It has been a tough year for McDonald’s. After warning investors in April that is it seeing “flat to declining” traffic in its stores, McDonald’s has only seen a sharp decline in sales for the first time since 2020.
While many consumers are opting to stay home and eat rather than going out for a quick and easy meal, there are a few reasons for McDonald’s decline in sales.
McDonald’s Sales Are Down
According to its second-quarter earnings report for 2024, McDonald’s revealed that their sales across the US have decreased by 0.7% when compared to the same time period in 2023.
The company claims that “negative comparable guest counts” are driving the drop in sales, meaning customers are not stopping by for a quick meal.
Pinching Pennies
McDonald’s could feel the consumers’ purse strings tightening earlier this year. As inflation surged and fear of an upcoming recession crept into the minds of millions of Americans, they cut eating out from their budgets first.
“Beginning last year, we warned of a more discriminating consumer, particularly among lower-income households,” said McDonald’s CEO Chris Kempczinski during an earnings call discussing the report. “And as this year progressed, those pressures have deepened and broadened.
Sales Are Down Across the World
McDonald’s sales are down everywhere. According to Kempczinski, the company has seen a 1% decrease in sales across the world.
“The QSR sector has meaningfully slowed in the majority of our markets, and industry traffic has declined in major markets like the US, Australia, Canada, and Germany,” Kempczinski said in an earnings call.
Economic Woes
But economic woes are not the only thing keeping Americans from eating at McDonald’s. The fast-food giant has been largely criticized over its outrageous prices for meals.
One TikToker reported earlier this year that a Big Mac, fries, and a soft drink came to a total of nearly $18. While this isn’t the case for each store location across the country, the high prices can’t go unnoticed.
The Cost of Price Increases
Kempczinski said that the price increases for menu items across the company’s restaurants across the country are contributing to the massive loss in revenue for the company.
According to The Street, McDonald’s menu items have seen a 40% increase in price since 2019. It is no surprise that consumers are looking for other less expensive options for a quick meal over McDonald’s.
Inflation Disrupted Value Programs
“Over the last several years, our system has sustained significant inflationary cost increases ranging from 20% to 40% depending on the market,” said Kempczinski.
“As we absorb these cost increases in partnership with our franchisees, we look for ways to protect restaurant profitability via productivity efforts and selective price increases. These price increases disrupted long-running value programs and led consumers to reconsider their buying habits.”
Trying Out a Meal Deal
One response to the revenue loss was to introduce a limited-time $5 Meal Deal, which offered customers a McChicken or a McDouble, four-piece chicken nuggets, fries, and a drink for $5, to lure back customers.
The deal was such a success for the company that they extended the deal until the end of August for nearly all of McDonald’s locations across the country.
The Deal Hasn’t Made a Splash in Sales
However, a BTIG analyst conducted a series of franchise checks in July to reveal that the Meal Deal had failed to boost foot traffic at McDonald’s locations. Kempczinski clarified that the deal had “performed and done exactly” what the company wanted to do during the earnings call.
He did claim that the deal has “improved brand perceptions around value and affordability” and connected with lower-income customers, but has not resulted in higher sales.
Shifting Strategies
“We wanted to see a shift in guest counts to drive both the short- and long-term health of the business, and ultimately, I believe, in guest count-led growth,” said Kempczinski.
He continued, adding, “And while it’s begun to do that, it hasn’t yet translated into sales.”
McDonald’s Didn’t Adapt to Price-Conscious Customers
Analyst Stephen Guilfoyle said that the failed translation into sales falls onto the company’s resistance to release a deal as soon as customers started to complain about the high prices.
“Performance is weaker than expected. Obviously, the concern that through inflation, McDonald’s core customers, typically the budget conscious, have to some degree been priced out,” Guilfoyle said (via TheStreet Pro).
Future Deals at McDonald’s
Bad news for McDonald’s could mean good news for consumers. Fiercer competition has made McDonald’s undesirable, which means the company could be looking at ways to woo back price-conscious customers.
From new menu items to exclusive deals for app users, the company is trying to find new ways to lure back customers without mandating prices for menu items outside of the $5 Meal Deal.
