McDonald’s hit by first global sales drop since 2020

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McDonald’s has suffered its first global drop in sales since 2020, as consumers around the world balk at the higher cost of burgers, fries and soft drinks.

Comparable sales at the fast-food chain fell 1 per cent year on year in the three months to the end of June, sliding in both international locations and McDonald’s US base.

The company’s chief executive Chris Kempczinski said consumers were “more discriminating with their spend” as it published earnings on Monday. While quarterly revenue of $6.49bn was roughly unchanged from a year ago, net profit declined 12 per cent to $2.02bn, missing Wall Street expectations. 

Kempczinski told analysts that consumer sentiment in most major McDonald’s markets was low. “You’re seeing that the consumer is eating at home more often, you’re seeing more deal seeking,” he said.

The US group is the latest to report a dip in demand, fuelling concerns that after years of helping to prop up the world’s largest economy since the pandemic, consumer strength has peaked.

The price of a restaurant meal has escalated in recent years, with a US index of food consumed away from home up by 30 per cent from mid-2019. At the same time households that were flush with cash in the months after pandemic lockdowns have started to pull back.

McDonald’s, which sometimes attracts diners trading down to its relatively affordable food, has also increased prices. Joe Erlinger, president of McDonald’s USA, said in an open letter in May that the average cost of a Big Mac Meal had risen 27 per cent since 2019, to $9.29 in the US, though he said the cost of many menu items had been outpaced by inflation. 

“At the end of the day, we expect customers will continue to feel the pinch of the economy and a higher cost of living for at least the next several quarters in this very competitive landscape,” Erlinger told analysts on Monday.

The company and its competitors are now offering discounts to lure back customers. A $5 deal for a sandwich, chicken nuggets, fries and a drink that McDonald’s launched in the US late last month boosted footfall, according to Placer.ai, which tracks location data from mobile devices. 

McDonald’s has more than 40,000 restaurants in over 100 countries. About 41 per cent of its $25.5bn in revenue last year came from the US. 

However, fewer customers triggered a 0.7 per cent fall in comparable US sales in the second quarter.

International sales declined by more than 1 per cent. The company recently warned that the war in Gaza had hurt its business in some Middle Eastern countries, as well as Indonesia and Malaysia. Sales were also lower in France and China, where Kempczinksi said McDonald’s was facing aggressive competition.

The global decline in comparable sales, which covers company-owned and franchised stores open for at least 13 months, marks the first fall since the last quarter of 2020.

Shares in McDonald’s closed up 3.7 per cent on Monday as the market reacted to the sales decline, which was “slightly better than feared,” said Citigroup.

Investors had driven McDonald’s shares down 15 per cent in the year to Friday. Morgan Stanley, in a preview of earnings, said the group’s “reputation for value has appeared diminished” among consumers, saying it needed offers such as $5 meals “to cater to a key customer cohort that has pulled back”.