McDonald’s recently released its Q2 financial results for this year. And the picture was none too bright. McDonald’s sales are down globally. And that’s being interpreted by observers as a sign that Fast Food customer loyalty has reached a breaking point…
CNN business writer has gone as far as saying, “Americans have turned their backs on McDonald’s.” In an illuminating analysis of the Q2 McResults, he notes that even McD’s – traditionally a sales and profit leader in the Fast Food sector – has apparently hit a wall…
Not working
The latest major strategy McDonald’s has implemented, to try to bolster customer loyalty, has been to ‘address concerns over high prices’ by offering better value at lower prices. The focus of this thrust is a ‘$5 Meal Deal‘, introduced back in June.
“We heard our fans loud and clear — they’re looking for even more great value from us, and this sum-mer that’s exactly what they’ll get,” McDonald’s President Joe Erlinger declared, in a news release.
Later, according to a leaked internal McMemo, the company said the deal was ‘resonating with our millions of customers’, and luring deserters back from the competition. The Deal was extended to the end of August.
Nevertheless…
Goldman sums up the pivot in consumer attitudes clearly and succinctly: “For the first couple [of] years of America’s inflation crisis, restaurants and food companies like McDonald’s and Coca-Cola said consumers were responding well to constant price increases and were willing to shell out more for their favorite meals, snacks and treats.”
Then came a swarm of negative media reports. Not the last of which was the viral story about an $18 Big Mac in Connecticut. That made the price issue top-of-mind with consumers.
“The tide began to turn last year,” Goldman observes. “McDonald’s then reported what has become a trend for the restaurant and its competitors: Customers saying no to higher prices”
Competition ultra-tight
As high Fast Food menu prices persist – for a whole list of reasons – other players are quickly jump-ing on the ‘Value’ bandwagon, offering their own ‘price conscious’ deals. But they’re all in the same pre-dicament. Sales are stagnant. And customers are standing pat in their rejection of high prices.
A survey late this past spring revealed that 78 percent – more than three quarters – of Americans now consider fast food a luxury. Translation: Folks are saying they can’t afford fast food on an every-day basis like they used to. No wonder sales are languishing.
What next?
“As consumers are more discriminating with their spend, we are focused on the outstanding exe-cution of delivering reliable, everyday value and accelerating strategic growth drivers like chicken and loyalty,” Kempczinski said in a statement.
“The hallmark of a great company is its ability to perform in good times and in bad, and we are resolved to reignite share growth in all our major markets regardless of the prevailing market conditions,” Kempczinski told investors. “This won’t happen overnight. But it’ll happen.”
My take
Kempczinzki must have said the right things. McDonald’s shares rallied – gaining 3 percent – this past Monday. But that increase is little consolation in the face of the 12 percent decline the stock has suffered since the first of this year.
I agree with Goldman, that consumers have reached their breaking point with fast food prices. How the industry will adapt to this serious challenge remains to be seen. Since the middle of the last decade, I’ve been predicting a major shakeout in the sector which would come to a head around the middle of this decade. And that’s looking more and more likely…
~ Maggie J.