Dive Brief:

• McDonald's hiked its U.S. pricing roughly 8% in Q1 2022 compared to the year-ago quarter, CFO Kevin Ozan said on a call with investors Thursday. The chain expects inflation to elevate food and other costs 12% to 14% for the year, higher than expected, he said. Last year, the chain bumped prices 6%.
• McDonald's reported smaller order sizes and a 1% decline in transactions for the period. CEO Chris Kempczinski said the chain is closely monitoring the behavior of lower income consumers, who he predicts will have "increased value sensitivity" as pressure from spiking gas costs and rent rates continue.
• Despite growing consumer hesitance to drive to eat out, McDonald's still reported a 3.5% same-store sales increase in the U.S., though this growth is dwarfed by the 13.6% same-store sales gains it posted in Q1 2021. Overall, menu price hikes also helped capture $5.67 billion in quarterly revenue.

Dive Insight:

McDonald's continues to innovate its menu offerings despite concerns over potential diner sticker shock as the war in Ukraine drives up costs across restaurant industry sectors. Corporate is also working closely with U.S. franchisees to brainstorm competitive offerings.  

"This quarter the Menu Hacks promotion and our Super Bowl commercial were prime examples of how we can ... transform something people already love, our food, into cultural moments to drive conversation and connection. And because these promotions feature existing core menu items there's no added complexity to restaurant operations,"  Kempczinksi said on the call. 

But Bloomberg Intelligence reports that the Menu Hacks promotion drove significantly less diner awareness than the Famous Orders campaign, according to Cognovi Labs data. Menu Hacks, which were composed of four mashups of existing core menu items, comprised just 1% of total ordering conversations on social media compared to 73% for the BTS Famous Orders promotion, 29% for the Travis Scott order and 4% for the J. Balvin order, according to a report emailed to Restaurant Dive. 

Still, McDonald's met analysts' same-store sales expectations for the period. Bloomberg Intelligence warned in its report that "McDonald's may need another strong celebrity partnership to achieve the 2.7%" gain in Q2 2022 that analysts forecast. Despite a small dip in transactions for the quarter, however, Placer.ai posits that McDonald's foot traffic is probably more reactive to COVID-19 spikes than to inflation based on trends in February and March.

Going forward, McDonald's menu innovation could include new development of McPlant. The plant-based offering has been rolled out to all restaurants in the U.K. and Ireland after a successful January pilot in the U.K. Kempczinski offered no timeline of when the item will be introduced in the U.S., saying only that "when customers are ready for McPlant, we'll be ready for them."

Earlier this week, Beyond Meat shares rose after Fast Company reported that McPlant would become permanent in the U.S. and McDonald's would expand the offering with additional Beyond Meat products. But the Golden Arches disputed these claims Wednesday. McDonald's began testing McPlant domestically in 2021 and expanded the pilot in February. 

"The McPlant has been part of our global core menu lineup since November 2020 for markets to pull down as they choose to,” a McDonald's spokesperson told Bloomberg in an emailed statement. "There are no new updates in the U.S."

In March, a BTIG report suggested McPlant was underperforming in pilot markets in Texas and California, with daily sales hovering around 20 plant-based sandwiches compared to expectations of 40 to 60.

As the company continues to enhance its core menu offerings, however, it will be careful not to alienate the value-focused consumer as the inflationary environment remains volatile, Kempczinski said. 

"We’ve always got to stay competitive on value. When we lose sight of that, there’s a long history of that being where we’ve kind of gotten off track," he said. "But broadly, the U.S. consumer from our vantage point is still in good shape."