Image source, Getty Images
- author, Natalie Sherman
- role, BBC News
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Fast-food giant McDonald’s is reassessing its pricing strategy after customer spending cuts hit sales.
Sales at stores open at least a year fell 1% in the April-June period compared with the same period last year, the first decline since the pandemic began.
Sales have fallen despite the burger chain running discount sales to try to win back cost-conscious customers and those who boycotted the chain over the Israel-Gaza war.
Chief Executive Chris Kempczinski said poor performance had forced the company to “overhaul” its pricing.
He told investors he plans to rely on discounts to stem the sales decline.
Executives pointed to recent promotions such as $5 Happy Meals in the US and a £3 offer in the UK where customers can choose three items.
These will be extended in the coming months, and the company said it is working with franchisees on other “value” enhancement initiatives.
Kempczinski said McDonald’s has the scale to pull off the strategy, sending the company’s shares up more than 3% after the update.
“We know how to do it. We have a value strategy and we work with our franchisees to make the necessary adjustments,” he said.
McDonald’s has faced backlash from customers after dramatically raising prices during the pandemic.
Last month, the head of the company’s U.S. operations Officially responded The company responded to the complaints in an open letter to customers, saying social media painted an inaccurate picture.
He said the average price of a Big Mac in the US currently costs $5.29 (£4.11) and has risen 21% since 2019, roughly in line with inflation, although many items have increased in price less than that.
Image source, Getty Images
But on a conference call with investors, Kempczinski acknowledged that the company has work to do to restore its reputation as a valuable company.
Kempczinski acknowledged that price increases in response to inflation “have caused consumers to rethink their purchasing habits.”
While adjustments were possible in some markets, others “required a more comprehensive rethink,” he said.
Bank of America analyst Sara Senatore said McDonald’s is raising prices on key items at a faster pace than its peers.
“Consumers are smart and aware of this,” she says. “Their $5 meals initiative may be starting to change perceptions, but we’re not seeing a trend change in terms of deals yet. Consumers need to know about it.”
McDonald’s is the latest big company to warn of a slowdown in consumer spending, including in major economies such as China.
The company said total revenue, which includes sales from newly opened stores, was flat compared to a year ago, but profits fell 12%.
McDonald’s said lower-income customers have been particularly hard hit, and that the decline in those customers has not been made up for by wealthier households snapping up lower-priced items.
The company said sales were also hurt by a decline in restaurant demand in the United States, a slump in France and price wars in China.
France is one of the countries where Starbucks has been targeted in a boycott in the wake of Israel’s war in Gaza, affecting other US companies, including Starbucks.
“Consumers are becoming more selective about where, when and what they eat, and we don’t expect this environment to change materially over the next few quarters,” McDonald’s executives said on a conference call.
