Mcdonald’s is in trouble as customers have started voting with their wallets.
McDonald’s Faces a Cash Crunch
For the first time in almost four years, McDonald’s has been in hot water. The fast-food giant’s global sales have dropped, and it’s not looking pretty.
The Fast-Food Giant Hits Troubling Times
Sales worldwide fell by 1% from April to June (also known as the second quarter), and it’s got fast-food fanatics and investors both raising their eyebrows as these are normally some of their busiest months.
A Rare Drop for McDonald’s
This dip is the first they’ve seen since the pandemic really hit hard back in late 2020.
Why It Matters
While a 1% drop in sales doesn’t sound like a big deal, for a company the size of McDonald’s it’s a huge amount of money. Their total second quarter revenue was $6.5 billion, which missed the $6.6 billion forecast by experts.
What’s Behind the 1% Sales Decline?
But what’s causing this? Turns out, it’s the one-two punch of inflation and changing consumer habits. People are eating out less, and when they do, they opt to go to cheaper restaurants – and it’s hitting McDonald’s hard.
Price Hikes Hit Big Macs
Back in May, Mcdonald’s made it public knowledge that Big Macs are now 21% pricier than they were in 2019.
Rising Costs Across the Menu
But these price rises are hitting everything in store – even the saver side of the menu has seen an increase in price that’s above inflation.
CEO Speaks Out
As McDonald’s CEO Chris Kempczinski explained in an earnings call (published on investing.com), “These price increases disrupted long-running value programs and led consumers to reconsider their buying habits.”
McDonald’s “Value Leader” Status Under Threat
“Consumers still recognize us as the value leader versus our key competitors, but it’s clear that our value leadership gap has recently shrunk,” Kempczinski stated – but the reality is that their reputation as the “value leader” is now facing some serious competition.
U.S. Sales Slump
Things are also tough for McDonald’s in the U.S. Sales here fell by nearly 1%, and while fewer people are hitting the drive-thru, those who do are paying more.
Inflation’s Heavy Toll
Kempczinski explained the price rises were because “Over the last several years, our system has sustained significant inflationary cost increases ranging from 20% to 40% depending on the market.”
Price Hikes or Profit Maxing?
And while businesses-wise, what Kempczinski is saying makes sense, customers will rarely see it that way. Many simply view the price hikes as a way for McDonald’s to maximize profits at their expense.
Living Costs Rise
With the cost of living going up, people are feeling the pinch, and when their previously affordable fast-food meals become more expensive, a lot will think twice about coming back.
Net Profits Plummet
Even with these excuses, McDonald’s net profits took a nosedive, falling 12% to $2 billion, or $2.80 per share – short of the $3.07 Wall Street was expecting.
Revamping Strategy
To tackle this, McDonald’s is planning to shake things up with new deals. Recently, they rolled out $5 value meals – a throwback to past promotions that used to pack in the customers.
A New Hope for McDonald’s?
This deal has been so popular in America that 93% of franchisees are keeping it around through August. And it’s not just a U.S. thing – Germany and the U.K. are also seeing some success with similar deals.
One Promotion Isn’t Enough
Despite its popularity, Kempczinski knows that one promotion won’t fix everything. “I think it’s also clear to us that in a number of markets you need to have a broader value platform and that trying to move the consumer with narrow offerings that are one item or a few items is just not sufficient for the context that we’re in.” Sounds like McDonald’s is scrambling to get back on top.
Stock Market Reacts
This news might sound rough, but the stock market seems to think McDonald’s can bounce back – shares jumped 4% in morning trading after investors got a glimpse of the company’s plans to fix things.
McDonald’s Braces for Impact
Looking ahead, things don’t seem to be getting better anytime soon. Joe Erlinger, McDonald’s U.S. president, warned investors that “customers will continue to feel the pinch of the economy and a higher cost of living for at least the next several quarters.”
Can McDonald’s Turn the Tide?
So, is McDonald’s in trouble or just hitting a bump in the road? The company is betting that its new value meals and some fresh marketing strategies will help turn things around, but right now the fast-food titan has its work cut out for it.
Future Uncertain
Only time will tell if these moves will be enough to get customers back through the doors and boost those sales figures.
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Featured Image Credit: Shutterstock / Boris-B.
The content of this article is for informational purposes only and does not constitute or replace professional financial advice.
