Fast-food chain McDonald’s is reconsidering its pricing strategy, after a 1% drop in sales during the April-June period compared to last year.
The decline came despite the hamburger chain offering a variety of discounts to try to lure back cost-conscious customers and those who have boycotted the chain over the Israel-Gaza war.
McDonald’s boss Chris Kempczinski said the poor results had forced the company to undertake a “complete rethink” of pricing. He told investors the company would rely on discounts to try to stem the decline in sales.
The executive pointed to recent promotions, such as a $5 happy meal in the U.S. and a campaign in the U.K. where diners could choose three items for £3. Those promotions are expected to be extended in the coming months and the company said it is working with franchisees on other “value” efforts.
The company’s shares rose more than 3% after the update, as Kempczinski said McDonald’s has the scale to make the strategy work.
“We know how to do it. We wrote the value playbook and we work with our franchisees to make the necessary adjustments,” he said.
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McDonald’s has faced a backlash from customers after significantly raising prices during the pandemic. Last month, its US chief executive formally responded to complaints with an open letter to customers, saying social media was painting an inaccurate picture. He said the average price of a Big Mac in the US, now $5.29 (£4.11), had risen 21% since 2019.
But on a call with investors, Kempczinski acknowledged the company still has work to do to restore its reputation for value. Price increases, made in response to inflation, have “made consumers reconsider their purchasing habits,” Kempczinski said.
While some markets have been able to adjust, in others, “a more comprehensive rethink has been needed,” he added.
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McDonald’s has raised prices on key items faster than its competitors, said Bank of America analyst Sara Senatore. “Consumers are smart, they realize that,” she said.
“The $5 meal they launched may start to change perceptions, but we haven’t seen a trend change in terms of transactions and that’s what they need to see.”
McDonald’s is the latest corporate giant to warn of slower consumer spending, including in large economies like China. The company said overall revenue, which includes sales at newly opened stores, was flat year-on-year. Profit fell 12%.
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McDonald’s said lower-income customers were particularly impacted and the loss of shoppers was not offset by wealthier households switching to cheaper products.
Demand at its restaurants has fallen in the US, the company said, while weakness in France and a price war in China have also affected sales. France is one of the countries where the brand has been caught up in boycott calls over Israel’s war on Gaza. Other US companies, including Starbucks, have also been affected.
“Consumers are becoming more selective about where, when and what they eat, and I would say we don’t expect a significant change in that environment for the next few quarters,” a McDonald’s executive said on the call. (BBC/Z-3)
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