McDonald’s has experienced a 1% drop in global sales during the second quarter. This marks the first decline in nearly four years. Inflation has caused consumers to opt for cheaper meals or dine at home.
To counteract this trend, McDonald’s will introduce new meal deals and menu items. Meanwhile, the company expects same-store sales to continue falling over the next few quarters.
Sales Decline and Consumer Choices
McDonald’s global sales have declined by 1% in the second quarter, marking the first drop in almost four years. Inflation-wary consumers are choosing cheaper meal options or dining at home.
The company anticipates that this trend will continue over the forthcoming quarters. As a response, McDonald’s plans to introduce new meal deals and menu options.
Shrinking Value Leadership
Chris Kempczinski, McDonald’s chairman, president, and CEO, noted that while consumers still see McDonald’s as a value leader, this gap is shrinking. He stated, “We are working to fix that with pace.”
Sales at locations open for over a year dropped by 1% during the April-June period. This is the first decline since the last quarter of 2020, which was heavily impacted by the pandemic.
In the US, sales decreased nearly 1%. Fewer customers visited McDonald’s, although those who did spent more due to price hikes.
Rising Costs and Defending Prices
The past few years have seen a 40% rise in costs for paper, food, and labour in some markets. Hence, Kempczinski defended the higher menu prices.
The net income for the quarter fell by 12% to $2bn, or $2.80 per share. Excluding one-time items like restructuring charges, McDonald’s earned $2.97 per share, missing the $3.07 per share forecasted by analysts.
In an open letter, McDonald’s CEO Joe Erlinger mentioned that the price of a Big Mac had increased by 21% since 2019.
Fast-Food Industry Trends
The decline in sales is not limited to McDonald’s. Customer traffic at US fast-food restaurants fell by 2% in the first half of the year, compared to the same period last year.
High inflation and rising consumer debt are expected to continue impacting traffic in the second half of 2024. This is according to David Portalatin, a food industry adviser for Circana.
McDonald’s has also reported lower store traffic in France and the Middle East. Boycotts related to perceived support for Israel in the Gaza conflict have adversely affected sales.
Consumer Sentiment in China
Weak consumer sentiment in China has driven customers to choose lower-priced rivals. This is contributing to lower traffic in McDonald’s stores there.
In April, McDonald’s warned that more consumers were looking for better value and affordability.
Efforts are being made by McDonald’s to address this sentiment, aligning their offerings to be more competitive.
$5 Meal Deal
Introduced on June 25, the $5 meal deal at US restaurants aims to attract lower-income consumers. This promotion, which came late in the financial reporting period, has had positive results.
Joe Erlinger, McDonald’s US president, stated that sales of the $5 meal deal were surpassing expectations. The promotion will continue through August, with 93% of McDonald’s franchisees participating.
Other countries, including Germany and the UK, have also seen success with similar meal deals.
Broader Value Offerings and New Menu Items
Kempczinski emphasised the importance of broader value offerings and improved marketing. He said, “Trying to move the consumer with one item or a few items is not sufficient for the context that we’re in.”
New menu items are being tested, such as the value-oriented Big Arch double burger in three international markets through the end of the year.
For the second quarter, McDonald’s revenue remained flat at $6.5bn, slightly missing Wall Street’s expectations of $6.6bn.
Investors’ Reception
Despite the sales decline, investors are optimistic about McDonald’s plans to reverse the trend. As a result, McDonald’s shares rose by 4% in Monday morning trading.
McDonald’s faces a challenging period due to rising costs and changing consumer behavior. The company’s strategy of introducing new meal deals and menu items aims to counteract the sales decline. Investors remain optimistic, reflecting hope that these measures will succeed.
