McDonald’s $5 meal is ‘cannibalizing’ its business: Analyst

McDonald’s (MCD) second quarter results missed expectations across the board, with global same-store sales decreasing 1%, marking the first quarterly decline in that metric since fourth quarter 2020, during the COVID shutdowns.

Wedbush Managing Director, Equity Research – Restaurants Nick Setyan joins Catalysts to give insight into McDonald’s latest quarterly report.

Setyan elaborates on why McDonald’s sales were lower, pointing to raised prices: “Every time we have restaurant prices going up more than grocery prices, you see a third of transactions within QSR, particularly, that lower income household, it’s direct meal replacement, right? So every time grocery prices are lower, you essentially have a third of your customers eating out less or using, let’s say McDonald’s, especially the value menu, less as a meal replacement, and they’re going to the grocery store. That’s what’s happening now. The $5 meal was supposed to be an answer to that problem. It’s not working as well as they hoped, frankly, because it’s also cannibalizing the higher income customer that doesn’t really need it, and so I think they have to find a better solution. “

For more expert insight and the latest market action, click here to watch this full episode of Catalysts.

This post was written by Nicholas Jacobino