May 18, 2024

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McDonald’s plans to step up deals and marketing to combat slower fast food traffic

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McDonald’s plans to step up deals and value messaging to combat slowing sales.

The Chicago burger giant said inflation-weary customers are eating out less often in many big markets. In the first quarter, fast food traffic was flat or down in the U.S., Australia, Canada, Japan, the United Kingdom and Germany.

“The consumer is certainly being very discriminating in how they spend their dollar,” McDonald’s President and CEO Chris Kempczinski said Tuesday during a conference call with investors. “It may be more pronounced with lower-income consumers, but its important to recognize that all income cohorts are seeking value.”

McDonald’s said its same-store sales – or sales at stores open at least a year — rose 1.9% worldwide in the January-March period. That was below Wall Street’s forecast of a 2.1% increase, according to analysts polled by FactSet.

McDonald’s had warned investors that the exceptional post-pandemic growth it saw would likely slow this year. Still, the same-store sales increases the company posted in the first quarter were lower than the 3% to 4% McDonald’s usually sees in a typical year.

In the U.S., same-store sales rose 2.5% in the first quarter, but that was largely due to price hikes carried over from last year.

Kempczinski checked his McDonald’s app during the call and noted that there were multiple deals available in his area, including one Big Mac for 29 cents when you buy another. And Kempczinski said 90% of U.S. restaurants are offering meal bundles for $4 or less.

But Kempczinski said McDonald’s needs a nationwide value message and marketing to back it up. In some areas, it’s losing out to competitors on customers’ perception of value and affordability, he said. Wendy’s is currently offering free fries with the purchase of a medium burger, for example.

“There’s a lot of great value out there, but everyone else has a value message too,” Kempczinski said.

Things aren’t looking much brighter overseas. In McDonald’s international franchised markets, same-store sales fell 0.2% in the first quarter as customers in the Middle East and Muslim-majority markets like Indonesia and Malaysia boycotted McDonald’s for its perceived support of Israel. It was the first time since 2020 that quarterly same-store sales have fallen in that segment.

The boycotts began in October, after the McDonald’s franchisee in Israel announced it was providing free meals for Israeli troops involved in the war in Gaza. McDonald’s has tried to limit the fallout. In early April, the company said it was buying the franchisee, Alyonal Limited, and taking over the 225 McDonald’s restaurants in Israel. Financial terms of the deal weren’t released.

Kempczinski said the impact of the boycotts doesn’t seem to be worsening, and some of those markets are still seeing delivery demand. But McDonald’s expects the boycotts to continue for the foreseeable future.

“We’re not expecting to see any meaningful improvement in the impact on that until the war is over,” he said.

McDonald’s said its revenue rose 5% to $6.17 billion in the January-March period. That was in line with Wall Street’s estimates.

Net income was up 7% to $1.93 billion. Earnings, adjusted for restructuring charges, were $2.70 per share. That was short of analysts’ forecast of $2.72.

McDonald’s shares were flat in morning trading Tuesday.

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