McDonald’s is reevaluating its pricing strategy after experiencing a recent decline in sales, as customers cut back on spending.
Locations open for at least a year reported a 1% drop in sales from April to June compared to the previous year, marking the first decrease since the pandemic.
In an effort to attract cost-conscious customers and those boycotting the brand over the Israel-Gaza conflict, the fast-food giant implemented discounts but still faced a sales downturn. CEO Chris Kempczinski announced a “comprehensive rethink” of pricing to tackle the situation. The company plans to extend recent promotions, including a $5 meal in the U.S. and a UK campaign offering three items for £3, while also collaborating with franchisees on additional “value” initiatives.
Following this announcement, McDonald’s shares rose by more than 3%, with Kempczinski expressing confidence in the company’s ability to execute the new strategy. He stressed that McDonald’s has the scale and expertise necessary to make the required adjustments.
The company has faced backlash from customers due to significant price hikes during the pandemic. Last month, the head of U.S. operations addressed complaints in an open letter, arguing that social media has misrepresented the situation. He highlighted that the average price of a Big Mac in the U.S. is now $5.29 (£4.11), up 21% since 2019, which aligns with inflation.
However, Kempczinski acknowledged during an investor call that the company needs to restore its reputation for value. Rising prices due to inflation have led consumers to rethink their purchasing habits. While some markets have adjusted, others require a more thorough reevaluation.
Bank of America analyst Sara Senatore noted that McDonald’s has increased prices on key items more rapidly than its competitors, and consumers have taken notice. Although the $5 meal may be changing perceptions, it has not yet translated into increased transactions.
McDonald’s joins several corporate giants in warning of slowing consumer spending, particularly in major economies like China. Overall revenue, including sales from newly opened stores, remained flat year-on-year, while profits declined by 12%. The company pointed out that lower-income customers are especially affected, and their absence has not been compensated for by wealthier households opting for cheaper options.
Sales at McDonald’s locations fell in the U.S., with weak performance in France and ongoing price wars in China also impacting results. Boycott calls related to the Israel-Gaza conflict have further affected the brand in countries like France. Other U.S. companies, including Starbucks, are facing similar challenges.
“Consumers are becoming more discerning about where, when, and what they eat, and we do not anticipate significant changes in this environment over the next few quarters,” a McDonald’s executive stated during the call.
