Having trouble figuring out this economy? So is McDonald’s.
The fast-food giant reported its slowest U.S. sales growth in over a year as its value push fell flat with customers who continue to struggle with higher prices.
Overall U.S. customer count declined. Company executives said it provided too many value offers, including a $3-and-under menu and $5 bundled meal deals, that ended up muddling the chain’s message to people who are as hungry for bargains as they are for convenient food.
“We simply didn’t execute at the level we needed to in the second quarter,” CEO Chris Kempczinski said in a statement Tuesday. The company must “raise the bar in the U.S. and accelerate performance in our largest market.”
Despite widespread reports of resilient U.S. consumer spending, the economic landscape remains highly uneven, with low-income households still facing acute affordability issues. Fast-food spending in particular has taken a hit as establishments known for offering value have been forced to compete with rising food and labor costs. And despite a relatively low unemployment rate, wages have barely kept up with inflation.
McDonald’s also shook up the top ranks of its U.S. segment. Skye Anderson, a longtime McDonald’s employee, will take over as president of the division immediately, though the company called it a planned transition. Predecessor Joe Erlinger, who held the job for over six years and often served as the face of McDonald’s in TV news segments, will be an adviser through early next year, the company said.
Analysts were unsparing in their assessment of McDonald’s newfound troubles.
“This is a bit of a damning earnings call,” Jonathan Maze, editor-in-chief of Restaurant Business, said on X. He said the company had fallen into a “very jumbled” strategy in the U.S., with multiple value offers and changes to its loyalty program alongside numerous promotions.
“All that angered customers and led to slowing traffic,” Maze said.
Combine that with persistent inflation, and it’s a big problem.
McDonald’s CFO Ian Borden called it “a challenging consumer environment,” noting that overall fast-food industry traffic in several of its largest markets continued to be “flat to negative.” Indeed, federal data shows that U.S. household spending on fast-food establishments has declined in seven of the last nine months.
Industry analysts say value is now paramount — and sit-down chains are outperforming, with the likes of The Cheesecake Factory, Chili’s and Outback Steakhouse all seeing significant growth. These chains are capturing market share from longtime value stalwarts, while traditional fast-food diners are increasingly declining to eat out at all.
“Consumers want to go out and spend their hard-earned money, and we think we’re taking some wallet share from fast food and fast casual,” Rick Cardenas, CEO of Darden Restaurants, which owns LongHorn Steakhouse and Olive Garden, said on an earnings call in June.
Olive Garden’s latest offering: the return of its “Never-Ending Pasta Pass.”