McDonald's Re-evaluates Pricing Strategy Amid Sales Slump
McDonald’s is reassessing its pricing approach after a noticeable dip in sales, as customers tighten their belts. The fast food giant saw a 1% drop in sales at stores open for over a year during April to June compared to the same period last year, marking the first decline since the pandemic’s onset.
Despite offering discounts to lure back budget-conscious customers and those boycotting due to the Israel-Gaza conflict, the drop persisted. CEO Chris Kempczinski stated that the disappointing results have prompted a “comprehensive rethink” of their pricing strategy.
In a call with investors, Kempczinski emphasized the company’s plan to counter the decline with more discounts. Recent promotions, like a $5 Happy Meal in the US and a UK deal offering three items for £3, are expected to continue, with new value-focused initiatives in collaboration with franchisees also in the pipeline.
Following the announcement, McDonald’s shares rose over 3%, with Kempczinski expressing confidence in the firm’s ability to execute the new strategy. “We wrote the playbook on value and we are working with our franchisees to make the necessary adjustments,” he asserted.
During the pandemic, McDonald’s significantly raised prices, leading to customer backlash. In response, the head of US operations recently addressed these complaints in an open letter, arguing that social media had misrepresented the situation. He noted that while the average price of a Big Mac in the US has risen to $5.29, a 21% increase since 2019, this is roughly aligned with inflation, and many items have seen smaller price hikes.
Kempczinski admitted on the investor call that the company needs to rebuild its reputation for value, acknowledging that price increases due to inflation have caused consumers to rethink their purchasing habits. While some markets have adapted, others require a more thorough overhaul.
Bank of America analyst Sara Senatore pointed out that McDonald’s has increased prices on key items faster than its competitors, making consumers wary. She suggested that while the new $5 meal deal might be altering perceptions, it has yet to translate into a significant uptick in transactions.
McDonald’s is not alone in facing slower consumer spending, a trend observed even in major economies like China. The company’s overall revenue, including sales from newly opened stores, remained flat year-on-year, while profits fell by 12%.
The decline in demand has hit lower-income customers hardest, with wealthier households failing to fill the gap. The company reported reduced demand in the US, as well as challenges in France and China, where price wars are intense.
France, among other countries, has seen boycott calls related to the Israel-Gaza conflict, impacting brands like McDonald’s and Starbucks. An executive noted, “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.”
