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Big Mac’s Big Problem: McDonald’s Acknowledges It Prices Are Too High

Big Mac’s Big Problem: McDonald’s Acknowledges It Prices Are Too High

Since the pandemic, the conversation around inflation has dominated headlines, with fast food prices rising not just due to economic pressures but also corporate greed. Companies like Taco Bell have significantly increased their prices, leaving many customers feeling the pinch. As a result, some have accused these corporate giants of exploiting the situation to boost profits at the expense of consumers.

McDonald’s serves as a prime example. The fast-food behemoth saw a 1% drop in sales at locations open for at least a year from April to June compared to last year—its first decline since the pandemic. Despite offering discounts to woo back budget-conscious customers and addressing boycotts over the Israel-Gaza conflict, the sales slump persisted.

McDonald’s CEO Chris Kempczinski acknowledged the dismal results and announced a “comprehensive rethink” of the company’s pricing strategy. He assured investors they would lean hard on discounts to reverse the sales decline. Recent promotions like the $5 Happy Meal in the U.S. and the U.K.’s “three items for £3” campaign are here to stay, and the company is brainstorming more “value” moves with its franchisees.

Following this news, McDonald’s shares got a 3% boost. Kempczinski reassured everyone that McDonald’s has the chops to make this work. “We know how to do this. We wrote the playbook on value and we are working with our franchisees to make the necessary adjustments,” he said.

But let’s not forget, McDonald’s has been under fire for jacking up prices during the pandemic. Last month, the head of U.S. operations responded to social media shade with an open letter, claiming the internet was exaggerating. He pointed out that the average Big Mac price in the U.S., now $5.29, had only climbed 21% since 2019—just keeping pace with inflation.

However, during the investor call, Kempczinski admitted they’ve got some serious work to do to reclaim their “value” crown. He conceded that price hikes, even if justified by inflation, had “led consumers to reconsider their buying habits.” And in some markets, a little tweak here and there isn’t going to cut it—they need a full-blown pricing revolution.

Sara Senatore, a Bank of America analyst, noted that McDonald’s has been faster on the draw with price hikes compared to its rivals. “Consumers are savvy, aware of that,” she said. “The $5 meal that they have launched may be starting to change perceptions, but we are not seeing a trend change yet in terms of transactions and that’s what they’re going to need to see.”

McDonald’s isn’t the only corporate giant feeling the pinch from tighter consumer spending. Major economies like China are also seeing wallets snap shut. McDonald’s overall revenue stayed flat year-on-year, while profits slid by 12%. Lower-income customers are especially feeling the squeeze, and the wealthy trading down aren’t picking up the slack.

A McDonald’s executive summed it up, saying, “Consumers are being more discerning about where, when, and what they eat, and I would say we don’t expect significant changes in that environment for the next few quarters.”

McDonald’s is the first major chain to announce they would decrease prices. Here’s hoping other chains (cough Taco Bell cough) follow suit.

© 2023 RELEVANT Media Group, Inc. All Rights Reserved.

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