McDonald's grapples with declining sales as inflation-weary consumers seek cheaper dining options, prompting new value strategies. (AP File)
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- McDonald's introduces $5 meal deals and plans new menu items to combat first global same-store sales decline since 2020.
- CEO Chris Kempczinski acknowledges shrinking value leadership gap, vows to address issue with urgency and broader value offerings.
- Despite revenue challenges, McDonald's shares rise 3.5% as investors show confidence in company's plans to reverse sales slide.
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EAST PALESTINE, Ohio — They’re not lovin’ it.
McDonald’s global same-stores fell for the first time in nearly four years in the second quarter as inflation-weary consumers skipped meals out or chose cheaper options. The company said it’s working on fixes, like meal deals and new menu items, but it expects same-store sales to be down for the next few quarters.
“Consumers still recognize us as the value leader versus our key competitors, it’s clear that our value leadership gap has recently shrunk,” McDonald’s Chairman, President and CEO Chris Kempczinski said Monday during a conference call with investors. “We are working to fix that with pace.”
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First Decline Since Pandemic Shutdowns
Sales at locations open at least a year fell 1% in the April-June period, the first decline since the final quarter of 2020 when the pandemic shuttered stores and millions stayed home.
In the U.S., same-store sales fell nearly 1%. McDonald’s saw fewer customers but it said those who came spent more because of price increases. Kempczinski defended those increases, saying McDonald’s costs for paper, food and labor have increased as much as 40% in some markets over the last few years.
The company also reported lower store traffic in France and the Middle East, where people have been boycotting McDonald’s because of a perception that it supports Israel in the war in Gaza. Kempczinski said weak consumer sentiment in China has customers fleeing to lower-priced rivals.
Related Story: Companies Cut Prices to Boost Sales, Consumers Respond
Value Deals and New Menu Items
McDonald’s warned in April that more of its inflation-weary customers were seeking better value and affordability. The Chicago burger giant introduced a $5 meal deal at U.S. restaurants on June 25, which was late in this financial reporting period.
McDonald’s U.S. President Joe Erlinger said Monday that $5 meal deal sales are running ahead of expectations and are getting lower-income consumers back into McDonald’s stores. Erlinger said 93% of McDonald’s franchisees have agreed to run the promotion through August.
Other countries like Germany and the United Kingdom are also seeing success with meal deals, the company said. But Kempczinski said McDonald’s needs to be providing broader value and boosting that message with better marketing.
“Trying to move the consumer with one item or a few items is not sufficient for the context that we’re in,” he said.
New menu items are also in the works. The company is testing its value-oriented Big Arch double burger in three international markets through the end of this year, Kempczinski said.
Related Story: As US Home Sales Fall, California Expert Predicts Affordability Will Improve
Financial Performance and Investor Reaction
For the second quarter, revenue was flat at $6.5 billion and just off the $6.6 billion that Wall Street was expecting, according to analysts polled by FactSet.
The company’s net income fell 12% to $2 billion, or $2.80 per share. Excluding one-time items such as restructuring charges, McDonald’s earned $2.97 per share. That was far from the per-share profit of $3.07 that industry analysts had forecast.
Investors appeared satisfied with McDonald’s plans to reverse its slide. McDonald’s shares rose 3.5% in morning trading Monday.
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