McDonald’s Sales Fall For First Time In Three Years In Surprise Drop
McDonald’s reported the first drop in global sales for the first time in almost three years, or, more specifically, 13 quarters. In response, the fast food chain is looking to rethink pricing strategies as consumers are avoiding the high-priced items on the menu. Inflation has contributed to rising fast food prices over recent years, leading lower-income customers to switch to affordable at-home options rather than big chains like McDonald’s and Taco Bell.
Sales Are Down, But There Are Hopes Of Recovery
While McDonald’s sales are down across the globe, the company was able to salvage its share price a bit in June after announcing the $5 meal deal had sold above expectations. The company’s share price was down 15 percent for the year and shot up almost 4 percent after the meal deal announcement. McDonald’s is also holding itself to its 2024 forecast for the operating margin being in the mid-to-high 40 percent range and that the selective pricing strategies will help them achieve it.
McDonald’s official sales numbers reflected a 1 percent fall of global comparable sales in the second quarter with the expectations projecting a 0.5 percent increase. Still, the company managed to see revenue rise by 1 percent. Brian Mulberry, client portfolio manager at Zacks Investment Management, noted that things “should be getting better in the back half of the year…with better value on the menu.”
Attributed To Higher Prices And Political Unrest
McDonald’s CEO Chris Kempczinski also weighed in on the sales numbers, noting that customer sentiment in “most of our major markets remain low.” Along with the rising prices of menu items, McDonald’s can attribute some of its global sales shortcomings to customer boycotts in response to Israel’s war in Gaza. BBC reported earlier this year that the fast food company’s units in the Middle East, China, and India saw sales growth of only 0.7 percent in the final quarter of 2023, coming in far below expectations.
Plans To Put A Stronger Emphasis On Value
McDonald’s also made the decision to buy back all of its Israeli restaurants, which were previously franchised out, seemingly in response to the boycotts. In any case, it seems that McDonald’s primary public strategy going forward is to continue adjusting the pricing menu for customers watching their budget. Kempczinski indicated that McDonald’s will lean more into discounts to stop the decline of sales in the back half of 2024.
Working On Value Strategies
The $5 meal deal will seemingly continue on, though McDonald’s is reportedly working on other value strategies to help with sales. This also seems to be a response to the backlash the company faced for raising prices during the pandemic, though an open letter to customers from the head of McDonald’s US operations stated that social media was inaccurately assessing the price increases. According to the letter, the 21 percent increase in the price of Big Macs since 2019 is in line with the rate of inflation.
Damage Control To Repair Bottom Line
It remains to be seen if McDonald’s strategies to increase sales will pan out for the chain in the coming months. Value menu adjustments and discounts might be enough to help with some of the company’s sales issues, but there are still plenty of other factors at play. For now, it definitely seems like the fast food company is doing some damage control.
Source: Reuters
