McDonald’s is reevaluating its pricing strategy in response to a recent drop in sales, as customers scale back spending. For the first time since the pandemic, the company reported a 1% decline in sales at stores open for at least a year from April to June, compared to the previous year.
Despite offering discounts and promotions to attract cost-conscious customers and address boycotts related to the Israel-Gaza conflict, the fast-food chain experienced a downturn in sales. CEO Chris Kempczinski announced a “comprehensive rethink” of the pricing strategy, which includes extending recent promotions such as the $5 meal in the US and a UK deal offering three items for £3. The company is also working with franchisees on additional “value” initiatives.
Following this announcement, McDonald’s shares rose by over 3%, with Kempczinski expressing confidence in the company’s ability to effectively implement the new strategy. He highlighted McDonald’s capacity to adjust prices due to its scale and expertise.
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The company has faced backlash over significant price increases during the pandemic. Last month, the head of US operations addressed complaints in an open letter, noting that the price of a Big Mac in the US had risen by 21% since 2019, aligning with inflation. However, Kempczinski admitted that McDonald’s needs to restore its reputation for value, as price hikes in response to inflation have led to changes in consumer behavior. Some markets have adapted, while others need more extensive adjustments.
Bank of America analyst Sara Senatore observed that McDonald’s had raised prices on key items faster than its competitors, which has been noted by consumers. Although the $5 meal deal may be shifting perceptions, it has not yet led to increased transactions.
McDonald’s, like other major corporations, has warned of slower consumer spending, including in significant markets like China. Overall revenue, including from newly opened stores, remained flat year-on-year, and profits fell by 12%. The decline in sales is particularly affecting lower-income customers, with the loss not fully offset by wealthier customers trading down.
In addition to reduced demand in the US, McDonald’s has faced challenges in France and price competition in China. The brand has also been impacted by boycott calls related to the Israel-Gaza conflict in countries like France. Other US companies, such as Starbucks, are facing similar issues.
“Consumers are being more selective about their dining choices, and we do not anticipate significant changes in this trend in the near future,” a McDonald’s executive said on the call.
