McDonald’s pledges to keep burgers price competitive as sales and prices rise

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McDonald’s Corp.

must ensure its burgers and coffee don’t become too expensive for customers, its chief executive said, as restaurateurs raise menu prices to offset their own rising costs.

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MCD 2.84%

said Thursday its U.S. locations raised menu prices an average of 8% in the first quarter, compared to the year-ago period. Those increases, along with its loyalty program and menu staples, including burgers, Chicken McNuggets and poultry sandwiches, have helped McDonald’sit is

MCD 2.84%

Comparable sales in the United States rose 3.5%, the company said.

Restaurants and food companies are trying to balance rising prices to compensate for more expensive ingredients and wages against consumers’ ability and willingness to pay higher prices. US inflation hit a new four-decade high in March, driven by soaring food and energy prices, as well as supply chain constraints.

McDonald’s chief executive Chris Kempczinski said the company is focused on remaining good value for customers, especially low-income customers who are more likely to notice inflation.

“We always have to stay competitive on value,” Mr. Kempczinski said. “When we lose sight of that, there’s a long history where we kind of strayed off track.”

So far, consumers have not resisted McDonald’s menu price increases, executives said, but some diners are opting for cheaper options or ordering less food per visit. U.S. customer numbers fell about 1% in the quarter from a year ago, and store hours remain slightly below pre-pandemic levels.

Rising menu prices helped push total McDonald’s sales to $5.67 billion for the quarter ended March 31, beating analysts’ expectations polled by FactSet. Shares of McDonald’s rose 2.5% to $253.37 by late morning trading.

McDonald’s on Thursday reported quarterly earnings of $2.28 per share, after adjusting for the shutdown of its Russian market and the potential settlement of an international tax case, beating analysts’ expectations of $2.17 per share.

Drive-thru and online sales help the company’s business, and the chain said McDonald’s is now the world’s largest fast food delivery service. Delivery continues to grow in many countries despite markets reopening following Covid-19 restrictions, McDonald’s said.

The company said Thursday it expects food and other costs to rise 12% to 14% this year on an annual rate, higher than expected. Labor costs in the United States rose 10% from a year ago, reflecting the company’s decision to raise wages at its own restaurants, he said.

“Food and paper inflation has certainly increased substantially,” McDonald’s chief financial officer Kevin Ozan said on an investor call.

Airlines, gas stations and retailers use complex algorithms to adjust their prices based on costs, demand and competition. WSJ’s Charity Scott explains what dynamic pricing is and why companies are using it more often. Illustration: Adele Morgan

Restaurants have steadily raised menu prices in response to rising costs, and investors are watching for signs of consumer withdrawal. Chipotle Mexican Grill Inc.

said on Tuesday it had raised prices by more than 4% at the end of its quarter ended March 31 and may raise prices again to offset costs.

Chipotle Chief Financial Officer Jack Hartung said in an interview that consumer demand hasn’t slowed despite inflation weighing on consumers’ wallets.

McDonald’s said its same-store sales overall rose 11.8% in the quarter, compared to a year ago. Sales improved in countries including France and Germany as Covid-19 restrictions eased, while a rise in cases in China led to lower same-store sales in the quarter, the company said.

The Chicago-based burger chain reported net income of $1.1 billion for the quarter, down 28% from the year-ago period. The company said it incurred $127 million in costs in its first quarter related to the shutdown of its Russian market in response to the country’s invasion of Ukraine, with expenses stemming from the continued payment of staff salaries and unsold inventory.

McDonald’s said its Russian restaurants remain closed and it expects the military conflict to hurt the chain’s sales and profits while it continues. Additional costs total approximately $50 million per month.

McDonald’s said it temporarily closed its Russian restaurants in mid-March, while continuing to pay the 62,000 people the company employed there. The company owns and operates 84% ​​of its restaurants in Russia, with the rest run by franchisees. McDonald’s also has 108 restaurants in Ukraine, which it closed in late February, the company said.

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