For decades, McDonald’s was the most popular fast food chain in America, a place where families and children could enjoy a meal at affordable prices. But those days are long gone. Now, the soaring cost of several menu items is making the company lose millions of customers and billions in sales every year, resulting in worrying cash flow problems that are accelerating its collapse in the very industry it helped to create. In this video, we explore some of the reasons why the world’s largest burger flipper is losing momentum and falling apart in the US market as the brand continues to lose its essence.
May was yet another month where a wave of customer defections hit several McDonald’s restaurants across the US. In nine of the past 10 months, the burger flipper reported losing customers in the United States, and a new analysis reveals that has everything to do with its new pricing strategy.
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In April, McDonald’s announced price increases on a number of menu items for the second time in a single quarter. The company noted the decision came amid rising commodity prices and labor costs. The last price hike was seen on February 15, when it raised the cost of five combos by a dollar. But indicators show that consumers are getting fed up with higher costs at McDonald’s restaurants. In the first quarter of 2023, the company reported an average price increase of about 10% in its US locations when compared to the same period of the prior year.
Although executives said that higher menu prices are helping the company to boost earnings and revenue, analysts argue this is also shrinking the chain’s customer base, which will ultimately hurt its bottom line.
Even though same-store sales have risen over the past decade, higher average checks drove these numbers, not customer visits. “How many millions of lost customers will it take before McDonald’s really focuses on reversing this risky trend?” asks Forbes contributor, Larry Light.
He predicts that for the company to increase revenues relying on average checks on a shrinking customer base will require the average customer to spend $20 per transaction. This troubling pricing strategy is accelerating the brand’s downfall. During a call with investors, the CFO highlighted that McDonald’s cannot survive with declining customer counts. Corporate knows that it’s impossible to maintain a chain that operated 38,000 stores across the globe on a shrinking customer base. Still, nothing has been done to prevent this from happening.
Considering its enormous operations worldwide and the conditions that led the company to become a huge success, it is very odd to see that instead of investing in keeping and growing its base of customers who can afford to regularly frequent its restaurants, the brand is focusing on gaining a public that already has hundreds of options of higher priced burger chains out there.
In an industry that is getting more and more competitive with each passing year, being one of the largest and oldest chains in the market is not a synonym for success and growth anymore. Businesses have to adapt constantly and, more importantly, value the customers that they already have. The fall of McDonald’s is a self-inflicted crisis that will spark major repercussions for the company in the near future. And that means America’s most iconic fast-food chain is at serious risk of collapsing all around us, and its downfall will be very painful to watch.
Article and video via Epic Economist.