McDonald’s Customers Resist Higher Prices and Fewer Menu Items

McDonald’s CEO, Chris Kempczinski, has revealed that some customers are pushing back against higher prices in some markets and opting for fewer menu items in their orders. Shares of McDonald’s dropped slightly on Tuesday, but the stock reached a new 52-week high, with the fast-food giant up by approximately 10% so far this year.

Consumer companies have reported mixed reactions to higher prices during the first quarter of the year. Coca-Cola saw a muted reaction to demand as it kept raising prices on its drinks. In contrast, PepsiCo said in February that it would not hike prices further, but reported a 2% decline in its first-quarter volume, which excludes price or currency changes.

For roughly a year, companies have been raising prices to mitigate inflation, particularly after Russia’s invasion of Ukraine sent commodity prices soaring. But consumers’ spending habits are changing in response, even as inflation cools. Coca-Cola CEO, James Quincey, said on Monday that inflation and higher mortgage rates are top of mind for many consumers, despite low unemployment and improvements in gas prices.

Kempczinski said that consumers’ resistance to higher prices has come from deviating from the models used to determine McDonald’s pricing strategy. “When we execute where we know we have pricing power, we do quite well, but what we do find as we try to take pricing in the areas that are maybe a little bit more sensitive, the consumer pushes back on it,” he said on CNBC’s “Squawk on the Street.”

Furthermore, Kempczinski stated that diners are less likely to add extras like French fries to their orders. He revealed that items per transaction have fallen by the low single digits. However, consumers are still buying Big Macs and McNuggets. The fast-food giant reported its third consecutive quarter of U.S. traffic growth, and it’s gaining market share across all income brackets.

McDonald’s topped Wall Street’s estimates for its first-quarter earnings and revenue, helped by its higher prices and increased demand. Despite the pushback from consumers, the company is experiencing growth and gaining market share, which may indicate that the impact of higher prices and fewer menu items is not yet significant enough to deter customers from continuing to enjoy their favorite fast food.