Quantfury Gazette

McDonald’s (NYSE: MCD) moves to fend off stubborn inflation, giving customers exactly the break they want

by
Nathan Crooks
Quantfury Team
McDonalds

McDonald’s (NYSE: MCD), the world’s largest restaurant chain, is so big—and global—that it’s often used as an economic gauge that can be more accurate than numbers from central banks and government ministries. That’s why the company’s latest efforts to alleviate rising prices associated with stubborn inflation are worth watching as a potential bellwether for trends that can impact the broader economy.

“We heard our fans loud and clear,” McDonald’s USA president Joe Erlinger said about a new $5 deal that includes a McDouble or McChicken sandwich, a small order of fries, four chicken nuggets and a small soft drink. “They’re looking for even more great value.” The company is hoping the discounts can drive people into its restaurants and away from rising competition that can include simply eating at home.

The move comes as fast food companies including Starbucks (NASDAQ: SBUX), Shake Shack (NYSE: SHAK) and Burger King (NYSE: QSR) have all been rushing to introduce their own discounts as consumers signal they may be hitting a breaking point. While McDonald’s noted that sales had risen slightly in the last quarter, it said its customers are increasingly on the hunt for bargains.

Indeed, the topic of rising prices has been such a sensitive subject for the company that it released a statement last month to push back on social media posts suggesting the price of a Big Mac had ballooned over the past five years to as much as $18. The average cost of the world’s most famous sandwich—which is used by The Economist to track purchase power parity around the globe—has actually risen 21% since 2019 in the US to $5.29. That’s in line with cumulative inflation over the period. A Big Mac in Miami currently goes for around $6.71.

Shares of McDonald’s have declined about 14% this year amid the concerns about slowing spending on fast food, but they did get a slight bump after the company’s latest announcement. Despite the hype, however, there are some caveats. The McDouble meal deal is more expensive at some locations in states known for higher prices including New York, Alaska, Hawaii and California, which has raised wages for fast food workers. It’s also being subsidized by Coca-Cola (NYSE: KO), which suggests it won’t last forever. 

While it’s not clear how much more room the biggest players in the industry have to fend off further price hikes without damaging their own margins and bottom lines, macroeconomic enthusiasts waiting for signs of just when the Federal Reserve will start cutting interest rates may have an auspicious leading indicator that things are finally moving in the right direction.

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