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McDonald's is an absolute giant in the global catering market, and it is far ahead in almost every country in the world. However, McDonald's recently released its performance report, and the data showed that McDonald's global sales fell for the first time in 20 years. What happened to the giant McDonald's? How should we view this matter?

1. McDonald’s global sales fell for the first time since 2020

According to a report from the Financial Times reprinted by China News Service, McDonald's has experienced a decline in global sales for the first time since 2020. Consumers around the world are deterred by the repeated price increases of burgers, fries and soft drinks.

McDonald's latest second quarter 2024 financial report shows that the second quarter revenue, net profit and earnings per share as of June 30, 2024 were lower than market expectations. In the second quarter of this year, McDonald's achieved operating income of US$6.49 billion, lower than the expected US$6.61 billion. Net profit was US$2.022 billion, a year-on-year decline of 10% excluding the impact of exchange rates. Adjusted earnings per share were US$2.8, a year-on-year decline of 10% excluding the impact of exchange rates.

The company's CEO Chris Kempczinski said when announcing its results on Monday that consumers are "more selective about how they spend their money." The report pointed out that in recent years, restaurant dining prices have continued to rise, and the U.S. dining out index has risen 30% from mid-2019.

The report mentioned that McDonald's has raised prices. Joe Erlinger, president of McDonald's in the United States, admitted in an open letter in May that the average price of a Big Mac Meal in the United States has risen 27% to $9.29 since 2019, although he said that the price increase of many items on its menu is lower than the inflation rate. The company and its competitors are also offering discounts to attract repeat customers. Placer.ai, which tracks mobile device location data, said that McDonald's launched a $5 burger, chicken nuggets, fries and drink package in the United States late last month, which boosted customer traffic.

2. What happened to McDonald’s?

McDonald's has experienced its first global sales decline since 2020, a phenomenon that has attracted widespread attention from the industry and investors. As a global chain restaurant giant, McDonald's performance is often seen as a barometer of the health of the global restaurant market. How should we view this sales decline?

First, McDonald's global layout makes its performance subject to the joint influence of market conditions around the world. Taking the recent financial report as an example, the decline in sales in European markets such as France, as well as key markets such as the Middle East and China, have jointly dragged down McDonald's global performance. As one of McDonald's important markets in Europe, France's decline in sales has undoubtedly had a significant negative impact on McDonald's overall performance. The decline in the Middle East and Chinese markets reflects the challenges McDonald's faces in emerging markets. These markets are generally regarded as regions with great growth potential, but McDonald's performance in these markets has failed to meet expectations, which is undoubtedly the biggest problem of this financial report.

Secondly, from the perspective of the global macro environment, the increasing downward pressure on the global economy has had a wide-ranging impact on the restaurant industry. In major markets such as the United States, Australia, Canada, and Germany, weakening consumer confidence and reduced spending have led to a decline in customer traffic and an overall slowdown in the restaurant industry. This trend has posed a greater impact on chain restaurant brands such as McDonald's, as they rely on stable customer traffic and consumer spending to maintain their huge global business. Global economic uncertainty, coupled with geopolitical risks and trade tensions, has further exacerbated the challenges facing the restaurant industry, which has also led to the aggravation of McDonald's problems.

Third, faced with performance pressure, McDonald's chose to ensure the profitability of its restaurants by selectively raising prices. However, this strategy has backfired in the current situation of declining consumer purchasing power. Consumers are significantly more sensitive to prices during economic downturns. When McDonald's raises product prices, even if the increase is not large, it may cause some price-sensitive consumers to turn to other dining options with more price advantages. For example, some small local fast food restaurants or street food stalls may be more attractive in terms of price, thereby diverting some of McDonald's customers.

Moreover, price increases may undermine consumers' brand loyalty. McDonald's has long attracted a large number of consumers with its relatively stable and affordable price positioning. Once the price increase breaks this price expectation, consumers may become dissatisfied and disappointed with the brand and think that McDonald's is no longer their affordable dining choice.

Fourth, from a long-term development perspective, improving cost control capabilities is crucial for McDonald's. Against the backdrop of increasing global economic uncertainty, McDonald's must find a more efficient operating model to reduce costs while maintaining or improving the cost-effectiveness of its products and services. This not only includes optimizing supply chain management, reducing waste, and improving operational efficiency, but also involves innovating products to meet consumers' pursuit of health, quality, and personalization. Only through these efforts can McDonald's maintain its competitiveness in the fiercely competitive catering market and achieve sustainable development.