McDonald’s is grappling with declining sales. Despite aggressive pushes on value menus and promotional deals, the fast-food chain’s efforts to attract budget-conscious customers have fallen short. As inflation continues to pinch household budgets, more consumers are opting to shop at grocery stores rather than indulge in a quick meal at McDonald’s, leaving the latter scrambling to regain its footing. This shift in consumer behavior is posing significant challenges for the fast-food titan, raising questions about the effectiveness of its current pricing strategy and the broader economic landscape’s impact on dining habits.
McDonald’s First Sales Slump Since 2020
McDonald’s saw a decline in global sales in the second quarter of 2024, marking the first sales slump for the restaurant chain since 2020 as budget-constrained consumers cut back on dining out.
In the United States alone, McDonald’s same-store sales between April and June dropped nearly 1%, a decline the company attributes to slowing foot traffic as low-income consumers now prefer getting their food at grocery stores, where food items are cheaper.
“This shortfall was driven by sluggish traffic, with consumers shifting a larger share of meal occasions toward grocery stores,” Morningstar equity analyst Sean Dunlop said in a research note, according to CBS News.
McDonald’s recent move to raise its menu prices wasn’t enough to prevent the sales slump. In an investor last week, McDonald’s CEO Chris Kempczinski said the company was forced to increase the prices of its offerings after food, labor, and paper costs rose by as much as 40% in some markets over the past few years.
McDonald’s $5 Meal Deal Struggles to Compete
In late June, McDonald’s launched its $5 Meal Deal after rivals Burger King and Wendy’s announced similar promotions aimed at inflation-weary consumers. However, according to Bernstein restaurant analyst Danilo Gargiulo, McDonald’s is playing “defense” as its $5 Meal Deal struggles to compete against other fast-food chains’ new value offerings.
“McDonald’s hasn’t been able to communicate value as well as other restaurants, from a pure coordination standpoint with franchisees. Everyone went their own way and there was no national program, so they played defense in launching the $5 Meal Deal,” Gargiulo said in an interview with CBS MoneyWatch.
While McDonald’s has yet to comment on the performance of its $5 Meal Deal, Kempczinski admitted that some consumers no longer see the chain as the best deal, conceding in the earnings call that “our value leadership gap has recently shrunk.”
McDonald’s vs Grocery Stores
In addition to a slew of fast-food chains, McDonald’s is now also competing with low-cost grocery stores, where prices of food items are going back to normal after more than two years of high inflation.
“The context is since October of last year, you’ve had lower grocery prices than restaurant prices. And when prices are cheaper at grocery stores, low-income households go there. When McDonald’s is cheaper, they go to McDonald’s,” Wedbush restaurants analyst Nick Setyan explained. “[But] prices at the grocery store aren’t going to continue to deflate, and restaurants are going to figure out how to price their offerings the right way.”