McDonald’s Profits: Customers ignore high menu prices as revenue rises

New York
CNN Business

McDonald’s raises menu prices and customers eat them.

The company said Tuesday that sales at US McDonald’s restaurants that open at least 13 months ago jumped 3.7% in the second quarter.

This growth was driven by higher menu prices and “value offerings” on its regular menu as well as through the app, according to McDonald’s.

Restaurant chains have been raising their menu prices with inflation, due to their own rising costs and seeing customers don’t hold back from paying more. But consumers can eventually back off, so McDonald’s is taking small steps.

“We are taking smaller and more frequent price increases because it gives us the flexibility to be able to see consumers’ reaction and then adjust if or when necessary,” Chief Financial Officer Kevin Ozan said during an analyst call on Tuesday.

CEO Chris Kempczynski noted that “although we pay with pricing, the consumer tolerates it very well.” This is partly because McDonald’s has so many low-cost value options. “We are still doing very well in terms of the degree of value,” he said.

Ozan noted that some McDonald’s customers, especially those on lower incomes, are avoiding combo meals and opting for value items instead. This could be a cheaper menu item or a limited time deal.

McDonald’s also offers some free gifts to customers, provided they are part of the brand’s loyalty program and order through the McDonald’s app. Earlier this month, for example, the chain offered free French fries to these customers in honor of “French French Fries Day.” Late last year, the brand partnered with Mariah Carey to offer free gifts to app users.

McDonald’s has had success with its celebrity meal platform, which allows customers to order favorite items from the musicians and other stars they love.

Customers may also feel that they get better value at a fast food restaurant because they spend much more at the supermarket. Grocery prices jumped 12.2% in the year to June, unadjusted for seasonal fluctuations, according to data released by the Bureau of Labor Statistics earlier this month. In that period, list prices have grown by a relatively modest 7.7%.

“Food at home has raised prices faster than McDonald’s and others in our industry have done,” Kempczynski said Tuesday. I don’t know what effect that is. But certainly, we expect there will be some benefits.”

However, consumers may eventually hold back on spending, especially as more people feel the United States is in a recession.

During the call, Kempzinski pointed to weak consumer confidence in Europe. “That’s one area of ​​concern,” he said.

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