As prices soar, consumers turn to McDonald’s

New York
CNN Business

Inflation is inexorably high and food prices in particular soar. In this environment, customers turn to McDonald’s — even as the burger chain raises its own prices.

In the third quarter, McDonald’s prices in the United States rose about 10% on average year-over-year. Even so, the brand is gaining traction with its less affluent customers, chief financial officer Ian Borden noted in a call with analysts Thursday.

“We’re gaining market share right now among low-income consumers,” he said.

as food companies raise prices, they find other ways to make consumers feel like they’re getting a good deal. Packaged food and beverage manufacturers such as PepsiCo

and Coca-Cola

offer more servings, hoping shoppers will shell out for small packages because of lower price tags. Restaurants focus on value, hoping customers feel they get more for their money even if prices go up.

McDonald’s “positions itself as the leading brand in terms of value and affordability,” Borden said. He noted that some cash-strapped customers are switching from buying meals to buying valuable items.

Some could also be to bargain at McDonald’s from more expensive chains or restaurants, because menu prices are increasing at a slower rate than prices at grocery stores. For the year through September, unadjusted for seasonal fluctuations, food prices rose 13%, according to the Bureau of Labor Statistics. Over the same period, restaurant prices jumped 8.5%.

“We are very pleased with McDonald’s value proposition,” CEO Chris Kempczinski said on the call. “That allowed us to pass on some of those prices.”

In the third quarter, McDonald’s sales

U.S. stores open for at least 13 months jumped 6.1%, thanks in part to higher prices. Shares rose about 3% on Thursday after the chain’s third-quarter results were released.

Kempczinski said McDonald’s is assessing a number of different potential economic situations, but expects “a mild to moderate recession in the United States” as a base case. “McDonald’s has proven successful in just about any business environment,” he noted.

The brand has a history of resilience during times of economic hardship.

“Our business performed well during this last downturn,” Borden said, referring to the financial crisis of 2008 and 2009. “We anticipate that we are going to perform well in this environment, certainly relative to our competitors,” a- he declared. added.

But Borden acknowledged that there are differences between the current situation and 14 years ago.

During the financial crisis, McDonald’s offered a dollar menu and increased its McCafe line. Now, however, the chain faces higher costs for food, packaging and labor. Consumer behavior has also changed – today’s customers are much more interested in delivery.

And even McDonald’s is not immune to the macroeconomic situation. In the third quarter, consolidated sales fell by 5%. The company said the results were “negatively affected by foreign currency translation”, noting the strong american dollar to explain the decline. At constant exchange rates, McDonald’s said consolidated revenue was up 2%.

In addition to the higher prices, McDonald’s said advertising its main menu items helped boost sales.

Recently, the burger chain has used promotions such as celebrity meals and Adult Happy Meal to create buzz without adding new menu items that can complicate ordering.

The Happy Meals for Adults promotion “re-engaged our fans with our food staples, including Big Macs and Chicken McNuggets,” Kempczinski said.

The company has also created buzz around its McRib Sandwich, positioning his return for a limited time from October 31 as part of a “farewell tour”. But that doesn’t mean the product will disappear forever.

“The McRib is the GOAT of the sandwiches on our menu,” Kempczinski said Thursday. Like “Michael Jordan, Tom Brady and others, you never know if they’re fully retired or not.”

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