McDonald’s global sales fell in the second quarter, marking the first decline for the fast-food giant since 2020, as inflation-weary consumers cut back on dining out.
In the United States, sales at McDonald’s stores fell nearly 1% from April to June, a decline that management attributed to slower traffic as lower-income consumers in particular cut back on spending on food away from home. Grocery prices, while also high, inflation cools downgrew more slowly than restaurants.
“This deficit is driven by slow traffic as consumers shift more of their meals to grocery stores,” Morningstar equity analyst Sean Dunlop said in a research note.
McDonald’s CEO Chris Kempczinski said on a conference call with investors Monday that food, labor and paper costs, which have risen as much as 40% in some markets in recent years, have forced him to raise menu prices.
McDonald’s is also playing “defense” as it struggles to compete with new value offerings from other fast-food chains in response to consumer fatigue over inflation, according to one analyst. In late June, the company launched a $5 meal promotion in American restaurants after Burger King and Wendy’s has announced similar agreements aimed at budget-conscious consumers.
Despite cost-cutting measures, McDonald’s has been slow to roll out its offering and catch up with other chains, according to Danilo Gargiulo, a restaurant analyst at AB Bernstein.
“McDonald’s wasn’t able to communicate value as well as other restaurants, from a pure coordination standpoint with franchisees. They each went their own way and there was no national program, so they played defensively by launching the $5 meal deal,” he told CBS MoneyWatch.
Kempczinski acknowledged that some consumers no longer view McDonald’s as the best deal, conceding on the earnings call that “our value leadership gap has narrowed recently.”
Grocery store competition
McDonald’s is not only competing with other fast food chains, but also with low-cost grocery stores, where prices are returning to normal after more than two years of extremely high inflation.
“Since October of last year, grocery prices have been lower than restaurant prices. And when grocery prices are lower, low-income households go there. When McDonald’s is cheaper, they go to McDonald’s,” said Nick Setyan, an analyst at Wedbush Restaurants.
But fast-food chains could see an uptick early next year, he added. “Prices in supermarkets are not going to continue to go down and restaurants are going to have to figure out how to price their products the right way.”
