McDonald’s $5 Meal Deal Is Bringing Customers Back But Global Consumers Are Still Reeling
McDonald’s, the global fast-food giant, reported its second quarter 2024 results this morning — kicking off a string of incoming fast-food restaurant earnings. The company faced broad-based pressures, leading to negative comparable sales across all segments — while same-store sales fell for the first time since 2020. Despite the report, rose nearly 4% yesterday as its $5 meal deal showed signs of attracting customers back.
Earnings Report Recap:
- Total revenue declined slightly to $6.490B — compared to $6.498B the year before and was slightly below expectations of $6.49B.
- Net income fell 12% to $2.022B — compared to $2.3B the year before, while diluted Earnings Per Share of $2.80 decreased 11%.
- Global comparable sales decreased 1.0%, with negative comparables across the US (-0.7%), International Operated Markets (-1.1%), and International Developmental Licensed Markets (-1.1%).
- Restaurant margins held up well despite pressured top-line growth, generating over $3.5B for the quarter.
McDonald’s Sees a Challenging Global Consumer Environment
McDonald’s CEO Chris Kempczinski acknowledged the difficult market conditions, stating, “Broad-based pressures are impacting the industry and consumers across most major markets. Quick service sector sales have meaningfully slowed and traffic has declined in the US, Australia, Canada, and Germany.”
Lower-income consumers have been especially impacted, dropping out of the market. According to Kempczinski, the loss of this cohort is outweighing trade-down benefits from higher-income customers.
Other challenges include the war in the Middle East impacting several markets, weak consumer sentiment in China leading to deal-seeking behavior, and ongoing competitive discounting in markets like France. And the situation doesn’t look to be improving any time soon.
- The company doesn’t expect significant changes in the pressured consumer environment over the next few quarters.
- Negative comparable sales trends continued in July, with Q3 starting similarly to how Q2 ended across all segments.
$5 Meal Deals and Chicken Products Drive Sales
In the US, McDonald’s introduced a $5 meal deal promotion that is performing well with lower-income consumers and shifting value perceptions. Ninety-three percent of US restaurants extended the deal into August. Joe Erlinger, President of McDonald’s USA, noted that the early performance indicates the meal deal “is meeting the objective of driving guests back to our restaurants” (BBG).
- Chicken sales are on par with beef sales — and remain a significant growth opportunity. The McCrispy Chicken sandwich is now in over 55 markets globally.
- Digital initiatives continue to gain traction. Loyalty membership reached 166M, which is ahead in reaching its 250M target.
Inflation Is improving But Labor Costs Remain Problematic
CFO Ian Borden noted that commodity costs are easing, with food and paper inflation in the low single digits, although US labor costs remain elevated. Company-operated margins are expected to be down slightly in 2024 vs. 2023.
The company is still seeing good returns from its new restaurant openings in China. McDonald’s plans to continue its pace of about 1K new restaurants per year in 2024. The company expects to make continued progress toward its ambition of 50K restaurants globally by the end of 2027.
