Tatton Teaser

Posted 8 August 2024

Cost of living bites

McDonald’s recorded its first drop in sales since the pandemic as the company published its Q2 numbers. Comparable year on year global sales were down 1% to the end of June, with both the domestic US and international sales figures falling. McDonald’s has historically been seen as good value and been a beneficiary of consumers trading down to save money. However, a series of price increases has meant that more consumers – and particularly those on lower incomes – are now eating at home or seeking value elsewhere. This has raised concerns around the wider strength of the consumer and whether the cost-of-living squeeze is now materially impacting spending habits. This fear is perhaps reflected in the company’s share price which fell c.13% in the first 6 months of the year. In response to this McDonald’s, who arguably wrote the value playbook, have launched several initiatives to win back custom with ‘Meal deals’ in the US and the UK also. Although this has been received positively, McDonald’s execs warn this slump in sales may continue in the near term.

One food and beverage business that doesn’t seem perturbed by the cost-of-living increase is Greggs plc. Where total sales over the first half of 2024 were up by 14% compared to the same period last year. Having risen to the top of the “to go” breakfast market in 2021 and stolen McDonald’s crown, the company is seeking to expand its evening trading hours as part of its strategy to double its 5-year sales figures. Greggs has excelled in the breakfast and lunch market where consumers are happy to eat their food on the go, but dinner may be a tougher nut to crack. It remains to be seen whether diners will be convinced to trade their burger for a sausage roll.

Thank you John Messer for the analysis.