McDonald’s Reworks Pricing Strategy After Sales Dip and Profit Slump

• McDonald’s is reassessing its pricing strategy after a 1% drop in sales at established outlets and declining profits, with plans to focus on discounts to attract cost-conscious customers.
• Despite recent promotions and a rise in stock value, the company is struggling with customer backlash from price increases and external factors like boycotts and economic pressures.

McDonald’s has rethought its pricing strategies following an increase in sales due to consumers having a lower budget. The first time in the years since the outbreak began in the year 2000, sales at McDonald’s outlets operating for at least one year decreased by just 1% in the months of April through June as in comparison to last year.

This was in spite of the efforts of fast food giants to attract customers that are cost conscious by offering discounts. It has been faced with difficulties not just from the economic downturn, but also boycotts arising from the Israeli-Gaza war.

Chris Kempczinski, McDonald’s CEO, admitted that there was a need to have an “comprehensive review” of McDonald’s pricing strategy. The company is focusing on discounts to stop the decline in sales. The most recent promotions include the $5 Happy Meal offered in the US and a similar campaign in the UK that offers three meals for PS3. The promotions will keep going in the near future, and McDonald’s collaborates with franchisees for further “value” initiative.

After the news, McDonald’s shares rose by over 3%. Kempczinski declared his confidence and said, “We know how to do this. We wrote the playbook on value and we are working with our franchisees to make the necessary adjustments.”

McDonald’s has come under critique for soaring prices as a result of the pandemic. To counter this criticism McDonald’s director of McDonald’s US operations was recently speaking to questions from customers. He said that the cost of a Big Mac in the US is now $5.29, rising 21% from the beginning of 2019 and is in line with inflation rate.

However, Kempczinski admitted that McDonald’s has to improve its image as a value-for-money restaurant. Inflation-driven price increases caused by inflation “led customers to reconsider their shopping practices.” Although some markets have been able to adjust, some have required more significant modifications.

Bank of America analyst Sara Senatore pointed out that McDonald’s price rises on essential items have been more pronounced than the competition. The $5 price for a meal could increase perceptions of the brand, it must see an overall shift in the volume of transactions.

McDonald’s is one of the most recent big corporations to announce a slowdown in consumption, and the effects are also evident in markets such as China. The overall revenue, which includes the sales of new stores, were the same year over year, while profits decreased by 12 percent. People with lower incomes, specifically, were hit particularly hard as the business is not seeing compensatory purchases from customers who are wealthier.

In the US as well. McDonald’s has also faced difficulties in France and a price war within China. McDonald’s has been impacted by boycotts across France related to the Israel-Gaza conflict. Other US firms, like Starbucks, have also faced similar challenges.

A McDonald’s executive pointed out that “consumers are being more discerning about where, when and what they eat,” and indicated that major changes to this pattern will not be seen in the near future.