Orianna Rosa Royle
Tue, February 6, 2024
More isn’t always more—as McDonald’s CEO recently admitted. After beefing up its prices in the hopes of generating more sales, the burger giant actually wound up turning off some core customers. Now, its chief executive Chris Kempczinski has hinted at a U-turn to lower prices, with a focus on “affordability” to boost sales.
On an earnings call Monday, Kempczinski revealed that sales in the last quarter fell short of expectations for the first time in nearly four years, thanks in part to higher menu prices.
“I think what you’re going to see as you head into 2024 is probably more attention to what I would describe as affordability,” Kempczinski told analysts.
The company posted global same-store sales growth of 3.4% for Q4, falling short of estimates of a 4.79% jump. In contrast, same-store sales increased by 8.8% in Q3—before the increased menu prices—beating analyst estimates at the time.
Low income customers are snubbing fast food for home-cooking
Thanks to price hikes at the end of last year, the once ultra-affordable fast food chain is no longer a cheap eat option—and it’s not gone unnoticed by customers. The Chicago-based chain has taken heavy criticism over its Big Mac meals that are priced at nearly $18. Meanwhile, customers have slammed its on-off Dollar Menu for not having a single $1 item.
It’s why, according to Kempczinski, customers making less than $45,000 per year in particular have stopped ordering from McDonald’s. Instead, many have turned to home cooking as inflation has eased and the cost of groceries has come down.
“Eating at home has become more affordable,” Kempczinski added. “The battleground is certainly with that low-income consumer.”
However, Kempczinski’s definition of affordability may not meet customer's expectations. Prices at McDonald's are still expected to increase—albeit at a slower pace of 2% to 3%, versus last year’s 10%— restaurant analyst Mark Kalinowski told the New York Post.
Fortune has reached out to McDonald’s for comment.
McDonald’s banked on benefitting from a 'difficult' economy
McDonald's leadership team may be surprised by the company’s latest lackluster performance.
Kempczinski previously boasted the company is banking on customers feeling the pinch and choosing to eat at McDonald's as rising costs leave them with few affordable options.
He even described the current cost of living crisis as an “opportunity” for the chain to shine.
“Between inflation remaining high, the elevated cost of fuel, interest rates, housing affordability pressures and more, consumers all over the world are having to pay more and more for everyday goods and services, proving time and time again in difficult economic times, the McDonald’s brand and our positioning on value is an opportunity for us,” Kempczinski said on a third-quarter earnings call.
Middle East
Another challenge that McDonald’s bottom line has had to face is war in the Middle East. The burger giant is among several Western brands that have seen protests and boycott campaigns against them over their perceived pro-Israeli stance.
Last month, Kempczinski warned that the company has suffered a "meaningful business impact" following controversy surrounding the Israel-Hamas war, which has claimed more than 27,000 lives.
The announcement came not long after McDonald's Israel announced on social media that it gave out thousands of free meals to Israel Defense Forces personnel in October—drawing criticism from McDonald's franchises in some Muslim countries.
Starbucks has similarly slashed its annual sales forecast partly due to a hit to sales and traffic at stores in the Middle East, as well as, calls to boycott the coffee chain.
This story was originally featured on Fortune.com
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