McDonald’s has experienced its inaugural global sales decline since last year, largely due to customers worldwide being discouraged by the increased cost of their burgers, fries and beverages. In both the United States and across international markets, the fast-food chain’s like-for-like sales have dropped by 1 per cent on a yearly basis in the quarter ending in June.
As the earnings were revealed on Monday, Chris Kempczinski, the CEO of McDonald’s, commented that customers were now “more selective with their spending.” Despite the quarterly revenue remaining stable at approximately $6.49 billion (around €6bn) compared with the previous year, the net profit fell short of Wall Street’s expectations, declining by 12 per cent to $2.02 billion.
Mr. Kempczinski suggested to analysts that sentiment among consumers in the majority of McDonald’s key markets was relatively low. He cited the trend of customers dining at home more frequently and seeking out bargains.
This drop in demand reported by the American corporation stokes fears that consumer endurance may have now reached its peak, having bolstered the world’s largest economy throughout the pandemic for some years. An index of food consumed outside of the home in the United States indicates a 30 per cent increase in restaurant meal costs since mid-2019.
Simultaneously, households that once had surplus funds at the end of the pandemic lockdowns have begun to reign in their spending. Even McDonald’s, known for offering relatively affordable options, has hiked up prices. Joe Erlinger, president of McDonald’s US, stated in an open letter in May that the average price of a Big Mac Meal had escalated 27 per cent since 2019, reaching $9.29 in the US, although he claimed that inflation had surpassed the price increase of many menu items.
Mr Erlinger informed analysts on Monday that, “Ultimately, we surmise that for the upcoming few quarters at least, customers will continue to experience the squeeze of the economy and a rising cost of living in this highly competitive market.”
In an effort to regain customer loyalty, the corporation and its rivals have started offering price cuts. McDonald’s boosted foot traffic last month in the United States with a $5 bargain for a meal consisting of a sandwich, fries, chicken nuggets and a drink, Placer.ai, an organisation that analyses location data from mobile devices, has reported.
More than 40,000 McDonald’s locations are operational across over 100 countries. Last year, the company made slightly above 40 per cent of its $25.5 billion total revenue from the US market. However, a decline in customers resulted in a 0.7 per cent drop in like-for-like US sales in the second fiscal quarter.
There was a greater than 1 per cent drop in international sales. McDonald’s recently announced that its operations in some Middle Eastern countries, as well as in Malaysia and Indonesia suffered due to the Gaza conflict. Lower sales were also observed in France and China, with McDonald’s CEO, Mr Kempczinski, attributing it to intense rivalry.
A diminishing progression in like-for-like sales, accounting for both franchised and company-owned outlets running for over a year, marked the first dip since the final quarter of 2020.
McDonald’s shares increased by 3.5 per cent in early trade on Monday, as the market responded to a decrease in sales that was “marginally better than anticipated,” according to Citigroup.
McDonald’s shares have experienced a 15 per cent reduction this year leading up to Friday. Morgan Stanley, in a pre-earnings review, mentioned that McDonald’s is perceived as having lost some of its value among consumers. They pointed out the importance of promotions such as the $5 meal deal “to appeal a primary customer group that has withdrawn”. © The Financial Times Limited 2024.