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McDonald's says it's listening to penny-pinching customers and focusing on value

Grace Dean   

McDonald's says it's listening to penny-pinching customers and focusing on value
  • Consumers are "price weary," and McDonald's is paying attention.
  • McDonald's will be "thoughtful" about any further price increases in 2024, CFO Ian Borden said.

McDonald's says it's doubling down on value as customers increasingly feel the strain.

"The consumer is price weary," McDonald's CFO Ian Borden told analysts at the company's earnings call on Tuesday. "And I think we certainly are going to be prudent and thoughtful about any further price increases that we're looking at for the rest of 2024."

"Consumers continue to be even more discriminating with every dollar that they spend as they faced elevated prices in their day-to-day spending which is putting pressure on the QSR [quick service restaurant] industry," CEO Chris Kempczinski said.

He said that diners from all income cohorts are looking for value, though he noted that it "may be more pronounced with the lower income consumer."

"I think all consumers are looking for good value, for good affordability," Kempczinski said.

Prices spiked during the pandemic when restaurants' costs went up because of labor shortages and supply-chain woes. While grocery inflation has moderated, fast food prices are still rising at higher rates than pre-pandemic.

Some diners say fast food no longer represents value for money and are cutting down in favor of cooking at home or dining at sit-down restaurants.

Other restaurant chains, including Starbucks and Burger King parent company, Restaurant Brands International, have said this week that customers are being cautious with their spending.

"Clearly, everybody is fighting for fewer consumers or consumers that are certainly visiting less frequently," CFO Borden said, reiterating comments he'd made in March that higher prices were deterring some diners from eating out.

But during Tuesday's call, McDonald's execs highlighted the chain's work around affordability. "We literally wrote the playbook on value," Kempczinski said.

Regarding McDonald's prices, Kempczinski said: "I feel like we are in a decent shape from an overall menu standpoint."

Kempczinski said that 90% of McDonald's US franchisees were offering meal bundles that cost $4 or less. Internationally, it's also been offering value bundles at "various price points" to provide "smaller, more affordable meals," he said. In Germany, for example, its McSmart menu sold record units in the first quarter, he said.

Kempczinski also highlighted that diners could get discounts by ordering on its app.

But McDonald's needs to do more work to promote its value offerings nationally and drive customer awareness, Kempczinski said.

"We're doing it in 50 different ways with local value," he said. "And what we don't have in the US right now is a national value platform at the same time that our competitors are out there with the national value platform."

McDonald's posted a 2.5% increase in comparable US sales for the quarter to March 31, down massively from 12.6% in the same quarter the previous year. Total revenue for the quarter rose 5% year-over-year to $6.17 billion.

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