McDonald's Experiences Lower Traffic from Lower-Income Customers Amid Price Hikes, But Still Sees 14% Revenue Rise in Third Quarter
Inflation strains low-income patrons: McDonald's implements value-centric promotions and plans to pump brakes on price hikes after a third-third quarter revenue boost.
- Despite a decline in lower-income customer traffic, McDonald's reported a 14% rise in third-quarter revenue to reach $6.69 billion. These results surpassed Wall Street estimates largely due to strategic menu price increases and high-income customers trading down to McDonald's from more expensive dining options.
- McDonald's is losing business from customers earning $45,000 a year or less due to heightened inflation and rising interest rates. In response, the company plans to pump brakes on further price hikes and offer value-centric promotions to retain their patronage.
- The fast-food chain experienced an uptick in traffic from middle- and higher-income consumers, leading to strong US results with an 8.1% surge in same-store sales. This demonstrates McDonald's financial health amid inflationary pressures.
- However, as a result of inflation, the cost of a Big Mac meal rose by about 16% from June 2020 to June 2023. In response, McDonald's CFO Ian Borden announced the company's plans to raise menu prices by about 10% for the full year, which is on top of a 10% increase from the previous year.
- McDonald's is implementing strategic initiatives to leverage customer perceptions of value, beyond just price, including delivering better customer experiences and executing operations for hotter, faster, better-tasting food. The company has launched various promotions, such as 'Free Fries Friday' and the McSmart menu in Germany, targeting value-conscious consumers.