When McDonald’s CEO Chris Kempczinski said the company was “navigating transaction reductions” with lower-income consumers in February, it sent a bit of a ripple across the broader industry that has maintained elevated menu prices to manage persistent inflation.
After all, what happens if McDonald’s of all concepts loses its value halo? First, it’s important to understand why. As CFO Ian Borden noted during the UBS Global Consumer and Retail Conference Wednesday morning, “Consumers are working through all of the inflation that’s hitting their pocketbooks.”
“Higher interest rates are having an impact. In particular for lower income consumers, you’ve got a couple of additional dynamics from eroded Covid savings people were drawing on and spending from,” he said.
He added that restaurant inflation continues to outpace the grocery/supermarket index, which is also likely driving some consumers to eat at home more. Because of this confluence of factors, Borden said “it’s likely we're going to see negative traffic this year from a broad standpoint, from an industry standpoint because of those dynamics on a comparable basis."
“Consumers, particularly that lower income consumer, are expecting more affordable options. They’re expecting greater value for money than they’ve seen previously,” Borden said.
That said, McDonald’s has a playbook to win back some value-seeking consumers this year, including bundling at a $4-and-below price point and promoting those bundling options more.
“90% of our restaurants in the U.S. are offering bundles at breakfast or during the rest of the day at under a $4 price point,” he said. “So, we’ve got really compelling affordability, but we haven’t been talking about it as actively yet. We’re going to in 2024. We want to make sure the consumer knows what’s available when they’re making choices.”
Borden adds that the company will also continue to leverage its growing loyalty program, which counts about 34 million active members in the U.S. That means putting compelling offers in front of those members specifically.
“We’re going to work really hard to make sure we continue earn visits – even for those consumers who are making more discerning choices … so they’re going to want to come back,” Borden said. “Consumers are going to be much more focused on affordability and that's where we’re making sure you've got great visibility. You've got compelling offers at the right price points that are going to attract consumers in as they're being more thoughtful of those choices. And that's certainly what we're going to focus on and emphasize as we work through 2024.”
Contact Alicia Kelso at [email protected]