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McDonald's, once synonymous with affordable fast food, has seen its sales decline as many former customers find its offerings increasingly expensive. In an effort to counteract the impact of high prices, the company has introduced value-oriented initiatives such as temporary national $5 combo deals.
CEO Chris Kempczinski acknowledged that the fast-food giant's recent price hikes, driven by high inflation, have disrupted long-standing value programs. This disruption has led consumers to change their buying habits, seeking out more deals, purchasing fewer items per order, or opting for cheaper alternatives. Global comparable sales fell by 1% year-over-year in the quarter, with a 0.7% drop in the US.
Kempczinski cited external pressures, including a slowdown in the quick-service restaurant sector and the ongoing war in the Middle East, as contributing factors. However, he emphasized that internal issues, particularly the company's failure to maintain its value proposition, played a significant role.
In response to these challenges, McDonald's has launched initiatives like the $5 combo deal in the US, which has exceeded expectations and will be extended into August at most locations. Similar value deals have been successful in Germany and the UK.
Despite these efforts, McDonald's executives remain cautious about the future. Joe Erlinger, president of McDonald's US, warned that customers will likely continue to feel the economic pinch and the effects of a higher cost of living for several more quarters. CFO Ian Borden noted that consumer sentiment in most of McDonald's major markets remains low, with lower-income families and key customer cohorts dining out less frequently.
As McDonald's strives to reignite growth across its major markets, Kempczinski reaffirmed the company's commitment to regaining market share, acknowledging that the recovery process will take time. This determination comes as the broader fast-food industry, including chains like Starbucks, KFC, and Pizza Hut, also grapples with declining same-restaurant sales amidst economic challenges.
[Source: Business Insider]
