Inflation remains high, especially with food prices soaring. In this environment, customers turn to McDonald’s — even as the burger chain raises its own prices.
In the third quarter, McDonald’s prices in the U.S. averaged about 10% higher year-over-year. Even so, the brand is growing in popularity among its less affluent clients, Chief Financial Officer Ian Bodden noted on Thursday’s analyst call.
“We are now gaining share among low-income consumers,” he said.
as food Companies are raising prices, and they’re finding other ways to make consumers feel like they’re getting a good deal. Packaged food and beverage makers such as PepsiCo (PEP) and Coca-Cola (KO) are offering more serving sizes in the hope that shoppers will buy smaller packages because of lower prices. Restaurants focus on value and want customers to feel value for money even if prices go up.
McDonald’s “is positioned as a leading brand in terms of value for money and affordability,” Bodden said. He noted that some cash-strapped customers are switching from buying meals to buying great value items.
Some may also switch to McDonald’s from more expensive chains or restaurants, as menu prices are rising at a slower rate than grocery store prices. Grocery prices rose 13%, not adjusted for seasonal fluctuations, in the year to September, according to the U.S. Bureau of Labor Statistics. During the same period, restaurant prices rose 8.5%.
“We feel very good about… McDonald’s value proposition,” CEO Chris Kempczynski said on a conference call. “This allows us to drive some pricing.”
Sales at McDonald’s (MCD) U.S. stores open for at least 13 months jumped 6.1% in the third quarter, partly due to higher prices. Shares rose about 3 percent on Thursday after the chain released its third-quarter results.
McDonald’s is weighing a number of different potential economic scenarios, Kempczinski said, but it expects “a mild to moderate recession in the U.S.” as its base case. “It turns out that McDonald’s can be successful in almost any business environment,” he noted.
The brand has a history of resilience in difficult economic times.
“Our business performed well during the last downturn,” Bodden said of the financial crisis of 2008 and 2009. “Our expectation is that we will perform well in this environment, certainly relative to our Competitors,” he said. Add to.
But Bodden acknowledged that the current situation is different from 14 years ago.
During the financial crisis, McDonald’s had a dollar menu and increased its McCafe line. Now, though, the chain is facing higher food, packaging and labor costs. Consumer behavior has also changed – today’s customers are more interested in delivery.
Even McDonald’s isn’t immune to the macroeconomic situation. In the third quarter, consolidated revenue fell 5%. Results were “negatively impacted by foreign currency translation,” the company said, noting that a strong dollar could explain the decline. On a constant currency basis, McDonald’s said consolidated revenue rose 2%.
In addition to higher prices, McDonald’s said advertising its core menu items helped boost sales.
Lately, the burger chain has been using promotions like Celebrity Meals and Happy Adult Meals to create buzz without adding new menu items that could complicate the order.
The Adult Happy Meals promotion “reengages our fans with our core foods, including Big Macs and Chicken McNuggets,” Kempczinski said.
The company has also been making waves around its McRib sandwiches, positioning its return for a limited time starting October 31st as part of a “farewell tour.” But that doesn’t mean the product will be gone forever.
“McRib is the top sandwich on our menu,” Kempczinski said Thursday. Like “Michael Jordan, Tom Brady and others, you can never be sure if they’re fully retired.”