McDonald’s to Reevaluate Pricing Following Drop in Sales

McDonald’s is reexamining its pricing strategy after a decline in sales due to reduced customer spending. For the April-June period, same-store sales fell by 1% compared to the previous year—marking the first drop since the pandemic.

This decrease occurred despite the company’s efforts to attract budget-conscious customers with discounted deals and promotions, including responses to the recent Israel-Gaza conflict.

CEO Chris Kempczinski announced that the disappointing results necessitated a “comprehensive rethink” of their pricing approach. The company plans to continue leveraging discounts to counteract the sales slump. Recent promotions, like the $5 Happy Meal in the US and a £3 offer for three items in the UK, are expected to be extended, with additional “value” initiatives being developed in collaboration with franchisees.

Following this update, McDonald’s shares rose over 3%, with Kempczinski expressing confidence in the company’s ability to adapt its strategy effectively. He emphasized McDonald’s extensive experience in value-based pricing and collaboration with franchisees to make necessary adjustments.

The company has faced criticism for raising prices significantly during the pandemic. Last month, McDonald’s US head addressed these concerns in an open letter, clarifying that the price increase of a Big Mac to $5.29 was in line with inflation and that many items had seen smaller increases. Despite this, Kempczinski acknowledged that the company needs to restore its value reputation.

Price hikes, initially driven by inflation, have caused consumers to reevaluate their purchasing habits. While some markets have adjusted, others require a more thorough reassessment. Analyst Sara Senatore from Bank of America noted that McDonald’s had raised prices on key items faster than competitors, though the $5 meal deal may be starting to shift perceptions.

McDonald’s is not alone in facing slower consumer spending, as major economies, including China, show signs of weakening demand. Overall revenue, which includes sales from new stores, remained flat year-on-year, while profits fell by 12%. Lower-income customers, in particular, have been affected, and their loss has not been offset by higher-income individuals trading down.

In addition to challenges in the US, McDonald’s reported weakened demand in France and intense price competition in China. The company also faced backlash in France due to boycott calls related to the conflict in Gaza. An executive noted that consumer discernment in dining choices is expected to persist in the near future.