The world’s largest restaurant chain by market cap again saw declining quarterly traffic among lower-income consumers, a nearly two-year trend that top boss Chris Kempczinski chalked up to “significant inflation” in terms of their nondiscretionary spending.
The CEO’s remarks came on a conference call after McDonald’s (MCD) on Wednesday reported a beat on Q3 comparable sales, helped by its popular promotions and offers.
“In the U.S., we continue to see a bifurcated consumer base with QSR traffic from lower-income consumers declining nearly double digits in the third quarter, a trend that’s persisted for nearly 2 years,” Kempczinski said on the call.
“In contrast, QSR traffic growth among higher-income consumers remained strong, increasing nearly double digits in the quarter,” he added.
The executive’s comments come at a time when inflation remains sticky in the U.S. Looking at two key indicators, the core consumer price index has hovered near the 3% Y/Y level all year, while the latest core personal consumption expenditures price index reading for August showed a 2.9% Y/Y rise. Both figures remain significantly higher than the Federal Reserve’s target of 2%.
“If you think about the low-income consumer and you think about the pressures that they face, I mean, right now, you’re seeing across the country, rents are at pretty high levels, you’re seeing food prices, whether it’s in restaurants or grocery, you’re seeing food prices are high, you’re seeing child care is high,” Kempczinski said.
“There’s just a lot of things that when you think about nondiscretionary spend, there’s some significant inflation there that the low-income consumer is having to absorb,” the CEO said.
“If you’re not in that segment and you’re higher income, you maybe not — you don’t feel it as acutely, but lower income for sure, you’re feeling it acutely. And I think some of what’s going on most recently with SNAP and other things might be additional pressure on that,” he added, referring to the Trump administration’s attempt to suspend food aid benefits for millions of Americans during the ongoing government shutdown.
Meanwhile, McDonald’s (MCD) CFO Ian Borden said that current inflation levels are still above historical norms, creating a challenging pricing environment that continues to exert pressure on profit margins in the short term.
Despite a positive quarter in the U.S. with a growth rate of 2.4%, Borden emphasized that this increase was insufficient to counterbalance the inflationary pressures experienced in various areas, including wages, food, and paper costs.
The company anticipates that food and paper inflation will remain in the low to mid-single-digit range for the year. Kempczinski projected above-average inflation for the upcoming year, particularly in beef prices, which are significantly higher than historical averages.