Lower-Income Consumers Eat at Home Amid McDonald’s Price Hikes
With McDonald's prices rising, some lower-income Americans are simply choosing to eat at home."It’s a challenging consumer environment," said Ian Borden, McDonald’s CFO. Americans are struggling with inflation, high prices, and savings, forcing people to cut back on smaller expenses that they now consider luxuries. Borden also talked about how there could be "negative traffic" from an industry standpoint. This is because currently in the US, buying groceries is cheaper than dining out. As per Business Insider, the cost of meals at limited-service restaurants went up 5.2% in the year to February as compared to just 1% for groceries, as per data by the Bureau of Labor Statistics.
Borden also talked about how low-income Americans had to dip into their savings during the pandemic which is also affecting them now. Mcdonald's is offering consumers greater deals at the drive-thru, including bundles priced at $4 and below at 90% of its US locations. "We want to make sure the consumer knows what’s available and is thinking of us when they’re making their choices," Borden said. McDonald's is doing far worse in other zones as compared to the US. For instance, in the Middle East, the company saw growth of a mere 0.7% which is nothing compared to the 4% growth in the states. While things are not looking much better for consumers, prices are looking better than they have since the pandemic ended. Reports also say that food inflation is also rising at its slowest pace since 2021, as per CPI data.
Lower-income consumers expect value for money as they struggle with their finances, "I think consumers in 2024 are going to be much more focused on affordability," Borden said. "And that's certainly what we're going to focus on and emphasize."
McDonald's has decided to promote its value deals more heavily than before. In Germany, customers can get two burgers, fries, and a drink for 5.99 euros through the McSmart offer, which is performing incredibly well, as per Borden. He also said how the company plans to become way more "active" in nursing the app to give offers to its loyalty program members. "We feel confident about the positioning of our brand because value and affordability are core to who we are," Borden said. "We have tended to benefit in any difficult kind of headwind environment because you get the trade-down effect of people moving down the ladder — from let's call it fast-casual or more informal eating out — into the more value segment," he added.
Like other fast-food chains, McDonalds raised their prices during the pandemic and soaring wage and commodity inflation. McDonald's previously raised US prices by 10% in 2022 as well as in 2023. Borden said that the price hike massively contributed to McDonald's system-wide sales growth by 30%. Borden also talked about how they don't have a plan to increase prices. Even if the food chain decides to raise prices, it would be at a much slower pace, as the chain faced criticism over their Big Mac meals which are now priced at $18.