When times get tough people turn to the familiar and cheap. McDonald's (MCD) certainly counts as both even if its prices have increased, according to CFO Kevin Ozan's comments during the chain's second-quarter earnings call.
"Moving to the U.S. We posted positive comps across all dayparts in the second quarter, led by breakfast. Overall comp sales were up nearly 4% due to higher average check supported by strategic price increases," he said.
McDonald's has not seen more customers, it has pushed its existing customer base into spending more money and the chain plans to keep raising prices.
"Our guest counts were relatively flat, so it really was check driven. And that average check was driven, obviously, mainly by price increases," Ozan said. "Year-over-year in the second quarter, our menu prices were up high single digits, relatively consistent with what I talked about in the first quarter, a little bit higher than that. And we expect for the year to be in that high single-digit range for the full year."
Price increases, however, are not the only thing the chain has put on the menu.
McDonald's Adds Bigger Mac, Doubles Down on Classics
CEO Chris Kempczinski made it clear that the fast-food giant plans to build its immediate future around "strengthening our iconic core menu." That's a strategy that will be a little different from market to market.
"As I’ve mentioned before, in markets around the world, we’re taking our leading burgers and making them even better by implementing enhanced cooking procedures and new buns resulting in hotter, juicier, and tastier burgers," he said.
.The company's classic Big Mac will also be a key part of its strategy.
"We’ll also keep coming up with fresh spins in our classics, creating craveable moments for a new generation of McDonald’s fans. In Germany, strong marketing and core menu campaigns, including the Big Mac celebration featuring Double Big Mac drove strong comps for the quarter," he said.
A double Big Mac is an easy menu add no matter what market you're talking about. It's a new take on a familiar product that gives McDonald's fans an excuse to be indulgent.
Image source: McDonald's
How Will McDonald's Handle Price Increases?
McDonald's faces higher costs in areas including food costs, transportation, and wages. That means further price increases, but the company is approaching that very carefully.
"We do work closely with our franchisees on pricing. We use a third-party adviser that advises the franchisees as well as the company on pricing. It’s a consumer-based research approach" Ozan said. "And I’ve talked before about, specifically this year, how we’re taking smaller, more frequent price increases because it gives us the flexibility to be able to see how consumers are reacting and then adjust if or when necessary."
The company tries to balance its bottom line and customer perception, according to the CFO who will be stepping down from that position.
"One of the most important things that we keep an eye on is — obviously, there are cost pressures, both on the commodity and labor side, but we have to balance that with continuing to provide value for our customers" he added. "And there’s a couple of key metrics that we look at, one called good value for money, which is one of the customer scores we look at; and another is affordable options that I like. And we still continue to do well on those metrics, which is the most important thing to make sure, that our customers still are perceiving our offerings as value."
