McDonald’s Faces First Major Sales Decline in Four Years

McDonald’s has reported its biggest drop in global sales in four years, highlighting the challenges the fast-food giant faces amidst sluggish consumer spending. Between July and September 2024, McDonald’s saw a 1.5% drop in global sales, marking the company’s first back-to-back quarterly decline since the COVID-19 pandemic. The decline was larger than anticipated, more than double analysts’ predictions, and follows a 1% dip in the previous quarter.

Weaker Sales in Key Markets

While McDonald’s managed a modest 0.3% sales increase in the US, international markets struggled with a 2.1% decline. Europe, particularly France and the UK, contributed to the slump, while China also reported weaker-than-expected results. Additionally, the company’s licensed business, in which local partners operate restaurants, saw a 3.5% drop in sales due to factors like weak consumer demand in China and broader global instability, including the ongoing conflict in the Middle East.

Consumer Hesitance and Value Meals

The slowdown in consumer spending is a reflection of broader economic conditions, with people being more cautious with their money after years of high food inflation. In an attempt to address this, McDonald’s has introduced more affordable options, including £5 meal deals in the UK and $5 promotions in the US, designed to attract budget-conscious customers. However, competitors like Wendy’s and Burger King have also leaned into similar strategies to regain customer traffic, particularly from lower-income households.

CEO’s Focus on Affordability

McDonald’s CEO, Chris Kempczinski, emphasized the company’s focus on providing everyday value. Despite the tough market conditions, McDonald’s aims to ensure affordability for consumers who are becoming increasingly mindful of their spending habits. The $5 meal deal, initially launched in June, has been extended through December at most US locations.

Impact of E. coli Outbreak

The company has also had to deal with an E. coli outbreak linked to its Quarter Pounders, which affected 75 people and led to at least one fatality. The outbreak prompted McDonald’s to temporarily halt the sale of Quarter Pounders in about 20% of its US locations. The company traced the source of the contamination to a supplier of slivered onions from Colorado, and McDonald’s has since stopped purchasing onions from this supplier. Despite the temporary setback, Kempczinski expressed confidence in the safety of McDonald’s food and assured customers that the situation had been contained.

Looking Ahead

McDonald’s shares saw a decline of nearly 7% last week in response to the disappointing results and the E. coli issue, though they regained some value on Tuesday. CFO Ian Borden stated that while McDonald’s faced challenges in 2024, the company is focused on restoring consumer confidence and returning its US business to strong growth.