By T. Jayani, JadeTimes News
McDonald's is reevaluating its pricing strategy after a decrease in customer spending impacted the fast food giant's sales. For the first time since the pandemic, outlets that have been open for at least a year experienced a 1% decline in sales during the April-June period compared to the previous year.
Despite offering discounts to attract cost conscious customers and address boycotts related to the Israel-Gaza conflict, the hamburger chain saw a drop in sales. CEO Chris Kempczinski acknowledged the disappointing results, stating that they necessitated a "comprehensive rethink" of the company's pricing strategy. He assured investors that McDonald's would continue to rely on discounts to mitigate the sales decline.
Executives highlighted recent promotions, such as a $5 Happy Meal in the US and a UK campaign offering three items for £3. These promotions are expected to continue, and the company is collaborating with franchisees on additional "value" initiatives.
Following the update, McDonald's shares rose by more than 3%. Kempczinski emphasized that the company has the expertise and scale to implement the strategy effectively. "We know how to do this. We wrote the playbook on value and are working with our franchisees to make the necessary adjustments," he said.
McDonald's has faced criticism from customers for significant price increases during the pandemic. Last month, the head of US operations addressed these complaints in an open letter, arguing that social media had misrepresented the situation. He noted that the average price of a Big Mac in the US had risen by 21% since 2019, aligning with inflation, and many items had seen smaller increases.
However, Kempczinski admitted during the investor call that the company needs to work on restoring its value reputation. Price hikes in response to inflation have led consumers to reconsider their purchasing habits. While some markets have adapted, others require a more thorough reassessment.
Bank of America analyst Sara Senatore pointed out that McDonald's has raised prices on key items faster than its competitors, and consumers are aware of this. While promotions like the $5 meal may be starting to change perceptions, a significant increase in transactions is still needed.
McDonald's is among several major companies warning of reduced consumer spending, including in key markets like China. Overall revenue, including sales from newly opened stores, remained flat year on year, while profits declined by 12%. The company reported that lower income customers were particularly affected, and the loss of these buyers was not offset by wealthier households trading down.
In the US, demand at McDonald's restaurants declined, and the company faced challenges in France and China due to boycott calls and price wars, respectively. A McDonald's executive noted that consumers are becoming more selective about where, when, and what they eat, and this trend is expected to persist for the next few quarters.
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