CNN
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As inflation catches up with McDonald’s and budget-conscious Americans look elsewhere for their fast food fix, the chain thinks it has a solution: its value menu.
McDonald’s said Monday that sales at U.S. restaurants open at least a year fell 0.7% in the last quarter from a year ago, as fewer customers visited the fast-food company’s restaurants. And McDonald’s isn’t alone: Rivals including Starbucks, Burger King and Wendy’s also reported lower customer traffic and lower overall sales as consumers cut back on spending on dining out.
The tough environment for McDonald’s isn’t just limited to the U.S.: Sales at restaurants open at least a year fell 1% globally, the first time that metric has declined since the fourth quarter of 2020.
Several factors weighed against McDonald’s in the quarter, including comparisons to last year, when sales grew 10.3%, thanks in large part to the Grimmus Shake, a purple, sugary drink made to celebrate Grimmus’ “birthday.” The shake went viral after TikTok users posted videos of themselves drinking it and pretending to die.
But over the past few quarters, McDonald’s has said some customers, particularly low-wage workers, have rebelled against what many see as poor value.
“We have been warning since early last year that consumers, particularly lower-income households, would become more selective, and this year those pressures have deepened and broadened,” Chief Executive Officer Chris Kempczinski said in a conference call with investors Monday morning.
So in December, the chain announced an expanded strategic plan to lure back price-conscious customers, with a focus on value meal plans like the popular $5 menu it introduced earlier this summer.
Those menu items, which showed early signs of popularity, didn’t take full effect until recent weeks and weren’t fully priced into last quarter’s results. The company said Monday that sales of its $5 menu items beat expectations. But Kempczinski said on the conference call that the company still has work to do, noting that “it’s clear that our value leadership gap has narrowed recently.”
“As consumers become more cautious with their spending, we are focused on execution excellence, delivering trusted everyday value and accelerating strategic growth drivers like Chicken and Loyalty,” Kempczinski said in a statement.
Kempczinski also said McDonald’s will continue to innovate and change as customer demands change. He pointed to McDonald’s new emphasis on chicken, which he said is now selling on par with beef in its restaurants. The company is also testing a new burger called the “Big Arch,” which features two patties, cheese, crispy toppings and a tangy sauce.
“The hallmark of a great company is its ability to perform in good times and bad. We are determined to regain share in all of our key markets, regardless of market conditions,” Kempczinski said on an investors call. “This won’t happen overnight, but it will happen.”
In the first few years of the US inflation crisis, restaurant and food companies like McDonald’s and Coca-Cola said that consumers responded favorably to continued price increases and were willing to pay more for their favorite meals, snacks and treats. But last year, that began to change. McDonald’s reported that more customers were protesting price increases, a trend that continues for the company and its competitors.
Food prices have been rising over the past year, but most of that increase has come not from grocery stores but from eating out, either at restaurants or fast-food restaurants, meaning eating out has become something of a luxury for some Americans.
McDonald’s, in particular, has been the target of some consumers’ ire. Last year, a social media post showing an $18 Big Mac meal went viral, sparking an online backlash from many customers who believed corporate greed was making inflation worse for ordinary Americans. The price was found to have been posted at a single rest stop in Connecticut, where the price was double the national average. McDonald’s president later apologized and urged franchisees to stop cheating further.
Whether or not that viral post was the deciding factor for McDonald’s customers, Americans have been grilling the company ever since. Sales have fallen, and the company’s profit margins, which had risen steadily in the post-pandemic years, have fallen to pre-COVID levels. The company said Monday that while prices continue to rise, it will continue to look for ways to boost profits by absorbing some of those extra costs even as customers demand more value.
McDonald’s (MCD) shares rose more than 3% on Monday but are still down 12% this year, missing out on the market’s larger gains.
