McDonald’s (NYSE:MCD) has announced a shift in its pricing strategy, prioritizing value meals as a response to a decline in customer visits. Despite outperforming expectations with an 8.8% increase in global same-store sales during the third quarter, the company acknowledged that price hikes had impacted customer traffic in the U.S., particularly among individuals with annual incomes of $45,000 or less.
To address this, McDonald’s Chief Financial Officer, Ian Borden, mentioned that the company increased U.S. prices during the third quarter but at a reduced rate. The expectation is for U.S. prices to rise slightly over 10% for the full year, with an anticipation of inflation tapering off. Simultaneously, the company is focusing on offering deals to entice customers. For example, they recently launched “Free Fries Friday,” where U.S. customers can enjoy free medium fries every Friday until the year’s end with a minimum $1 purchase.
These value-oriented strategies have been successful in various regions, particularly in Europe, where economic pressures have been even more pronounced. McDonald’s introduced the “McSmart” menu in Germany, allowing customers to create their own affordable value meals, resulting in double-digit sales growth for the country over ten consecutive quarters.
In the UK, McDonald’s offered discounts throughout August, including substantial reductions on Big Macs and Chicken McNuggets. In China, they introduced small burger bundles. Beyond price, the company also recognizes the significance of factors like newer store concepts and faster service times in enhancing the perceived value for customers.
McDonald’s reported a 14% increase in revenue to $6.69 billion, exceeding Wall Street’s forecast of $6.56 billion. Net income, even after accounting for a $26 million restructuring charge, rose by 17% to $2.3 billion. Earnings per share for the quarter were $3.17, surpassing Wall Street’s projection of $3.00.
McDonald’s CEO, Chris Kempczinski, expressed concern over a new rule from the National Labor Relations Board that could classify fast-food giants like McDonald’s as “joint employers” of workers at franchised restaurants, potentially impacting work rules, wages, and benefits. While 95% of McDonald’s U.S. restaurants are operated by franchisees, this rule may facilitate unionization efforts, as workers could negotiate with McDonald’s rather than individual franchisees. Kempczinski anticipates legal and legislative challenges to the new rule, asserting that it may negatively affect small business owners.
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