McDonald’s global sales fell in the second quarter, marking the fast-food giant’s first decline since 2020, as inflation-weary consumers cut back on dining out.
In the U.S., McDonald’s same-store sales fell about 1% from April through June. Executives blamed the decline on lower customer numbers as consumers, especially lower-income ones, cut back on spending on eating out. Prices at grocery stores have been rising even as inflation has subsided, but at a slower pace than at restaurants.
“The shortage is due to slowing traffic, which has led consumers to spend more of their mealtimes at grocery stores,” Morningstar equity analyst Sean Dunlop said in a research note.
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McDonald’s Chief Executive Officer Chris Kempczinski said in an investors call on Monday that the company has been forced to raise menu prices because ingredient, labor and paper costs have risen by as much as 40% in some markets over the past few years.
McDonald’s is also on the defensive as it struggles to compete with new value-for-money offerings from other fast-food chains in response to inflation-weary consumers, according to one analyst. In late June, the company launched a $5 menu promotion in its U.S. restaurants after Burger King and Wendy’s announced similar offers aimed at budget-conscious consumers.
Despite cost-cutting measures, McDonald’s has been slow to roll out new products and is trying to catch up with other chains, according to Danilo Gargiulo, a restaurant analyst at AB Bernstein.
“McDonald’s wasn’t able to communicate the value as well as other restaurants could from a purely franchisee alignment standpoint. Each franchisee went their own way and there was no national program, so they were on the defensive when they introduced the $5 meal set,” he told CBS MoneyWatch.
“Our value leadership gap has narrowed recently,” Kempczinski acknowledged during the earnings call, acknowledging that some consumers no longer see McDonald’s as the best option.
Competition from grocery stores
McDonald’s is competing not only with other fast-food chains, but also with low-cost grocers, whose prices are returning to normal after more than two years of painfully high inflation.
Experts say fast food price increases will outpace inflation
“The context is that since October of last year, grocery prices have been cheaper than restaurant prices. When grocery stores have lower prices, low-income families go there. When McDonald’s has lower prices, they go to McDonald’s,” said Nick Setian, restaurant analyst at Wedbush.
But fast-food chains could see a turnaround early next year, he added, as “grocery store prices aren’t going to continue to fall and restaurants will be figuring out how to right-price their products.”
Megan Cerullo
