As sales and profits have crumbled at McDonald’s recently, some observers have blamed low-income Americans, saying they must not be able to afford Big Macs any more.
But that’s wrong. If anything, Big Macs have gotten more affordable lately. The real problem is that the iconic chain needs to win back its true base: middle-class Americans looking for a cheap, quick meal.
For the past 11 months, sales at U.S. McDonald’s restaurants open at least a year — a key measure of an eatery’s health — have fallen or remained flat. The company announced earlier this week that U.S. same-store sales fell 4.1 percent in September, the worst monthly drop in more than a decade, and that profits plunged 30 percent in its latest quarter. The company’s stock price has tumbled about 11 percent over the past six months.
One common explanation for McDonald’s woes is that low-income Americans are suffering from a sluggish recovery and unable to afford eating out at McDonald’s any more.
But the numbers don’t back up that take. For one thing, McDonald’s has actually become more of a bargain relative to other food options in recent years: McDonald’s prices haven’t risen as quickly as prices at fast-casual eateries like Panera Bread, according to data from Technomic, a food research firm. Nor have they risen as quickly as broader food inflation, according to Bureau of Labor Statistics data:
mcdonalds price chart
McDonald’s menu prices grew more slowly than prices at fast-casual chains and food inflation overall between 2009 and 2014.
And yet diners are still flocking to other chains despite their typically higher costs. When Chipotle raised menu prices earlier this year, customers didn’t bat an eye — the chain reported a profit jump of 25 percent the following quarter. That suggests McDonald’s problem isn’t so much pricing, but a perception that its food isn’t worth any price — unlike, say, Chipotle, which has positioned itself as offering fast, fresh and quality food for which customers are willing to pay more.
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Story: http://www.huffingtonpost.com/2014/10/22/mcdonalds-image-problem_n_6029916.html