, kind of the two levers that they have to pull are menu innovation and promotions and advertising. We've definitely seen plenty of both from McDonald's, and should expect to continue to see plenty of both from McDonald's." He notes that the $5 Meal Deal was an effective initiative that helped bring back lower-income consumers to McDonald's, which could lead the company to continue rolling out promotions to boost sales. Moving forward, Dunlop argues that the biggest challenge for McDonald's is "price competitiveness": "You think about 30-basis-points comparable store sales growth in the US outperforming the industry by a wide margin. That's very concerning. Right now, we live in an environment where wage growth is consistently higher than expected food cost inflation for restaurants. That means that as the quarters progress, they're growing less and less competitive from a price standpoint with grocery stores. And we're seeing consumer traffic continue to favor that cheaper grocery store channel." Watch Dunlop talk more about McDonald's third quarter earnings and what the brand's recent E. coli outbreak could mean for its fourth quarter. To watch more expert insights and analysis on the latest market action, check out more Morning Brief here. This post was written by Melanie Riehl
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