McDonald’s is undergoing a rethink of its prices 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 a that ‘comprehensive rethink’ is underway in order to lure back customers.
At the meeting it was disclosed that McDonald’s store sales fell for the first time in four years.
Kempczinski hinted at the possibility of bringing back the $5 happy meal in order to help to ‘change perceptions.’
It was during that meeting that bosses pointed to the successes of discounts in other markets away from the US, such as in Germany where there holiday discounts on Big Macs and Chicken Nuggets as well as the successful ‘3 for 3’ deal in the UK.
In the latter, consumers can pick from a selection of three items for £3, the equivalent of $3.85.
Meanwhile the company is also in the process of launching its newest 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 new more epic burger, appropriately titled the Big Arch
‘Consumers still recognize us as the value leader versus our key competitors, it’s clear that our value leadership gap has recently shrunk,’ McDonald’s Chairman, President and CEO Chris Kempczinski said Monday during a conference call with investors. ‘We are working to fix that with pace.’
Sales at locations open at least a year fell 1 percent in the April-June period, the first decline since the final quarter of 2020, when the pandemic shuttered stores and millions stayed home.
In the U.S., same-store sales fell nearly 1 percent. McDonald’s saw fewer customers but it said those who came spent more because of price increases.
Kempczinski defended the higher menu prices, saying the costs for paper, food and labor increased as much as 40 percent in some markets over the last few years.
It’s an issue that goes beyond the Chicago burger giant. Customer traffic at U.S. fast-food restaurants fell 2 percent in the first half of the year compared to the same period a year ago, according to Circana, a market research company.
David Portalatin, a food industry advisor for Circana, expects high inflation and rising consumer debt will also dent traffic in the second half of 2024.
McDonald’s also reported lower store traffic in France and the Middle East, where people have been boycotting the chain because of a perception that it supports Israel in the war in Gaza.
Kempczinski said weak consumer sentiment in China has customers fleeing to lower-priced rivals.
McDonald’s warned in April that more of its inflation-weary customers were seeking better value and affordability. The company introduced a $5 meal deal at U.S. restaurants on June 25, which was late in this financial reporting period.
McDonald’s restaurant signs are shown in in East Palestine, Ohio, Feb. 9, 2023. McDonald’s reports earning on Monday, July 29, 2024
McDonald’s U.S. President Joe Erlinger said Monday that $5 meal deal sales are running ahead of expectations and are getting lower-income consumers back into McDonald’s stores.
Erlinger said 93 percent of McDonald’s franchisees have agreed to run the promotion through August.
Other countries, such as Germany and the United Kingdom, are also seeing success with meal deals, the company said. But Kempczinski said McDonald’s needs to be providing broader value and boosting that message with better marketing.
‘Trying to move the consumer with one item or a few items is not sufficient for the context that we’re 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 includes crispy and sliced fresh onions, three slices of white processed cheese, pickles and lettuce – and a brand new Big Arch sauce.
For the second quarter, revenue was flat at $6.5 billion and just off the $6.6 billion that Wall Street was expecting, according to analysts polled 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 charges, McDonald’s earned $2.97 per share. That was far from the per-share profit of $3.07 that industry analysts had forecast.
Investors appeared satisfied with the plans McDonald’s has to reverse its slide. McDonald’s shares rose 4% in morning trading Monday.
