McDonald’s diners are making no bones about how they feel about the burger giant jacking up prices to $8 for a chicken sandwich and $18 for a Big Mac meal – a phenomenon they’ve reluctantly dubbed ‘McFlation’ .
“It costs $25.39 for 40 pieces of nuggets and two large fries. You couldn’t even throw the Sprite in?’ growled one TikToker.
Now, the fast food giant is avoiding even more hassle with its customers and plans to introduce a $5 meal deal to US customers for a limited time. Bloomberg reported. The meal kit may include a McChicken or McDouble, fries and a drink, similar to the chain’s similar promotions in other countries, such as Germany’s McSmart Menü. Coca-Cola will reportedly contribute money to the fast-food chain to offset potential losses in profitability.
McDonald’s USA told Fortune that the company has always offered similar meal deals, with 90% of franchisees selling meal bundles for $4 or less. The company declined to comment on a possible $5 meal deal.
The move would fulfill CEO Chris Kempczinski’s promise of increasing cost-effective menu items after McDonald’s failed to meet earnings expectations in the fourth quarter of 2023 for the first time in nearly four years, partly due to price increases. Kempczinski admitted that consumers making less than $45,000 a year — once McDonald’s core customer base — were no longer dining at the hamburger chain, opting instead to cook at home thanks to cooling grocery inflation.
“I think what you’re going to see as you get into 2024 is probably more of a focus on what I would describe as affordability,” Kempczinski told analysts in February. “The battlefield is certainly with those low-income consumers.”
McDonald’s weak sales in the first quarter of 2024 underscored the need for a push toward affordability. While the company continues to be hit by boycotts related to the ongoing conflict in Israel and Gaza, McDonald’s also credits comparable sales growth of 1.9%, which just missed expectations. Bloomberg‘s expectations, low-income customers are withdrawing. Kempczinski further hinted at value menu offers, calling online promotions effective but “very fragmented.”
Franchisee skepticism
Despite customers’ clamor for cheaper food, the new $5 meal deal isn’t universally loved. Bloomberg reported that some franchisees are concerned that the company is losing money on the promotion. Some restaurant operators, who get input into McDonald’s marketing campaigns, disapproved of a $5 meal deal earlier this year. An independent franchisee instead pushed for the reintroduction of products like the snack pack, which are not only more affordable but also easier to make.
In states like California — which recently raised the minimum wage for fast-food workers to $20 — franchises have repeatedly warned customers about raising prices to offset increased labor costs and inflation. The California Restaurant Association said last month that fast food prices have risen 8% since the law took effect.
But the trend of driving up fast food prices in lieu of higher restaurant operating costs is a persistent story in the industry, especially at McDonald’s. In 2008, the chain eliminated its $1 double cheeseburger and replaced it instead with a $1.19 burger with two hamburger patties and only one slice of cheese, attributing the change to higher beef and bun prices.
Small changes for the chain add up: According to credit card consulting firm FinanceBuzz, McDonald’s has seen a 100% increase in menu prices since 2014, a trend echoed throughout the fast-food industry. Popeye’s is right behind the golden arches with an 86% price increase over the same period, while Taco Bell increased prices by 81%. This price increase has easily exceeded the inflation rate of 31% over the past ten years.
But history shows that in times of economic stress, fast food chains have been rewarded for listening to their cash-strapped customers. Harry Balzer, a restaurant industry analyst at the NPD Group, predicted after the death of McDonald’s $1 cheeseburger that fast-food chains that are aware of customer pain points would be the ones to come out on top.
“We’ve seen an uptick in some restaurants that are having a lot of success because of their value offerings,” Balzer told ABC at the time. “Right now, consumers are clearly looking for a deal, and those who offer one that’s new and eye-catching are winning.”