By McDonald’s experienced an unexpected drop in global sales on Monday, marking the first decline in 13 quarters. The decrease is attributed to budget-conscious consumers avoiding higher-priced menu items like the Big Mac due to persistent inflation, which has driven lower-income customers to seek more affordable food options at home.
In response, fast food chains including McDonald’s, Burger King, Wendy’s, and Taco Bell have been promoting value meals to attract customers. McDonald’s CEO, Chris Kempczinski, noted a shift in consumer behavior, stating that people are becoming more selective in their spending due to low consumer sentiment in major markets.
For the second quarter, McDonald’s reported a 1% decrease in global comparable sales, falling short of analysts’ expectations of a 0.5% increase. Despite this, the company’s overall revenue rose by 1%.
In an effort to boost customer visits, McDonald’s introduced a $5 meal deal at most U.S. locations in June, with plans to continue the promotion into August. According to Edward Jones analyst Brian Yarbrough, the decrease in visits from low-income consumers has been significant enough to offset the usual uptick McDonald’s sees during tough economic times.
The company’s situation aligns with comments from Coca-Cola CEO James Quincey, who mentioned a decrease in the number of people dining out in North America. Despite the challenges, McDonald’s maintained its 2024 operating margin forecast in the mid-to-high 40% range.
McDonald’s shares, which have fallen 15% this year, remained steady at $251.20. The company continues to plan for capital expenditures of up to $2.7 billion, with a significant portion allocated for new restaurants in the U.S. and international markets.
In the quarter ending June 30, U.S. comparable sales fell 0.7%, compared to a 10.3% increase a year ago. International sales, which comprised nearly half of the company’s revenue in 2023, dropped 1.1%, particularly impacted by weaker performance in France. Additionally, a slower recovery in China and the Middle East conflict negatively affected sales, with a 1.3% decline in regions where local partners operate the restaurants, compared to a 14% increase the previous year.
Consumer boycotts related to the Gaza conflict have also impacted sales for McDonald’s and other companies like Starbucks in Middle Eastern markets. For the second quarter, McDonald’s reported adjusted earnings of $2.97 per share, below the expected $3.07.
