McDonald’s executives recently addressed concerns about the company’s pricing, acknowledging that consumers perceive their prices as too high. This issue has become particularly problematic as lower-income consumers, who have been grappling with years of high inflation, are now hesitant to spend money at the fast-food chain. During the company’s second-quarter earnings call, executives revealed that they are taking a meticulous approach to evaluating prices and are focused on creating value for their customers.
The second-quarter earnings report was disappointing, with same-store sales declining across every division. McDonald’s CEO, Chris Kempczinski, recognized that the company has an opportunity to improve its value execution in several large markets, including the U.S. He emphasized that while consumers still view McDonald’s as the value leader compared to its competitors, the company’s value leadership gap has narrowed. Kempczinski expressed a sense of urgency in addressing this issue, stating that they are working to fix it promptly.
One of the factors contributing to consumers reevaluating their purchasing habits is price increases. As prices rise, people are becoming more cautious about their spending. This has been particularly challenging for fast-food chains in attracting lower-income diners. A recent survey conducted by LendingTree revealed that over 60% of respondents have reduced their fast-food spending due to the high costs involved.
During the earnings call, McDonald’s executives noted that lower-income diners have not necessarily switched to other fast-food restaurants. Instead, they have been eating out less frequently across most of the company’s global markets. The decline in consumer spending has been observed not only in the U.S. but also in European markets, with families being particularly affected.
Joe Erlinger, McDonald’s U.S. President, acknowledged that customers will continue to feel the economic impact and face higher costs of living for the foreseeable future. In this challenging landscape, Erlinger emphasized the need for McDonald’s to consider these factors in order to grow market share and achieve sustainable guest count-led growth.
In an effort to address these concerns, McDonald’s recently extended its $5 value meal offering, which had initially been planned for a four-week period. The decision to extend the promotion was driven by the positive response from customers. According to a report from Placer.ai, the launch day of the $5 meal drew 8% more visits compared to the average Tuesday in 2024. This pattern continued in the following days, surpassing the year-to-date daily visit averages. The number of $5 meal deals sold exceeded expectations, with a higher rate of purchases among lower-income consumers. The promotion also improved perceptions of the brand’s value and affordability.
Despite the success of the $5 value meal in terms of guest count growth, it has not yet translated into sales increases. McDonald’s executives acknowledged this during the earnings call. However, they remain optimistic and are confident that their expertise in providing value to customers will ultimately lead to positive results. Kempczinski emphasized that McDonald’s has a competitive advantage in terms of purchasing power, allowing them to secure lower prices compared to other players in the industry. He reassured investors that they are collaborating closely with franchisees to make the necessary adjustments and capitalize on their value-oriented approach.
In conclusion, McDonald’s is addressing concerns about their pricing strategy as consumers perceive their prices as too high. Lower-income consumers, in particular, have been cutting back on fast-food spending due to increasing costs. McDonald’s executives are focused on creating value for their customers and have extended their $5 value meal promotion to drive customer traffic. While the promotion has increased guest count, it has not yet resulted in sales growth. Nevertheless, McDonald’s remains confident that their emphasis on value will ultimately lead to sustained growth and market share expansion.
