McDonald’s to ‘rethink’ prices after sales fall

McDonald’s has said it is reconsidering its pricing, after cost-conscious customers spent less at the chain in the three months to the end of June.

Sales at stores open at least a year slipped by 1% at the fast food giant compared with a year ago, marking the first drop since the pandemic.

The decline came despite the company unleashing discounts to try to win back customers worried about money, or those who have boycotted the chain over the Israel-Gaza war.

Boss Chris Kempczinski said the poor results had forced a “comprehensive rethink” of pricing and told investors that the firm would lean on discounts to try to win back customers.

Executives pointed to recent promotions, such as a $5 happy meal in the US and a campaign in the UK in which diners can select three items for £3.

Those are expected to be extended in the coming months.

Shares in the company rose more than 3% after the update, as Mr Kempczinski said McDonald’s had the scale to make the strategy work.

“We know how to do this. We wrote the playbook on value and we are working with our franchisees to make the necessary adjustments,” he said.

McDonald’s has been facing a backlash from customers after raising prices significantly during the pandemic.
Last month, the head of its US operations formally responded to the complaints with an open letter to customers, saying social media was painting an inaccurate picture.

He said the price of a Big Mac was up 21% since 2019 – in line with the pace of inflation – and many items had risen by less.

But on the call with investors, Mr Kempczinski conceded the company had work to do to reclaim its reputation for value.

Price increases, made in response to inflation, had “led consumers to reconsider their buying habits”, Mr Kempczinski admitted.

Though some markets have been able to adjust, in others, “a more comprehensive rethink has been required”, he said.

McDonald’s has increased prices on key items faster than its peers, said Bank of America analyst Sara Senatore.
“Consumers are savvy, aware of that,” she said. “The $5 meal that they have launched may be starting to change perceptions, but we are not seeing a trend change yet in terms of transactions and that’s what they’re going to need to see.”

McDonald’s is the latest corporate giant to warn of slower consumer spending, including in major economies such as China.

The company said overall revenue, which includes sales at newly opened stores, was flat year-on-year. Profits slipped 12%.

McDonald’s said lower income customers were particularly hurting and the loss of those buyers was not being made up by wealthier households trading down.

Demand at its restaurants fell in the US, the company said, while weakness in France and price wars in China also weighed on sales.

“Consumers are being more discerning about where, when and what they eat, and I would say we don’t expect significant changes in that environment for the next few quarters,” a McDonald’s executive said on the call.