McDonald’s sales fall as inflation-weary customers turn away from fast food

by Admin
July 31, 2024

In short:

McDonald’s sees its first fall in sales in nearly four years, as inflation-weary customers skip eating out.

It comes as US burger company Carl’s Junior placed its Australian stores into voluntary administration this week.

What’s next?

McDonald’s CEO has told investors the company will rethink its pricing to get customers back.

Global giant McDonald’s has recorded its first drop in sales in nearly four years, as customers cut back on spending amid a cost-of-living crunch.

Sales at locations open for at least a year fell 1 per cent over the April-June period compared with a year earlier — the first decline since the pandemic.

AMP deputy chief economist Diana Mousina said the global results were reflective of the “cost-of-living environment”.

“Consumers in most advanced economies have pulled back a bit of spending relative to the post-pandemic high.”

She said pressure has come from slowing labour markets, high inflation and interest rate increases.

“One of the first things that goes is take away food meals and holidays, those are the extra discretionary items you don’t really need to have in your life,” she said.

“You could eat at home for a cheaper price.”

Diana Mousina says McDonald’s is also dealing with higher prices in its supply chain.(ABC News: John Gunn)

Still cheap despite price rises

Prices at the checkout at fast-food chains, like most goods and services, have also gone up.

McDonald’s said it had seen fewer customers walk through its doors, but those who came spent more because of price increases.

In Australia, the price of a Big Mac burger has risen nearly 40 per cent, from $5.75 in 2019 to $7.90 today.

“They’ve been going more expensive, but they have some good deals, which kind of shows that they could lower the prices a bit,” said one teenage McDonald’s customer in Sydney’s CBD.

“Just for a small meal, it’s 12 bucks already,” he said.

Another international student diner at McDonald’s said the burger joint was still the cheapest option, compared to other takeaway restaurants.

Loading…

The rising prices at McDonald’s come as Australia’s annual rate of inflation rises to 3.8 per cent, up from 3.6 per cent at the start of the year.

Year-on-year inflation of take-away foods and meals out at 4.2 per cent was higher than headline inflation.

Ms Mousina said the category was rising at a lower pace than food inflation, justifying some of the increases on the menu.

“Companies like McDonald’s obviously have a very long supply chain, and they have themselves been getting price increases throughout the supply chain,” she said.

“So if the cost of food, which is the main input for them, along with wages, has been rising at a faster rate than headline inflation, then you know that they might they may be able to justify their prices.”

Trend seen across industry

It’s not just McDonald’s feeling the effects of inflation-weary customers — it’s a trend seen across the fast-food industry.

Yum! Brands, the company that owns KFC and Pizza Hut, also reported a 2 per cent drop in sales in May.

It’s not clear how McDonald’s revenue in Australia has fared, but competitor Collins Food Group which owns KFC in Australia last month recorded a 500 per cent boost in net profit.

That might point to bleaker economic times elsewhere in the world.

Marketing expert Toby Ralph said the fast-food industry was a staple for many people, and more resilient than other takeaway or eating-out options, so it’s feeling the effects “a bit later”.

He said the fact McDonald’s had reported a lower turnover, showed just how stretched the global economy is right now.

“When it’s bad for McDonald’s, it’s bad for the entire industry. Cost of rent is up, and everything else and fast food is suffering,” he said

Toby Ralph says McDonald’s sales decline shows how stretched the economy is.(ABC News: Chris Gillette)

Pricing structure under scrutiny

But there may be good news for customers.

McDonald’s CEO Chris Kempczinski told investors the company needed a ‘re-think’ of its pricing structure, including meal deals and new menu items.

But those specials can end up providing big companies with bang for their buck if they upsell, according to marketing expert Toby Walsh.

“What they are likely to do is offer some super specials and promote them heavily,” he said.

“And then when they get people in store, they’ll basically say, ‘Would you like fries with that?’, meaning they’ll try and upsell.”

Mr Walsh said some items would act as loss leaders, while the company focused on upselling.

Guzman y Gomez is one business that will likely prosper despite difficult times, Mr Ralph says.(ABC News: Emilia Terzon)

The marketing strategist added that in tough economic times, major corporate giants could use that as an opportunity to gain an advantage – by advertising more, taking a bigger market share and then retaining it.

“What happens in a recession is that companies that can afford to advertise, do that and expand market share, and they tend to hang on to it longer,” he said.

“Companies that are teetering on an economic cliff often go broke because they just can’t sustain it.”

He pointed to McDonald’s, Guzman y Gomez and Hungry Jacks as companies that “will probably prosper” but said smaller groups were the ones that were “going to do it hard”.

That’s already being seen with one player in Australia’s fast-food sector.

Just this week, American burger chain Carl’s Junior placed its Australian stores into voluntary administration, affecting around 50 stores and leaving hundreds of jobs at risk.

ABC/AP