McDonald’s gets lift from diners turning to cheaper menu, new launches

By Deborah Mary Sophia

(Reuters) -McDonald’s beat Wall Street estimates for quarterly results on Monday, powered by new launches, promotions and demand for its more affordable burgers and fries from diners struggling with still-high prices of food and essentials.

Shares opened 2% higher but pared some gains after the burger giant flagged a hit to franchisee cash flow in California, where minimum wages for restaurant workers are set to rise to $20 per hour next year.

McDonald’s size and scale have helped keep its meals relatively cheaper even after an industry-wide hike in prices last year, helping counter the trend of inflation-hit consumers eating more at home and a broader decline in footfall.

The company has also rolled out to other regions its smaller, more affordable meal bundles featuring its core menu items after testing them in markets such as Germany.

“Consumers continue to be more discriminating about what and where they spend…(but) we’re seeing really no change at all in terms of customer acceptance… on pricing,” CEO Chris Kempczinski said on a post-earnings call.

McDonald’s posted traffic growth among lower-income consumers even as industry-wide footfall declined, Kempczinski said.

Drawing on its history of menu enhancements, the company launched the Cheesy Jalapeno Bacon quarter pounder in July and brought back the fan-favorite Spicy Chicken McNuggets to menus in September.

“Despite a lukewarm response, we see a solid MCD setup into (2024),” Wells Fargo analyst Zachary Fadem wrote in a note.

McDonald’s said it would work through some of the hit from the California wage hikes by raising prices but did not elaborate on the full impact.

Global comparable sales jumped 8.8% in the quarter ended Sept. 30, while analysts on average had expected a 7.36% rise, according to LSEG data.

“The value, the affordability, and just the consistency that the McDonald’s brand can bring to the consumer” would further fuel sales momentum in the rest of the year, Stephens analyst Joshua Long said. Adjusted per-share profit of $3.19 beat estimates of $3.00, thanks to easing costs of commodities like vegetables and proteins. The company also lifted its full-year margins expectations.

(Reporting by Deborah Sophia in Bengaluru; Editing by Sriraj Kalluvila)



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