Dive Brief:
- McDonald’s is attracting more low-income diners despite higher menu prices, which, along with positive guest counts, drove U.S. same-store sales growth of 6.1% during Q3, McDonald’s CEO Chris Kempczinski said on an investor call Thursday. The chain reported an average U.S. price hike of about 10% year-over-year in Q3.
- The chain hasn’t experienced “significant trade down” between its menu items despite inflationary pressure on diners. But McDonald’s is benefiting from consumers shifting from higher-priced restaurant segments to QSR as spending tightens, Kempczinski said.
- Kempczinski believes low-income diner spending, aided by relatively affordable digital and delivery offerings, will help the chain perform well during an expected “mild to moderate recession in the U.S.” in 2023.
Dive Insight:
McDonald’s focus on value has helped consumers tolerate price hikes, Kempczinski said, especially via digital and delivery channels.
The chain expects consumer interest in off-premise and a pandemic-induced dip in dine-in traffic to hold steady, allowing McDonald’s to flex an attractive point of differentiation as it offers digital and delivery channels “at a lower cost than competitors,” Kempczinski said. During Q3, digital systemwide sales in McDonald’s top six markets reached almost $7 billion, accounting for more than one-third of total systemwide sales in those segments.
This emphasis on value-driven digital offerings may be necessary to weather an economic downturn, since McDonald’s no longer offers its Dollar Menu, which aided it during the Great Recession in 2008 and 2009, Kempczinski said.
“Certainly there are lessons from 2008 and 2009 but there are also differences,” he said. “We're going to continue to have inflation into 2023, [in] both food and paper, as well as labor. But we like our position relative to competitors in terms of where we stand.”
Analysts echoed this confidence.
“McDonald’s is among the best-positioned fast-food chains and is set to benefit from customers trading down,” Landon Luxembourg, a senior analyst at Third Bridge, wrote to Restaurant Dive in an email. “During economic downturns, consumers are less likely to experiment and instead go back towards brands that they know that [are] consistent, which can favor McDonald’s, given its consistent value proposition.”
McDonald’s is rolling out a new feature on its MyMcDonald’s Rewards loyalty program, which posted 25 million active members in Q3 and is a major driver of digital business, Kempczinski said. Diners can now earn loyalty points on delivery or pay for delivery transactions with the McDonald’s app, a feature that was already available to U.K. diners.
The chain also credits its Camp McDonald’s promotion, which launched July 5 with deals, menu hacks and a virtual camp experience exclusively to its mobile app, with deepening loyalty and increasing its mobile app user frequency.
