McDonald's is warning that higher gas prices and inflationary pressure linked to the conflict with Iran are hitting low-income customers hardest-and the situation could worsen.
The burger giant reported U.S. same-store sales growth of 3.9% in the first quarter, missing analyst expectations of 4.2%. CEO Chris Kempczinski said on an earnings call that the macro environment is “certainly not improving” and may be getting worse. The company is focusing on growing its share of low-income consumers by emphasizing value meals.
CFO Ian Borden noted that gas price inflation is disproportionately affecting lower-income customers, and those pressures are expected to continue. Cost pressures are also squeezing franchisee cash flow and margins at company-operated restaurants.
Several other U.S. restaurant chains-including Shake Shack, Papa John's, Wingstop, and Domino's-have reported weaker quarterly sales growth, citing fallout from the Iran conflict. Analysts say lower-income consumers are trading down to single-item orders.
McDonald's has expanded its McValue platform with items under $3 and a $4 breakfast meal deal in the U.S., while offering a $5 McValue Meal and a $1 coffee in Canada. CEO Kempczinski said that when beef prices are elevated, chicken becomes a more attractive value option.