Erin McDowell/Insider
- McDonald's customers are "trading down" to its value items and buying less, execs told investors.
- Some diners also appear to be switching to McDonald's from full-service restaurants, CEO Chris Kempczinski said.
- Kempczinski also spoke about the viral "Grimace Shake" trend, which he said was the theme of the quarter.
McDonald's customers are ordering fewer items and switching to value menu items to save money, executives at the fast-food giant say.
Customers are "trading down" from premium and higher-priced items to core and value items instead, CFO Ian Borden told investors on Thursday, without giving specific examples.
They're also "just buying a little less," meaning the size of each order is smaller, he said. This is especially evident for households with incomes of $45,000 and less, CEO Chris Kempczinski said, though he added that they're still visiting McDonald's restaurants just as regularly.
Borden noted that this consumer behavior had been the case "for a number of quarters now" and that McDonald's hadn't seen "any further kind of deterioration." Kempczinski told investors in April that fewer customers were ordering fries with their burgers as they cut back on spending.
Some households on incomes under $100,000 also appear to be switching to McDonald's from full-service restaurants, Kempczinski said Thursday. Neil Saunders, retail analyst and managing director at GlobalData, said in a note that diners trading down from mid-market family restaurants to cheaper fast-food outlets like McDonald's "saves them money but still provides them with the treat of eating out."
This is despite the price of meals at limited-service restaurants, like fast-food chains, rising more quickly over the past 12 months than prices at full-service restaurants.
"A challenging macro environment including rising interest rates and elevated costs continues to create volatile consumer confidence levels and put pressure on consumer spending," Borden told investors.
McDonald's said that its new German McSmart value offer, where customers can get two burgers, fries, and a drink for 5.99 euros (around $6.50), had contributed to the chain posting its highest quarterly sales in the market. It also rolled out new Saver Meal deals in the UK last month, "and the early results are encouraging," Borden said.
McDonald's posted a 14% jump in total revenues to just shy of $6.5 billion in the quarter to June 30. It said that US comparable sales were up because of menu price increases and an increase in customer count.
Kempczinski also credited the success of the Grimace marketing campaign, which started when the chain launched a limited-edition birthday meal for the fuzzy purple mascot. The deal sparked a "Grimace Shake" TikTok trend, where people posted videos pretending to be passed out in random places after drinking the purple milkshake, and memes featuring the mascot quickly flooded social media.
"This quarter, the theme is – well, if I'm being honest, the theme was Grimace. Grimace has been everywhere the past few months," Kempczinski told investors Thursday. "This viral phenomenon is yet another proof point of the power of marketing at McDonald's today."