Is McDonald's Becoming The New Champion Of Affordability?

During the company's earnings call on Tuesday, McDonald's CFO Ian Borden acknowledged the price fatigue among consumers. "The consumer is price weary," Borden stated, adding, "we certainly are going to be prudent and thoughtful about any further price increases that we're looking at for the rest of 2024."

CEO Chris Kempczinski echoed this sentiment, noting that consumers are becoming increasingly discerning with their spending due to the rising costs of everyday items. This, he said, is exerting pressure on the quick service restaurant (QSR) industry. Kempczinski pointed out that value is a priority for diners across all income brackets, but it is particularly significant for those with lower incomes. "I think all consumers are looking for good value, for good affordability," he said.

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The pandemic has seen a surge in prices as restaurants grapple with labor shortages and supply chain disruptions. While grocery inflation has eased, fast food prices continue to climb at rates higher than those seen before the pandemic. As a result, some consumers are questioning the value for money offered by fast food and are opting to cook at home or dine at sit-down restaurants instead.

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This trend is not unique to McDonald's. Other restaurant chains, including Starbucks and Burger King's parent company, Restaurant Brands International, have also noted a more cautious approach to spending among their customers. "Clearly, everybody is fighting for fewer consumers or consumers that are certainly visiting less frequently," Borden said, echoing comments he made in March about higher prices discouraging some diners from eating out.

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Despite these challenges, McDonald's executives emphasized the company's commitment to affordability during Tuesday's call. "We literally wrote the playbook on value," Kempczinski said. He also noted that 90% of McDonald's U.S. franchisees were offering meal bundles for $4 or less. Internationally, the company has been providing value bundles at various price points to offer "smaller, more affordable meals." Kempczinski cited the success of the McSmart menu in Germany, which sold record units in the first quarter.

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In addition to these initiatives, Kempczinski highlighted the discounts available to customers who order through the McDonald's app. However, he acknowledged that the company needs to do more to promote its value offerings on a national scale and increase customer awareness. "We're doing it in 50 different ways with local value," he said. "And what we don't have in the U.S. right now is a national value platform at the same time that our competitors are out there with the national value platform."

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For the quarter ending March 31, McDonald's reported a 2.5% increase in comparable U.S. sales, a significant drop from the 12.6% increase in the same quarter the previous year. The company's total revenue for the quarter rose 5% year-over-year to $6.17 billion.