McDonald's Latest Earnings Report Shows Higher Menu Prices Are Spooking Customers
McDonald's has long been the biggest name in fast food. The engine behind the entire rise of the fast-food ecosystem, McDonald's pioneered quick food for customers on the go with an assembly line system that turned food into mass production by limiting menu items and streamlining the process to be as efficient as possible. This helped keep costs down, which was the true benefit. For a long time, McDonald's and chains like it have been the cheapest and most convenient option for millions of consumers around the globe.
Only ... it's not quite so cheap anymore. The COVID-19 pandemic caused prices to rise across the board in restaurants (and with specific groceries, such as eggs). But seemingly nowhere has seen increases like fast-food chains, as anyone who's spent $40 at Taco Bell in the last few years can attest to. And McDonald's is certainly not immune to this. The company saw its restaurants boost sales by an average of 10% in 2022 alone, and it's causing some headaches.
The price hikes at the Golden Arches have had mixed results
It's not shocking that McDonald's might see price increases as the only way out of the deep hole the COVID-19 pandemic has dug for the entire industry. (McDonald's announced significant corporate layoffs on April 3, after all.) And in some ways, the price increases have been a success. McDonald's saw 12.6% sales growth in the first quarter of 2023, according to an April 25 press release. And until recently, the chain was insistent that customers weren't having any issue with inflation-related price increases.
There are longer-term warning signs, though, that have the McDonald's corporate offices at least a bit concerned. Even though the number of in-person transactions isn't yet an issue, the company has started to see customers order fewer items per transaction as consumers become more pocketbook-conscious, notes Restaurant Dive. An even greater concern is the company's delivery business. Home delivery through services such as UberEats has traditionally been a big money maker for McDonald's, but delivery growth has significantly slowed.
It's true that neither of those is of yet a catastrophic issue. Still, they could portend much bigger problems for McDonald's down the road if consumers decide the company's increased prices aren't worth it.
This isn't the first time McDonald's has made a (potential) misstep
This isn't the first time McDonald's has gone out on a limb and made a mistake (or at least a potential one, as we don't know the long-term ramifications of the current price hike). McDonald's Mighty Wings were a notorious flop, as was the company's decision to sell Chipotle instead of keeping it. More germane here is the company's tendency to occasionally make huge mistakes related to pricing. The Arch Deluxe was a huge financial disaster in the '90s, and its failure is directly traceable to its increased price point relative to the Big Mac or Double Quarter Pounder. There was also the company's decision to (at least briefly) kill the long-beloved dollar menu in 2015 before bringing it back as the $1/$2/$3 dollar menu in 2018, a decision so catastrophic it caused shares to drop by 4.8% in a single day.
Granted, McDonald's has also had huge successes that, at the time, seemed somewhat financially risky. There was no guarantee that when McDonald's brought the McFlurry nationwide from its Canadian roots, the company would be able to recoup the upfront cost of the item's specialized machines. Even if those McFlurry machines always seem to be broken, it's hard to imagine McDonald's without the McFlurry.
Will the current price change prove to be a boon or a disaster? Only time will tell.