McDonald’s Sales Plunge After Price Hikes Hit Customers

Mcdonald’s is in trouble as customers have started voting with their wallets.

McDonald’s Faces a Cash Crunch

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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

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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

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This dip is the first they’ve seen since the pandemic really hit hard back in late 2020.

Why It Matters

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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?

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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 

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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

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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

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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

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“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

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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

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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?

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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

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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

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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

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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?

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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

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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

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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

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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?

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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

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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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The content of this article is for informational purposes only and does not constitute or replace professional financial advice.

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