McDonald’s is reconsidering its pricing amid a customer backlash over costs and falling sales at the world’s largest fast-food chain.
During a meeting with investors on Monday, CEO Chris Kempczinski confirmed that a “comprehensive rethink” is underway to attract customers back.
The meeting revealed that McDonald’s store sales had fallen for the first time in four years.
Kempczinski hinted at the possibility of reintroducing the $5 Happy Meal to help “change perceptions.”
It was during that meeting that executives highlighted the success of discounts in other markets outside the US, such as in Germany, where there are Christmas discounts on Big Macs and Chicken Nuggets, as well as the successful “3 for 3” offer in the United Kingdom.
In the latter, consumers can choose from a selection of three items for £3, the equivalent of $3.85.
Meanwhile, the company is also in the process of launching its new permanent item, the Big Arch.
McDonald’s CEO Chris Kempczinski confirmed to investors on Monday that the fast food giant was undergoing a “rethink”
A promotional image of McDonald’s most epic new burger, aptly titled Big Arch
“Consumers still recognize us as a value leader versus our major competitors, it’s clear that our value leadership gap has narrowed recently,” McDonald’s President and CEO Chris Kempczinski said Monday during a conference call with investors. “We’re working to address that quickly.”
Sales at stores open at least a year fell 1 percent in the April-June period, the first drop since the final quarter of 2020, when the pandemic closed stores and millions of people stayed home.
In the United States, same-store sales fell nearly 1 percent. McDonald’s saw fewer customers, but said those who did go spent more because of the price increases.
Kempczinski defended the higher menu prices, saying paper, food and labor costs have risen by as much as 40 percent in some markets in recent years.
It’s a problem that extends beyond the Chicago burger giant. Customer traffic at U.S. fast-food restaurants fell 2 percent in the first half of the year compared with the same period a year earlier, according to Circana, a market research firm.
David Portalatin, food industry advisor at Circana, expects high inflation and rising consumer debt to also impact traffic in the second half of 2024.
McDonald’s also reported lower traffic at its stores in France and the Middle East, where people have been boycotting the chain over perceptions that it supports Israel in the Gaza war.
Kempczinski said weak consumer confidence in China is causing customers to flee to rivals with lower prices.
In April, McDonald’s warned that more and more of its customers, concerned about inflation, were looking for better value and more affordable prices. The company introduced a $5 menu deal in U.S. restaurants on June 25, which was a late date in this financial reporting period.
McDonald’s restaurant signs are pictured in East Palestine, Ohio, on February 9, 2023. McDonald’s reports earnings on Monday, July 29, 2024
McDonald’s U.S. President Joe Erlinger said Monday that sales of $5 meals are exceeding expectations and are drawing lower-income consumers back to McDonald’s stores.
Erlinger said 93 percent of McDonald’s franchisees agreed to keep the promotion going through August.
Other countries, such as Germany and the United Kingdom, are also having success with meal deals, the company said. But Kempczinski said McDonald’s needs to offer broader value and reinforce that message with better marketing.
“Trying to move the consumer with one or a few items is not enough in the context we are in,” he said.
New menu items are also in the works. The company is testing its value-oriented Big Arch double burger in three international markets through the end of this year, Kempczinski said.
The burger features fresh, crispy sliced onions, three slices of processed white cheese, pickles and lettuce, and a new Big Arch sauce.
In the second quarter, revenue was flat at $6.5 billion, just shy of the $6.6 billion Wall Street had expected, according to analysts surveyed by FactSet.
The company’s net income fell 12 percent to $2 billion, or $2.80 per share. Excluding one-time items such as restructuring costs, McDonald’s earned $2.97 per share, far below the $3.07 per share forecast by industry analysts.
Investors were pleased with McDonald’s plans to reverse its slide. McDonald’s shares rose 4% in morning trading on Monday.