- McDonald's said it's gaining middle- and higher-income customers, who are trading down to its menu.
- But the chain said it's also losing visits from lower-income diners pressured by high inflation.
McDonald's said Monday that customers continue to count on the chain for affordable meals, even as it raises menu prices. But lately, the demographic of those customers is shifting.
The chain, which saw US traffic dip in the third quarter, said it is losing sales from "more discriminating" consumers who feel pressure from inflation and rising interest rates. For McDonald's, that has led to a downturn in visits from lower-income consumers earning about $45,000 a year or less, CEO Chris J. Kempczinski told investors during the chain's third-quarter earnings call on Monday.
"So I think we're just going to need to continue to keep a close eye on that $45,000-and-under consumer because of the pressure that they're feeling there and make sure that we're offering value," Kempczinski said.
Though traffic was down, McDonald's posted strong results in the US. Same-store sales, a metric that shows a chain's financial health, were up by 8.1%.
The chain's sales gains were driven by an uptick in traffic among "middle- and higher-income consumers" who are trading down to McDonald's from more expensive restaurants, McDonald's Chief Financial Officer Ian Borden said. The company expects to raise menu prices by about 10% for the full year, he said. That's on top of a roughly 10% increase the previous year.
In the US, a Big Mac cost $5.58 in June, up nearly 16% from $4.82 in June 2020, according to the Big Mac Index, which has been tracking the cost of the burger for decades. In Orange, California, the cost of a Big Mac meal is $10.39.
"Providing affordable options for our customers has always been core to McDonald's' success," Borden said. "We continued to gain share with both the middle and higher income consumers."
McDonald's has built a billion-dollar brand with a reputation for selling cheap burgers globally. But the definition of "cheap" is changing in the face of persistent inflation — and McDonald's is far from the only restaurant chain raising prices.
"Just about everything has gotten more expensive over the last couple of years," veteran restaurant analyst Mark Kalinowski told Insider in an email. "McDonald's costs more than it did 1-2 years ago, no doubt, but it is still one of the most affordable options for tens of millions of Americans outside of cooking at home (or foraging for mushrooms). Most large restaurant concepts wish they could be as affordable as McDonald's is."
During Monday's earnings call, an analyst asked if McDonald's planned to start offering more deep promotions like its rivals. Wendy's, for example, introduced a two-for-$3 breakfast value meal in late August.
Kempczinski said the chain is monitoring "promotional activity by some of our competitors."
"We're going to do what we need to do to maintain our value leadership," Kempczinski said. "We've also got lots of things that go into value. It goes beyond just price. It incorporates delivering a better customer experience. We're seeing great execution, which means consumers are getting hotter, faster, better-tasting food, so all of those things go into value perception, which is why we're seeing our value perception hold up in the industry."
The fast-food industry is also broadly seeing a slowdown in traffic. According to restaurant analytics firm Guest XM by Black Box Intelligence, traffic in September decreased by 3.3%. It was the third consecutive month of slowing traffic in the industry and the lowest level of traffic growth since November 2022.