Customers Pulling Back Dollars
One of the main takeaways from the conference call was that customers across different demographics are increasingly looking for value amid food price increases.
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“The consumer is certainly being very discriminating in how they spend their dollar,” said McDonald’s President and CEO Chris Kempczinski in the conference call. “It may be more pronounced with lower-income consumers, but its important to recognize that all income cohorts are seeking value.”
Customer Spending Patterns
McDonald’s has noticed that customer spending habits are greatly influenced by inflation concerns that have seen all their normal needs get more expensive over the past few years.
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Kempczinski said “The inflation that has occurred over the last couple of years in the U.S., I think, has certainly created that environment.”
Flat Traffic
According to the company conference call, traffic in Q1 for McDonald’s was disappointing in almost all major markets.
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“It is worth noting the in Q1 industry traffic was flat to declining in the U.S., Australia, Canada, Germany, Japan, and the UK. And across almost all major markets industry traffic is slowing,” Kemczinski said.
Disappointing Earnings
While McDonald’s reported that sales in its open stores rose by 1.9% across the company between January and March, this number was lower than what Wallstreet investors were expecting.
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A poll of analysts by FactSet found had forecasted a 2.1% increase, which is still lower than what McDonald’s investors are used to.
Post-Pandemic Growth
Previously, McDonald’s had warned investors that the fast-growth restaurants saw after the pandemic restrictions lifted would start to slow.
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Despite the warning, these Q1 numbers disappointed investors because McDonald’s typically posts same-store sales growth of between 3% and 4% every year.
Everyday Value
Kempczinkski emphasized the importance of providing value to customers to win out on the perception value game over their competitors.
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“In the context of a difficult macro environment for the industry, we know our customers are looking for reliable everyday value now more than ever,” said Kempczinski. “There’s a lot of great value out there, but everyone else has a value message too.”
Bringing Traffic Back
CEO Kempczinski asserted that the way to get traffic coming back to stores is to stay on top of the market’s ability to quickly find opportunity and value.
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“I was impressed by the market’s ability to quickly identify an opportunity in their everyday value offerings to implement a new entry-level value platform, which is driving traffic back into our restaurants,” Kempczinski said.
Impact of Boycotts
In addition to declining traffic, recent boycotts against the company were brought up as a source of stress for McDonald’s in some markets.
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“I think if you look at the impact of some of the boycott in a few of our markets, I wouldn’t say things are getting any worse there…So maybe marginally better in some markets but as I referenced on an earlier call, we’re not expecting to see any meaningful improvement in the impacts on that until the war is over, and we continue to have that outlook on what the Middle East conflict is going to do to our trends,” said Kempczinski.
Info on CosMc’s
McDonald’s is currently testing a beverage restaurant brand in Illinois and Texas called CosMc’s. When asked about the brand in the call, Kempszinski didn’t have much to report on performance results.
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“As I’ve referenced previously, we have — we plan on opening 10 restaurants, and it will be a function of unit volumes. It will be a function of margins, and it will be a function of what’s the capital that we need to spend to get these things built. All of that will drive our overall assessment of what the ROIC potential is,” Kempczinski said.
Digital Offers
Kempczinski highlighted the value the company is currently providing to customers through both meal bundles and digital offers.
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He mentioned that while getting on the call he opened the app and saw a Big Mac offering for $0.29 and asserted that 90% of the U.S. offers for meal bundles cost $4 or less.
50 Different Ways
McDonald’s is taking customer attitudes around value to heart to create menu pricing that is unique to different local areas.
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“And one of the things that’s going on in the U.S. right now is the value message that I was talking about, we’re doing it in 50 different ways with local value,” said Kemczinski.