McDonald’s Profit Increases as Consumers Trade Down

Consumer spending is beginning to sputter amid high inflation and a dropping personal saving rate.

February 01, 2023

ALEXANDRIA, Va.—McDonald’s reported that more U.S. consumers are flocking to its restaurants, as inflation-weary Americans trade down from full-service restaurants to less-expensive alternatives, reports CNBC. For the second quarter in a row, the fast-food giant saw increased traffic at its U.S. stores, bucking the industry trend of consumers cutting back on dining out.

“Overall, the consumer, whether it’s in Europe or in the U.S., is actually holding up better than what we would have probably expected a year ago or six months ago,” CEO Chris Kempczinski said on the company’s conference call.

Same-store sales were up 10.3% in the U.S. due to higher menu prices and increased demand. McDonald’s executives reported that its low-income customers continue to order less but are increasing their number of trips compared to the prior two quarters. The fast-food restaurant also saw success from its “farewell tour” of the McRib.

The company reported a net sales decrease of 1% to $5.93 billion but an increase of 5% when removing foreign currency changes. Globally, same-store sales were up 12.6% in the quarter, fueled by strong demand in the United States and the fast-food chain’s largest European markets.

Kempczinski says he expects a “mild to moderate” recession in the U.S. and a “deeper and longer” downturn in Europe, and he believes short-term inflation will continue in 2023, although executives said inflation in the U.S. has likely peaked.

According to Numerator’s monthly consumer sentiment survey, 64% of consumers have a high level of worry for the U.S. economy, 70% of consumers feel as though the country is in an economic recession, and 70% believe the economy will worsen in the next few months.

Also, The Wall Street Journal reports that consumer spending is beginning to slip. Retail purchases have been down in three of the past four months, while spending on services, which includes dining out, was flat in December after adjusting for inflation—the worst monthly reading in nearly a year.

Consumer spending flourished in the second half of 2020. Government stimulus, high savings and low interest rates encouraged Americans to spend. But now the spending spree is beginning to sputter.

Americans put 3.4% of their monthly income into savings in December 2022, down from 7.5% in December 2021. Balances on credit cards were up 15% on the year in the third quarter, which is the largest increase in more than two decades. The Federal Reserve also is not slowing down its rate hikes to combat inflation, with plans to raise rates another quarter of a percentage point this week.

“The last bastion of strength is the labor market, but I don’t think it can withstand all these other forces,” Nationwide Chief Economist Kathy Bostjancic told The Journal.

There are plenty of jobs for workers; unemployment remains low at 3.5% in December, and hourly wages were up 4.6% year over year. However, cracks are beginning to form. Employers are releasing temporary workers at a fast rate, and those who lose their jobs are now taking longer to find new ones, reports The Journal. Plus, big corporations are shedding workers. Additionally, the number of hours worked a week has declined for two straight months, according to the Labor Department, resulting in a slowdown in workers’ take-home pay.

Economic conditions like employment and inflation have had a huge impact on the convenience retail industry in the past two years. At this year’s NACS State of the Industry Summit, John Benson of AlixPartners LLP will share key insights during a session titled “U.S. Economic Outlook for 2023 and Beyond.” Registration is open at