McDonald’s May Have to Tap Out on Raising Prices

No, I would not like any overpriced fries with that.

Low-income customers no longer comfortable with shelling out big bucks for burgers and chicken nuggets are tightening their belts, leading to subdued sales growth, McDondald’s said Tuesday as part of its Q1 earnings report.

Nothing Gold Can Stay

The burger giant has steadily hiked prices for the last decade, but the move really started to grab people’s attention over the past two years, when menu costs jumped 20%. 

But prices are relative to your zip code — a Big Mac might set you back $8.09 in Lee, Massachusetts, but only $6.49 in Hudson, New York, according to the McCheapest map. Plus, California recently raised its minimum wage to $20 an hour, so increased prices there were practically a given. 

While the price hikes are still working in McDondald’s favor, shrinking same-store sales and affordability are at the forefront of executives’ minds:

• First-quarter revenue grew 5% to $6.2 billion, in line with analysts’ expectations. But global same-store sales grew just 1.9%, slightly below what Wall Street had predicted.
• Executives said the chain lost some customers who have opted to eat more at home. McDonald’s plans more promotional deals and possibly larger burgers in the future. 

The Pause That Refreshes: One of McDonald’s biggest partners is employing a similar strategy of threading the needle between price hikes and affordability. Coca-Cola has been increasing the number of weeks that retailers are promoting 1.25-liter sodas as part of a value bundle targeted to appeal to price-conscious and lower-income consumers, Reuters reported. At the same time, Coca-Cola reported Q1 earnings and revenue on Tuesday that beat Wall Street’s expectations thanks to surging demand for higher-priced sodas and Minute Maid juices. As a result, the soda maker raised its revenue growth forecast.