Did Mcdonald’s Price Itself out of a Segment It Dominated for Decades?

The Washington Post

14:55 JST, May 10, 2025

When Nick Martinez and his family wanted a quick, inexpensive and reliable meal, McDonald’s used to be their go-to choice.

Now it costs so much, he said, that he lets his 5-year-old son pick from a range of spots near their home in Colton, California, that might have seemed too pricey in the past.

“McDonald’s isn’t the best value anymore,” said Martinez, 50, who has three children. “People are saying, ‘Well, if I’m going to pay $5 for a fry, I’ll just go to this place over here.’”

McDonald’s latest financial report suggests that sentiment has grown among its traditional customer base. While the company blames its disappointing first-quarter results on fewer people dining out in general, some experts suggest that budget-conscious consumers have turned to chains such as Taco Bell and Chili’s for meals that they see as offering a better value.

In its first quarter, McDonald’s saw its worst year-over-year revenue drop since the height of the pandemic, as sales tumbled 3.6 percent for U.S. locations that have been open for at least 13 months. Visits from low- and middle-income consumers plunged by nearly 10 percent, chief executive Chris Kempczinski said last week.

“People are just being more judicious about cutting back on visits,” Kempczinski said during a call with analysts. “We’re not immune to the volatility in the industry or the pressures that our consumers are facing.”

Generally speaking, the price gap between fast-food, fast-casual and sit-down restaurants has blurred, said Sara Senatore, an analyst at Bank of America. That makes it harder to justify spending more than $10 at McDonald’s when a few extra dollars can buy meals at Wingstop, Shake Shack or other fast-casual restaurants that are perceived as higher quality, she said.

The average price of a McDonald’s menu item increased 40 percent from 2019 to 2024, which the company says tracks with the rise in its costs. The cost of the company’s signature Big Mac sandwich rose 21 percent during that time, according to a company fact sheet, while the price of an Egg McMuffin and a 10-piece McNuggets Meal climbed 23 percent and 28 percent, respectively. The consumer price index rose almost 23 percent during the same period, according to the Bureau of Labor Statistics.

McDonald’s price hikes have led competitors to question the chain’s value. In one notable example, Chili’s, which has thrived despite the struggling restaurant industry, promoted the burger on its $10.99 3 for Me menu as having “twice the beef of a Big Mac” and urged consumers in an advertisement last year to ditch the “tiny drive-through burger.”

Chili’s was a bright spot this restaurant earnings season alongside Taco Bell, with the pair notching 32 percent and 9 percent same-store sales growth, respectively. Taco Bell’s lower exposure to beef inflation has helped it keep prices lower than competitors, Senatore said. The chain’s value menu and new products have also helped it gain market share, she added.

Meanwhile, other fast-food and fast-casual chains – including Burger King, Popeyes, Chipotle and Wendy’s – joined McDonald’s in reporting same-store sales declines in their most recent quarters and warned that a broader consumer slowdown could further squeeze the inflation-battered restaurant industry. But McDonald’s, long seen as the fast-food industry’s standard-bearer and an icon of affordable dining, is more vulnerable now because it has raised prices while offering weaker deals than rivals, analysts say.

Foot traffic at McDonald’s fell 2.6 percent in the first three months of this year, steeper than the overall fast-food industry’s decline of 1.6 percent, according to year-over-year data from Placer.ai.

“A lot of their base is that low-income consumer, and when prices go up and you see rapid inflation and economic uncertainty, McDonald’s, in some ways, is one of the most vulnerable companies out there,” said Joseph Nunes, a marketing professor at the University of Southern California’s Marshall School of Business.

Other chains such as Wendy’s and Burger King also raised prices in recent years to offset inflation, Senatore said. But McDonald’s trailed the rest of the fast-food industry in slowing price hikes last year as inflation cooled, she said.

It wasn’t long ago that McDonald’s sales boomed. The chain’s U.S. same-store sales spiked during the pandemic and immediately after, with an 8.7 percent increase as recently as 2023.

McDonald’s executives have rejected the idea that the company has lost its traditional appeal. During last week’s analyst call, Kempczinski blamed the first-quarter weakness on fewer people eating out for breakfast rather than market share losses to other chains.

The company anticipated its first quarter would be the toughest of the year as it promoted its new $5 value menu, Kempczinski told analysts. McDonald’s expects to build momentum in the second quarter with more marketing and menu initiatives, he said.

The challenging consumer environment gives McDonald’s an opportunity to outperform its competitors if it strikes the right balance between marketing its value programs and menu additions, Kempczinski told analysts. “Where we’re focused right now is about making sure we do world-class execution,” he said last week.

McDonald’s remains relevant as a consumer brand, analysts said. But consumers make more choices based on quality and shop around for the best value, said R.J. Hottovy, head of analytical research at Placer.ai.

“If things get more difficult in economic downturns, people tend to go to the brands they know and that have a reputation for being more affordable, but I think that’s shifted a bit in the last couple years,” Hottovy said, adding that fast-food restaurants, in particular “may have outpriced a lot of their consumers, and now those consumers are finding value elsewhere.”

McDonald’s, he said, has lost customers to fast-casual and casual restaurants while also competing more with lower prices from discount grocers, convenience stores and dollar stores, which have boomed in popularity as consumers hunt for bargains.

Experts said McDonald’s became a fast-food behemoth decades ago largely because of the Happy Meal, an offering for kids that includes an entrée, side, drink and toy. The burger giant attracted lower- and middle-income parents, who could feed their families for a fraction of the price of other restaurants.

McDonald’s built a reputation for consistency and convenience, but other chains caught up with better bargains and accessibility because of delivery, Nunes said. In a crowded U.S. restaurant market, McDonald’s needs stronger food and cheaper prices to find a “sweet spot” that appeals to cautious consumers, he said.

“In an evolving constellation of food places, where does McDonald’s fit in the 21st century?” Nunes said. “McDonald’s always has and always will face a challenge of how to reinvent itself, reignite a consumer that’s sort of bored with its food.”

The company has done this in the past, partly through deals such as the Dollar Menu, which existed in some fashion for much of the past two decades. But restaurant inflation has made it almost impossible to reintroduce a $1 price point, leaving McDonald’s to rely on viral marketing moments such as summer 2023’s Grimace Shake or this past quarter’s A Minecraft Movie Meal to excite consumers.

Those brand partnerships work during good times, but McDonald’s faces a tougher challenge when people worry about the economy. During the 2008 financial crisis, McDonald’s $1 offerings helped the chain keep customers, but now that its signature sandwiches can cost more than $5 and combo meals have exceeded $15 at some franchises, the company’s food no longer feels like a deal compared with competitors, Nunes said.

McDonald’s used to offer more nationwide price deals before inflation took off, said Gregory Francfort, an analyst at Guggenheim. The current value menu, launched in January, incorporates a $5 Meal Deal and a buy one, add one for $1 promotion that failed to catch on with consumers in the first quarter because it lacked a clear, catchy nationwide price point, Francfort said.

The buy-one-add-one promotion’s disappointing performance last quarter showed McDonald’s that it needs to lean into its $5 value menu, Senatore added.

But with most fast-food chains offering similar value meals, Martinez says he won’t return to McDonald’s unless its food tastes better.

“The thing that kept people coming back was their prices and consistency,” Martinez said. “I don’t see paying that much money for McDonald’s as worth it. Other places are worth it, but not McDonald’s.”