A Big Mac meal from McDonald's.
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McDonald's Executives acknowledged Monday that diners find the company's prices too high, as lower-income consumers balk after years of high inflation.
During the company's second-quarter earnings conference call on Monday, executives said they are taking a “forensic approach” to evaluating pricing and trying to create value. The company posted worse-than-expected second-quarter results as same-store sales declined across all divisions.
“We recognize that in several important markets, including the U.S., we have an opportunity to improve our value execution. Consumers still recognize us as a value leader versus our key competitors, but it's clear that our value leadership gap has narrowed recently. We are working to address this quickly,” McDonald's CEO Chris Kempczinski said on the company's earnings call.
Kempczinski said the price increases have caused consumers to rethink their shopping habits.
As consumers cut back on spending amid rising prices, fast-food chains have struggled to attract low-income diners. More than 60% of respondents in a recent LendingTree survey said they had cut back on spending on fast food because it was too expensive.
McDonald's executives said on the earnings call that lower-income customers have not abandoned the chain for other fast-food restaurants, but have been eating out less often in most of the company's markets globally. The company has seen consumers pull back not just in the U.S. but around the world, particularly families in European markets.
“Ultimately, we expect customers to continue to feel the impact of the economy and higher costs of living for at least the next few quarters in this highly competitive landscape,” said McDonald's U.S. President Joe Erlinger. “So we believe it's critical that we address these factors to increase market share and return to sustainable customer-driven growth for the brand.”
Last week, McDonald's decided to extend its $5 meal offer beyond its initial four-week window, saying it was drawing customers back to its restaurants. Ninety-three percent of the company's franchisees have pledged to extend the offer beyond the summer.
June 25, the day McDonald's launched its $5 meal, attracted 8% more visits than the average Tuesday so far in 2024, and the pattern repeated itself in the days that followed as the chain outperformed year-to-date daily visit averages, according to a report from Placer.ai.
Erlinger said the number of $5 meal deals sold exceeded expectations. Rates were higher among lower-income consumers and the deal improved the brand’s perception of price affordability. The deal also began to increase customer numbers, but has not yet translated into sales increases, company executives said on the call.
The $5 meal launched just days before the end of the second quarter.
“We've been a value leader for 70 years because that's what the brand stands for, and frankly, we have an underlying competitive advantage that we can buy at a lower price than anyone else in our industry,” Kempczinski said. “The bottom line is we know how to do it. We wrote the value playbook and we're working with our franchisees to make the necessary adjustments.”
—CNBC's Amelia Lucas and Kate Rogers contributed reporting
