McDonald’s global sales are due to the increased demand for promotions.
McDonald’s second quarter global comparable sales beating Wall Street estimates. This is because the bunch of affordable meals and promotions have been drawn to budget-wide diners trying to grow the dollar amid economic uncertainty.
Fast food restaurants are once fighting to get customers back, when the first stop for Americans trying to get at least one meal before a long job.
McDonald’s and Wendy’s leaders have seen a decline in breakfast sales across the fast food sector, said during a revenue call in early August. The family is reassessing whether a quick drive-thru trip is worth the price, experts told USA Today.
In response, some chains are adjusting their prices. However, as Americans are feeling the effects of inflation again, it is unclear whether any near future moves will be sufficient to bring back customers.
What’s going on with fast food restaurants and prices?
Some value equations are not balanced due to inflation, according to Neil Saunders, a retail analyst at research and analytics firm GlobalData.
“McDonald’s, for example, is considered a modification to cheap snacks and cheap fast food, a relatively expensive purchase, especially for families,” Sanders told USA Today. “A lot of people don’t think it’s worth the money, so we had them eat there.”
Restaurants respond by offering deals. Pizza Hut recently ended its $2-dollar personal bread pizza deal on Tuesday.
McDonald’s will lower the price of its worth of meals in September, after the Wall Street Journal and CNN complained about the big MAC meal that rose to $18, citing anonymous sources.. The price reduction follows weeks of discussion between McDonald’s corporate executives and restaurant franchise operators, including companies that provide financial assistance if franchisees agree to lower prices, the Journal reported.
McDonald declined to comment on the journal’s reported price changes, but told USA Today, “The great value has always been part of McDonald’s DNA, and that commitment remains strong today.”
95% of McDonald’s are owned by the franchise owners. Franchise owners will ultimately price their locations after McDonald’s offers the proposal, but franchisees can vote for a specific price range or national campaign, said Peter Sale, managing director of BTIG’s research.
Why did the prices at fast food restaurants rise?
Restaurant costs have been stressing restaurants, particularly since the Covid-19 pandemic, said Saleh, who has looked into the distribution of restaurants and food. Additionally, he said fast food franchisees are dealing with increased loyalty rates and rent for new units.
He said that if they pushed for increased inflation and labor costs, especially increasing the minimum wage to $15 or more in many states. They will be passed on to consumers, he said.
“From 2019 to 2023, McDonald’s had to raise prices by 40% to offset inflation,” Saleh told USA Today. “In five years they would have usually gotten between 2% and 2.5%, or 10% and 12% (due to Covid-19). They had to take 40%. Chipotle took 35%.”
If industry leaders had to raise prices that much, other competitors did the same, Saleh said.
However, Saleh said that in casual dining spaces where customers have more sit-in meals, many restaurants only increased their prices by 20% to 25%.
“So what happened?” Saleh asked. “The value of money in casual meals has improved compared to the quick service space.”
Fast service, or fast food operators, rely on hourly labor rather than casual meals.
A May 2024 open letter from McDonald’s US Joe Arlinger said that pay, meals and paper costs have increased by around 40% over the past five years, and the average price of McDonald’s menu items has also risen by 40% at the same time.
Will lowering the price of combo meals increase sales?
“Reducing prices will help solve the problem of McDonald’s being considered too expensive,” Sanders said. “The question is whether a lower price is enough. Prices are still very high in places they used to be, and they’re smoking consumers.”
Before the pandemic, sales from McDonald’s worthy meal menu ranged from 10% to 12%, Saleh said. Today, the $5 McDonald’s worth of meals, their buy-out one offering, and all the discounts you can get on the app are over 30% of their sales, Saleh said.
“I think they want it to be much lower than that,” Saleh said.
Why is McDonald’s and Wendy’s breakfast food not going well?
Sanders and Saleh shared the same sentiment as McDonald’s and Wendy’s leaders, reiterating and disrupting breakfast sales.
“Breakfast is a relatively easy sacrifice because people can fix something at home and save money,” Sanders said.
As it comes out of the pandemic, fewer people travel to work every day, Sale said.
McDonald’s CEO Chris Kemchinski confirmed the breakfast sales hit during the revenue call on August 6th after a slow start to the year and overall sales improved.
“You’re watching people skip opportunities, so they’re either skipping a part of the day like breakfast, trading down within our menu, or eating at home,” he said during the revenue call (“day part” is the industry term for daytime meals).
“Yes, breakfast will continue to get worse than the rest of the day, as consumers tend to have an increased uncertainty and when consumers choose to eat another meal at home, breakfast is often the place to do that,” Ken Cook, interim CEO and CFO at Wendy, said in a revenue call on August 8th.
Is the McDonald’s change intended to target a specific demographic?
“Re-replacing low-income consumers is important because they usually visit our restaurants more frequently than middle-income consumers,” Kemchinski said in a revenue call.
Sale said McDonald’s “undetectedly targets low-income consumers.”
“There’s a lot of anxiety and anxiety about that low-income consumer. I think we can all guess why. There are probably questions and questions about tariffs and employment,” he said.
McDonald’s chief financial officer, Ian Borden, said during the revenue call, that visits to quick service restaurants by low-income consumers fell double digits in the second quarter. He said middle-income consumer traffic was “slightly positive” compared to the first quarter, with high-income consumers continuing to increase visits.
However, Sanders said, “The price reductions are not actually aimed at one demographic, as there is a widespread feeling that prices are too high. However, family diners may be the most profitable as they bring in multiple people and checks are much higher.”
What can fast food operators do to get consumers back?
Saunders said cutting prices and providing valuable meals and great deals is an important way to make fast food more attractive to people’s budgets. But beyond that, menu innovation with exciting new options is another way to drive some traffic, he said.
Restaurants that offer the best deals “call it as everyday value and are known for that,” Saleh said. He points out Domino’s mix and match offers, and you can get two medium, two topping pizzas for a big pizza special for $6.99 each, or $7.99.
“If it’s $20, if you really want to domino’s, you can support a family of four. You can’t really do that in other segments,” says Saleh. “You can’t do that with McDonald’s or casual meals, so what I have that deep value seems to be doing very well and winning.”
Betty Lin-Fisher is a consumer reporter for USA Today. Contact her at blinfisher @usatoday.com or follow her on X, Facebook, or Instagram @Blinfisher, @Blinfisher.bsky.social.. Sign up for our free daily money newsletter. This includes Friday’s Consumer News.
