McDonald’s and the Evolving State of Food Retail

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Following a busy week of Q1 2024 updates several restaurant chains, the key question facing operators is whether menu price increases the past several years have forced consumers into alternative food retail channels. Several restaurant chains--most notably McDonald’s–highlighted a more “discriminating” consumer during their quarterly updates. According McDonald’s CEO Chris Kempczinski on the company’s Q1 2024 update this week: “U.S. consumers continued to be even more discriminating with every dollar that they spend as they faced elevated prices in their day-to-day spending which is putting pressure on the QSR industry.” In turn, this has resulted in flat-to-declining industry traffic in the U.S. during the quarter. Looking at year-to-date visitation trends across the different restaurant categories, we see a weak start to the year due to inclement weather, followed by a rebound to low-single-digit growth for the limited-service categories (QSR and fast casual) and low-single-digit declines for the full-service restaurant chains.

As we discuss throughout this week’s Anchor report, consumers will likely remain discriminating over the next several quarters.  As such, we expect a continuation of the channel shifts we’ve been witnessing across the broader food retail sector. According to our data, the QSR category saw a +5% increase in visits from 2019-2023, while the full-service restaurant category saw a -8% decrease in visits (partly explained by the permanent closure of many smaller, regional full-service dining chains). Conversely, the grocery, superstore, convenience store, and dollar/discount stores have all seen meaningfully higher visit growth over the same period (as our friends at Restaurant Business have also called out), indicating these channels are taking share from the restaurant industry.

Looking at McDonald’s cross-visitation trends during the quarter, we see further evidence of this shift. We’ve compared the favorite grocery chains of McDonald’s visitors in Q1 2024 to Q1 2023 below. We see a material increase in the percentage of McDonald’s visitors that visited an Aldi location year-over-year–24% versus 17% in the year ago period. We also see a decrease in percentage of visits to most conventional grocery chains.

Not surprisingly, McDonald’s plans to accentuate its value offerings in the coming quarters. On its update call, management noted that 90% of its U.S. locations offer meal bundles for $4 or less and that it has been running several promotions through its digital app. The company also noted the need to align around a strong national value proposition so that the company can use its tremendous media scale to drive high consumer awareness. It will likely take time for McDonald’s to organize around its value platform, but once it does start to promote its value offerings on a nationwide basis, we would expect much of the rest of the QSR category to follow suit.

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