McDonald’s global sales have declined for the first time in nearly four years, with a 1% drop in the second quarter as inflation-weary consumers choose to eat at home or opt for cheaper menu options.
The company expects same-store sales to continue falling over the next few quarters and is introducing meal deals and new menu items in response.
“Consumers still recognise us as the value leader versus our key competitors, but it’s clear that our value leadership gap has recently shrunk,” said Chris Kempczinski, McDonald’s chairman, president, and CEO, during a conference call with investors. “We are working to fix that with pace.”
Sales at locations open for at least a year fell by 1% during the April-June period, marking the first decline since the final quarter of 2020 when the pandemic led to store closures and widespread home confinement.
In the US, sales fell nearly 1%. Although McDonald’s saw fewer customers, those who did visit spent more due to price increases. Kempczinski defended the higher menu prices, citing a 40% rise in costs for paper, food, and labour in some markets over the past few years.
The company’s net income fell 12% to $2bn, or $2.80 per share. Excluding one-time items such as restructuring charges, McDonald’s earned $2.97 per share, falling short of the $3.07 per share profit forecasted by industry analysts.
In May, McDonald’s CEO Joe Erlinger noted in an open letter that the price of Big Macs had risen 21% since 2019.
The decline in sales extends beyond McDonald’s. Customer traffic at US fast-food restaurants fell 2% in the first half of the year compared to the same period last year, according to market research company Circana. David Portalatin, a food industry adviser for Circana, expects high inflation and rising consumer debt to continue impacting traffic in the second half of 2024.
McDonald’s also reported lower store traffic in France and the Middle East, where boycotts related to perceived support for Israel in the Gaza conflict have affected sales. In China, weak consumer sentiment has driven customers to lower-priced rivals.
In April, McDonald’s warned that more customers were seeking better value and affordability. On June 25, the company introduced a $5 meal deal at US restaurants, which was late in this financial reporting period. According to Joe Erlinger, McDonald’s US President, sales of the $5 meal deal are exceeding expectations and attracting lower-income consumers back into McDonald’s stores. The promotion will run through August, with 93% of McDonald’s franchisees participating.
Other countries, such as Germany and the United Kingdom, have also seen success with meal deals. However, Kempczinski emphasised the need for broader value offerings and improved 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 being tested, including the value-oriented Big Arch double burger in three international markets through the end of this year.
For the second quarter, McDonald’s revenue remained flat at $6.5bn, just below the $6.6bn expected by Wall Street, according to analysts polled by FactSet.
Despite the sales decline, investors appeared satisfied with McDonald’s plans to reverse the trend. McDonald’s shares rose 4% in Monday morning trading.
