As prices rise, consumers turn to McDonald’s

New York
CNN business

Inflation is constantly high and food prices in particular are rising. In this environment, customers are turning to McDonald’s, even as the hamburger chain raises its prices.

In the third quarter, McDonald’s US prices rose about 10% on average year over year. Still, the brand is gaining traction among its underserved customers, CEO Ian Borden said on an analyst call Thursday.

“Right now we’re gaining share among low-income consumers,” he said.

as food companies raise prices, finding other ways to make consumers feel like they’re getting a good deal. Packaged food and beverage makers like PepsiCo ( PEP ) and Coca-Cola ( KO ) are offering more serving sizes because shoppers will pay for smaller packages because of smaller price tags. Restaurants are focusing on value, hoping customers will feel like they’re getting more while raising prices.

McDonald’s “positions itself as the leading brand in value for money and affordability,” Borden said. He noted that some cash-strapped customers are switching from buying meals to buying valuables.

Some are even marketing to McDonald’s from chain or more expensive restaurants, as menu prices rise more slowly than grocery store prices. Year-to-date through September, not adjusted for seasonal changes, food prices rose 13%, according to the Bureau of Labor Statistics. In that same period, restaurant prices rose by 8.5%.

“We feel very good about … the McDonald’s value proposition,” CEO Chris Kempczinski said on the call. “It’s allowed us to come up with some of those prices.”

In the third quarter, sales at McDonald’s ( MCD ) U.S. stores open at least 13 months rose 6.1%, thanks in part to higher prices. Shares rose about 3% on Thursday after the chain’s third-quarter results were released.

Kempczinski said McDonald’s is looking at a number of potential economic scenarios, but expects a “mild to moderate recession in the U.S.” as a baseline. “McDonald’s has proven to be successful in almost any business environment,” he noted.

The brand has a history of resilience in times of economic crisis.

“Our business performed well in that last downturn,” Borden said, referring to the financial crisis of 2008 and 2009. “Our expectation is that we will certainly perform well in this environment on a relative basis to our competitors,” he said. add

But Borden admits there are differences between the current situation and 14 years ago.

During the financial crisis McDonald’s had a dollar menu and expanded the McCafe line. Now, however, the chain has higher costs for food, packaging and labor. Consumer behavior has also changed; today’s customers are much more interested in delivery.

And even McDonald’s is not immune to the macroeconomic situation. In the third quarter, consolidated revenues fell by 5%. The company said the results were “negatively impacted by foreign currency translation”, pointing to a strong US dollar to explain the decline. At constant currencies, McDonald’s said consolidated revenue rose 2%.

In addition to higher prices, McDonald’s has said that advertising its main menu items has helped boost sales.

More recently, the burger chain has been using promotions like celebrity meals and adult Happy Meals to generate buzz without adding new menu items that could complicate orders.

The adult Happy Meals promotion “re-engaged our fans with our core food, including Big Macs and Chicken McNuggets,” Kempczinski said.

The company has also created buzz around its McRib sandwich, positioning it to return for a limited time starting October 31 as part of a “farewell tour.” But this does not mean that the product will disappear forever.

“The McRib is the ACHRUTZA of sandwiches on our menu,” Kempczinski said Thursday. “Michael Jordan, Tom Brady and others, you’re never sure if they’re fully retired or not.”