Dive Brief:
- McDonald’s menu price hikes are fueling sales growth for the chain, executives shared during the company’s Q1 earnings call Tuesday. Despite these higher prices, the Golden Arches also is gaining share “across all income groups,” signaling well-calibrated “value and consistency,” CEO Chris Kempczinski said on the call.
- Still, inflation is starting to crimp diner spend, CFO Ian Borden told investors. McDonald’s restaurants are reporting fewer menu items per transaction in several markets, and delivery growth is slowing.
- McDonald’s increased its menu prices by an average of 10% for 2022, but the chain’s foot traffic “has increased substantially over the last year,” likely due to economic uncertainty among price sensitive diners, Gravy Analytics CMO Jolene Wiggins wrote in a note to Restaurant Dive.
Dive Insight:
McDonald’s is closely monitoring diner acceptance of price increases, Kempczinski said, as resistance to pricier menu items grows in some regions. This diner sentiment marks a recent shift — in January, Kempczinski said the company hadn’t noted “any big resistance” from customers at that point.
Kempczinski linked the price sensitivity to double-digit inflation. He also noted that growth in delivery, which is historically a strong performing segment for the chain, is slowing, which may be connected to economic pressure on consumers.
McDonald’s predicts macroeconomic headwinds will continue and is bracing for a potential recession in the U.S. and Europe.
“Value for money and affordability, I would say, are two things that we’re always laser focused on, but I think obviously even more so in the current context,” Borden said. “We’re having to take more price on the back of higher levels of inflation. ... I think we’re doing that in a very prudent and balanced way to make sure that we are kind of leaning into the needs of our consumers.”
The company has worked with external partners in the past few years to determine its ability to take price “exactly by item, by restaurant,” Kempczinski said. But McDonald’s may have approached recent price hikes too broadly.
“When you go off script, when you go and you start taking pricing in areas that would not be suggested by all of our modeling, that we are starting to encounter more resistance there is just a reminder that we need to stay very disciplined on pricing,” Kempczinski said.
The company is trying to drive more value for consumers money through menu adjustments, such as its recent tweaks to its iconic suite of burgers and general menu simplification, and through personalization via digital offerings. Digital transactions represent roughly 40% of McDonald’s overall sales, and the chain recorded nearly 50 million active rewards program members during the quarter.
“We’re learning when they visit, how they visit and what they buy with more and more of our sales coming through indentifiable channels than ever before,” Kempczinski said.
But McDonald’s still needs to improve how it delivers personalized value to diners, he told investors.
“I’ll just give you one example. I love our McChicken sandwich. I order our McChicken sandwich all the time. I should never be getting, and I hate to say this to the team, I should never be getting on my app an offer for the McChicken sandwich,” Kempczinski said. “We’re not yet at that level of sophistication, but we’re going to get to that level of sophistication.”
McDonald’s reported U.S. same-store sales growth of 12.6% for the quarter, and consolidated revenues rose 4%.
