McDonald’s is rethinking its pricing strategy after a reduction in customer spending negatively impacted its sales. Restaurants that have been open for at least a year experienced a 1% decline in sales from April to June compared to the same period last year, marking the first decline since the pandemic. This drop occurred despite the company’s efforts to attract budget-conscious customers and those boycotting the chain over the Israel-Gaza conflict with discounts.
CEO Chris Kempczinski stated that the disappointing results have prompted a thorough reassessment of their pricing approach. He informed investors that the company would rely more on discounts to curb the sales decline. Recent promotions, such as a $5 happy meal in the US and a UK campaign offering three items for £3, are expected to continue and expand in the coming months. The company is also collaborating with franchisees on additional “value” initiatives.
Following the update, McDonald’s shares rose over 3% as Kempczinski expressed confidence in the company’s ability to implement this strategy. “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 faced customer backlash after significant price hikes during the pandemic. Last month, the head of its US operations addressed these complaints in an open letter, claiming that social media misrepresented the situation. He noted that the average price of a Big Mac in the US is now $5.29 (£4.11), a 21% increase since 2019, which aligns with inflation rates, with many items rising by less.
However, Kempczinski admitted during the investor call that the company needs to work on reclaiming its reputation for value. Price increases in response to inflation have “led consumers to reconsider their buying habits,” he acknowledged. While some markets have adapted, others require a more comprehensive approach.
Bank of America analyst Sara Senatore pointed out that McDonald’s has raised prices on key items faster than competitors. “Consumers are savvy, aware of that,” she said. “The $5 meal 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 major corporation to report slower consumer spending, including in significant markets like China. The company’s overall revenue, including sales at new stores, remained flat year-on-year, while profits fell by 12%. McDonald’s noted that lower-income customers are particularly affected, and the loss of these buyers is not being compensated by wealthier households downgrading their spending.
Demand at McDonald’s restaurants declined in the US, with weakness in France and price wars in China also impacting sales. France is among the countries where the brand has faced boycott calls due to the Israel-Gaza conflict, similar to other US companies like Starbucks. “Consumers are being more discerning about where, when, and what they eat, and we don’t expect significant changes in that environment for the next few quarters,” a McDonald’s executive said during the call.
