This report was generated using published research from the Consumables team led by Sector Head Howard Penney. If you want to access more Consumables research, CLICK HERE.
Company Description:
McDonald's Corporation is a global leader in the fast-food industry, renowned for its extensive menu featuring iconic items like the Big Mac, Chicken McNuggets, and French fries. The company has grown to operate over 38,000 restaurants in more than 100 countries.
Financial Analysis:
Last quarter, McDonald's reported a 4.3% increase in same-store sales, continuing a growth streak with increases in 26 out of the last 27 quarters. Despite this, there was a noted decline in patronage from low-income consumers due to a 20% price increase over the past two years. These customers may have shifted to more economical dining options at home or other concepts. This trend is part of a broader challenge in the restaurant sector, which has faced rising costs for labor and ingredients, leading to higher prices, in contrast to the more stable pricing at grocery stores. McDonald's is adjusting its pricing strategy to encourage more frequent visits, aiming for a same-store sales growth of 3% to 4% this year. The company is focusing on its loyalty program and value deals to attract customers.
Challenges for MCD:
In 2024, McDonald's faces additional challenges, including the effects of boycotts in the Middle East, particularly in Malaysia, Indonesia, and France. Sales growth is expected to normalize to 3% to 4%. In France, issues with value perception and operational challenges are being addressed with new leadership. In the United States, pricing adjustments were in the mid-to-high single digits in 2023 due to inflation, with a more subdued forecast for 2024. China's economic growth is slowing, but McDonald's remains positive about its market position, although the promotional landscape is becoming more competitive.
Financial strain on lower-income demographics in the U.S. has led to decreased transaction sizes and a shift towards cheaper dining options. McDonald's is investing in technology and digital enhancements, anticipating an increase in General and Administrative (G&A) expenses as a percentage of sales in 2024, with efficiency gains expected as a more long-term goal.
February 2024 saw a 9.4% decrease in McDonald's traffic, contributing to a slower 2-year growth rate. The company will announce its Q4 financials on February 5th, with an expected year-over-year EPS increase of 9%, a slowdown from the previous quarter's 19% rise. Comparable sales are expected to increase by 4.7% in Q4 2023, with a forecasted deceleration to 3.6% in Q1 2024.
Conclusion:
McDonald's is navigating a complex landscape marked by rising operational costs and shifting consumer preferences. While the company has demonstrated resilience with consistent sales growth, the economic pressures are leading to strategic adjustments in pricing and a focus on value offerings. To sustain its market position and drive future growth, McDonald's is leveraging its loyalty programs and digital advancements.
