McDonald’s is re-evaluating its pricing strategy in response to customer dissatisfaction and declining sales. During a recent investor meeting, CEO Chris Kempczinski announced that the company is undergoing a “comprehensive rethink” to attract back lost customers.
At the investor meeting, it was revealed that McDonald’s experienced its first decline in store sales in four years. Kempczinski hinted at possibly reintroducing the $5 Happy Meal to help shift customer perceptions.
He noted the success of discount strategies in other countries, such as Germany’s holiday promotions on Big Macs and Chicken Nuggets, and the UK’s popular “3 for 3” deal, where customers can choose three items for £3 (about $3.85).
The company is also preparing to launch a new permanent menu item, the Big Arch.
Kempczinski stated that while McDonald’s is still seen as a value leader compared to competitors, the gap has narrowed recently.
“We are working to fix that with pace,” he mentioned during the conference call.
Sales at locations open for at least a year fell by 1 percent from April to June, marking the first decline since late 2020 when pandemic restrictions impacted store operations.
In the U.S., same-store sales dropped nearly 1 percent, with fewer customers visiting but those who did spending more due to price hikes. Kempczinski defended these increases, citing a 40 percent rise in costs for materials and labor in some markets.
This issue isn’t unique to McDonald’s. U.S. fast-food restaurants saw a 2 percent drop in customer traffic in the first half of the year.
Circana’s food industry advisor, David Portalatin, predicts that ongoing inflation and rising consumer debt will further impact traffic in the latter half of 2024.
McDonald’s also reported decreased store traffic in France and the Middle East due to consumer boycotts over perceived support for Israel in the Gaza conflict.
In China, weak consumer sentiment is pushing customers toward more affordable rivals.
In response to the inflationary pressures, McDonald’s introduced a $5 meal deal in U.S. restaurants on June 25.
This promotion, which was implemented late in the financial reporting period, has exceeded expectations and helped attract lower-income customers. U.S. President Joe Erlinger noted that 93 percent of franchisees have agreed to extend the promotion through August.
McDonald’s is also exploring new menu items, including the Big Arch double burger, which is being tested in three international markets. The burger features crispy onions, processed cheese, pickles, lettuce, and a new Big Arch sauce.
For the second quarter, McDonald’s revenue remained steady at $6.5 billion, slightly below Wall Street’s $6.6 billion expectation. The company’s net income fell by 12 percent to $2 billion, or $2.80 per share.
After excluding one-time charges, earnings were $2.97 per share, short of the anticipated $3.07.
Despite these challenges, investors are optimistic about McDonald’s plans to address its sales slump.
Shares of McDonald’s rose 4 percent in morning trading on Monday, reflecting confidence in the company’s strategies.
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