- McDonald's said high prices have contributed to its falling sales.
- Global comparable sales dropped by 1%. The CEO said the company hadn't focused enough on value.
- He said customers are looking for more deals and buying fewer items per order or cheaper items.
McDonald's admitted its food is too expensive, and that's contributed to falling sales at the fast-food giant.
McDonald's CEO Chris Kempczinski told investors Monday that "external pressures," such as a wider slowdown of the fast-food sector and war in the Middle East, had affected its business.
"But there were also factors within our control that contributed to our underperformance, most notably our value execution," he said.
Global comparable sales decreased by 1% year over year in the quarter, including a 0.7% drop in the US. Systemwide sales also fell by 1%.
Kempczinski said McDonald's raised prices in recent years in response to high inflation, which "disrupted long-running value programs and led consumers to reconsider their buying habits." The company's leadership for value in the fast-food sector was shrinking, Kempczinski said, citing customer surveys.
McDonald's has been warning for months about lower-income consumers struggling — and the CEO said it's getting worse. Pressures on consumers have "deepened and broadened" over 2024 so far, Kempczinski said.
Customers are looking for more deals and either buying fewer items per order or opting for cheaper items, Kempczinski said. He said some consumers were choosing to eat at home more often because food inflation has been much higher at restaurants than at grocery stores.
"I think it's not even so much about consumers moving from us to others," Ian Borden, the chief financial officer of McDonald's, said. "It's about consumers in that low-income category, and I think families, which are obviously two big cohorts of our consumer base across most of our markets, just eating out less frequently than they have been previously,"
Earlier this month, McDonald's launched a temporary national $5 combo deal in the US, and executives told investors on Monday that it had performed better than expectations and was being expanded into August at the vast majority of its restaurants. Executives also spoke to the success of some value deals in Germany and the UK.
"We are resolved to reignite share growth in all our major markets regardless of the prevailing market conditions," Kempczinski said. "This won't happen overnight, but it will happen."
Expect to 'feel the pinch' for a while longer
In earnings releases in April and May, a number of chains, including McDonald's, reported poor growth in same-restaurant year-over-year sales. Starbucks, KFC, and Pizza Hut reported a decline in sales.
McDonald's executives on the call weren't optimistic about future consumer spending in the industry, either.
"We expect customers will continue to feel the pinch of the economy and a higher cost of living for at least the next several quarters in this very competitive landscape," Joe Erlinger, the president of McDonald's US, said.
Consumer sentiment in most of the major markets for McDonald's "remains low," Borden added.
Multiple restaurant chains are reporting earnings this week and next.
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