McDonald's is reevaluating its pricing approach after a drop in customer spending led to a sales decline. Sales at outlets open for at least a year fell by 1% from April to

June compared to the same period last year, marking the first decline since the pandemic.

Despite offering discounts to attract budget-conscious customers and addressing boycotts related to the Israel-Gaza conflict, the fast-food giant saw reduced sales. CEO Chris Kempczinski stated that these disappointing results have prompted a "comprehensive rethink" of the company's pricing strategy.

Kempczinski told investors that the firm plans to rely more heavily on discounts to reverse the sales slump. Recent promotions, such as a $5 Happy Meal in the US and a UK campaign offering three items for £3, are expected to be extended. McDonald's is also collaborating with franchisees on additional "value" initiatives.

Following this update, the company's shares rose more than 3%, with Kempczinski emphasizing McDonald's capability to execute this strategy effectively. "We know how to do this. We wrote the playbook on value, and we are working with our franchisees to make the necessary adjustments," he said.

During the pandemic, McDonald's significantly increased prices, which led to customer backlash. Last month, the head of US operations addressed these complaints in an open letter, stating that social media was misrepresenting the situation. He noted that the average price of a Big Mac in the US, now $5.29 (£4.11), had risen by 21% since 2019, aligning with inflation, and that many items had increased by less.

However, Kempczinski acknowledged during the investor call that the company needs to rebuild its reputation for value. He admitted that price hikes, driven by inflation, had caused consumers to change their buying habits. While some markets have adapted, others require a more thorough reevaluation.

Bank of America analyst Sara Senatore noted that McDonald's has raised prices on key items faster than its competitors. "Consumers are savvy, aware of that," she said. "The $5 meal may be starting to change perceptions, but we are not yet seeing a trend change in transactions, which is what they're aiming for."

McDonald's is among several major corporations warning of reduced consumer spending, including in significant markets like China. The company's overall revenue, including sales at new stores, remained flat year-on-year, while profits decreased by 12%.

The decline in lower-income customers has particularly impacted McDonald's, with wealthier households trading down not fully compensating for this loss. The company reported reduced demand in the US, alongside sales challenges in France and price wars in China.

In France, McDonald's has faced boycott calls related to the Israel-Gaza conflict, similar to other US companies like Starbucks. "Consumers are being more discerning about where, when, and what they eat, and we don't expect significant changes in that environment for the next few quarters," a McDonald's executive said during the call. Photo by Elmer B. Domingo, Wikimedia commons.