McDonalds Sales Rebound

McDonald’s has reported a return to growth in the second quarter, buoyed by higher spending among middle- and upper-income consumers, despite a sharp fall in visits from poorer customers who are increasingly staying away from fast food to save money.

Same-store sales in the US rose by 2.5 per cent in the three months to June, a recovery from the previous quarter’s decline and ahead of analyst forecasts. Globally, comparable sales increased by 3.8 per cent, marking the company’s strongest quarter in nearly two years.

But behind the headline growth, executives acknowledged growing strain on lower-income households, who have begun skipping meals, downgrading menu choices or opting to eat at home. Footfall from that segment fell by double digits, according to chief executive Chris Kempczinski.

“They are skipping a day part like breakfast, or they are trading down either within our menu or they are trading down to eating at home,” Kempczinski said on the company’s earnings call.

Breakfast traffic in particular has been weak. Data from consultancy Revenue Management Solutions shows an 8.7 per cent fall in US fast-food breakfast visits during the quarter. McDonald’s has flagged this trend since May, but the problem has since worsened.

Fast-food chains have long relied on budget-conscious diners, and McDonald’s has been particularly exposed. While it retains broad appeal across income groups, much of its business still comes from Americans earning less than the national average. This cohort is now under pressure from weaker wage growth and stubborn inflation.

Wages for the lowest-paid workers, those earning under 806 dollars a week, rose by just 3.7 per cent in the year to June, according to data from the Federal Reserve Bank of Atlanta. That compares with peak growth of 7.5 per cent in late 2022. When adjusted for inflation, real incomes have flatlined or fallen, particularly among the poorest quartile.

Despite falling footfall, McDonald’s managed to grow revenue by increasing the average transaction value. This came in part through modest price rises, but also from upselling and promotional offers that encouraged larger orders.

Total revenue rose 5 per cent to 6.8 billion dollars, slightly ahead of Wall Street forecasts. Net income increased by 11 per cent to 2.25 billion dollars, also above expectations. Shares rose 3 per cent in early trading following the announcement.

CFO Ian Borden said that visits from middle-income households were “marginally positive,” while higher-income customers continued to spend more, helping offset the shortfall from lower-income consumers.

The company has been quick to reassert its value credentials. In the US, it has extended its five-dollar meal deal, offering a bundled burger, fries, drink and side for a fixed low price. Snack wraps priced at 2.99 dollars were reintroduced in July after a nine-year absence and triggered queues at some locations.

In major international markets such as Canada, France and the UK, McDonald’s has introduced sandwiches, drinks and snacks priced at under four dollars, euros or pounds, depending on the location. Kempczinski said the company remained committed to offering “everyday affordability” across its core markets.

Alongside value offers, McDonald’s has deployed a series of product launches and promotions aimed at pulling customers back. In April, it launched a tie-in with a Minecraft film, selling meals themed around the game. Chicken strips were reintroduced to the US menu in May, and the UK and French markets saw the launch of the oversized ‘Big Arch’ burger.

These efforts appear to have helped drive spend among remaining customers, but there are concerns about how sustainable the strategy is if overall visit numbers continue to decline.

“Value remains paramount, but we are also focused on giving people reasons to come back,” Kempczinski said. He added that the brand’s core strengths in convenience, price and familiarity continued to resonate, even as wallets tightened.

The divergence between income groups is becoming more apparent across the broader restaurant sector. Yum Brands, which owns KFC and Taco Bell, reported positive sales growth in its latest results. However, Chipotle Mexican Grill posted a 4 per cent drop in comparable sales and lowered its full-year forecast, citing similar pressures on consumer spending.

Analysts say McDonald’s remains better placed than most of its rivals, due to its scale, pricing flexibility and ability to adapt menus rapidly across markets. But even it is not immune to changing economic conditions.

While inflation has eased from last year’s highs, elevated interest rates are continuing to pinch household budgets. In lower-income brackets, pandemic-era savings have mostly been spent and debt burdens are rising.

A key risk for McDonald’s and others is that this part of the customer base continues to shrink or becomes structurally less willing to eat out, even at lower price points.

Kempczinski acknowledged the challenge, noting that the company would continue testing new formats and refining its value strategy. However, he warned that traffic would need to recover if the business was to maintain positive momentum.

“We cannot rely indefinitely on average cheque growth alone,” he said. “We need to see stability in visits too.”

Despite short-term headwinds in the US, the company pointed to resilience in international operations. In the UK and France, where cost pressures are also present, tailored pricing and regional menu adaptations have supported sales. In China, where consumer sentiment remains weak, McDonald’s has held market share, though growth was modest.

The performance marks a contrast with earlier this year, when the group reported a surprise dip in US sales for the first time in years. Investors will be watching closely to see whether the current quarter’s rebound can be sustained.

Analysts at Jefferies said the results were encouraging, but warned that margin pressure would likely build in the second half of the year if sales volumes remained flat. They added that the company’s renewed focus on affordability was prudent, but could limit pricing power if inflation flares up again.

For now, McDonald’s seems to be walking a narrow line between preserving profitability and protecting its reputation as a low-cost option.

The broader question is whether the fast-food model remains as resilient as once believed in a climate of sustained financial stress for lower-income consumers. If even McDonald’s is seeing double-digit declines in traffic from that group, other players further up the price ladder may be in for a tougher reckoning.

As one US industry executive put it this week, “People are still eating. They’re just not eating out.”