McDonald’s just admitted that it’s too expensive, and it’s driving some customers away
McDonald’s says that high prices have contributed to its falling sales.
Global comparable sales dropped 1%. Its CEO said the company hadn’t homed in enough on value.
He said customers are looking for more deals and either buying fewer items per order or cheaper items.
McDonald’s just admitted that its food is too expensive, contributing to falling sales at the fast-food giant.
McDonald’s CEO Chris Kempczinski told investors on Monday that “external pressures” had affected its business, like a wider slowdown of the quick service restaurant sector and the war in the Middle East.
“But there were also factors within our control that contributed to our underperformance, most notably our value execution,” he said.
Global comparable sales decreased 1% year-over-year in the quarter, including a 0.7% drop in the US. Systemwide sales also fell 1%.
Kempczinski said that McDonald’s had put prices up in recent years in response to high inflation, which “disrupted long-running value programs and led consumers to reconsider their buying habits.” McDonald’s leadership for value in the fast-food sector was shrinking, Kempczinski said, citing customer surveys.
McDonald’s has been warning about lower-income consumers struggling for months — and it’s getting worse. Pressures on consumers have “deepened and broadened” over 2024 so far, Kempczinski said.
Customers are looking for more deals and either buying fewer items per order or opting for cheaper items, Kempczinski said. He said that some consumers were choosing to eat at home more often because food inflation has been much higher at restaurants than at grocery stores.
“I think it’s not even so much about consumers moving from us to others, it’s about consumers in that low-income category and I think families, which are obviously two big cohorts of our consumer base across most of our markets, just eating out less frequently than they have been previously,” McDonald’s CFO Ian Borden said.
Earlier this month McDonald’s launched a temporary national $5 combo deal in the US, which executives told investors on Monday had performed better than expectations and was being expanded into August at the vast majority of its restaurants. Executives also spoke to the success of some value deals in Germany and the UK.
“We are resolved to reignite share growth in all our major markets regardless of the prevailing market conditions,” Kempczinski said. “This won’t happen overnight, but it will happen.”
Expect to ‘feel the pinch’ for a while longer
In earnings releases in April and May, a number of chains, including McDonald’s, reported poor growth in same-restaurant year-over-year sales. Starbucks, KFC, and Pizza Hut reported a sales decline.
McDonald’s execs didn’t sound optimistic about future consumer spending in the fast-food industry.
“We expect customers will continue to feel the pinch of the economy and a higher cost of living for at least the next several quarters in this very competitive landscape,” Joe Erlinger, president of McDonald’s US, said.
Consumer sentiment in most of McDonald’s major markets “remains low,” Borden added.
Multiple restaurant chains are reporting earnings this week and next.
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