McDonald’s (NYSE: MCD) stock had a nice post-pandemic rebound. But ultimately, it turned out to be a lot like the company’s food…
A lot of empty calories with no real nutritional value.
Consider that prior to the pandemic, MCD stock was trading around $215 per share. It tumbled with the rest of the market in 2020 when the pandemic put a damper on dining out. But then came the rebound.
As the pandemic dissipated, resurgent consumers with money to burn returned to the happy meals they’d long missed. And with that, McDonald’s stock surged to more than $300 per share — twice what it was at its 2020 bottom and 50% higher than its pre-pandemic level.
That would prove to be its high point.
Since then, the stock has tumbled back down to $250 per share — and the trend is no longer Ronald’s friend.
It turns out that the secret ingredient in McDonald’s growth wasn’t just a resurgent American consumer, but also its price gouging.
One oft-noted example is the price of a Quarter Pounder with Cheese meal, which has more than doubled since 2014, rising from $5.39 to $11.99. Other meals carried even higher price tags approaching $20 a piece. Join Wealth Daily today for FREE. We’ll keep you on top of all the hottest investment ideas before they hit Wall Street. Become a member today, and get our latest free report: “How to Make Your Fortune in Stocks”
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And that trend has been consistent across the restaurant’s offerings, according to FinanceBuzz.
McDonald’s evolution from a low-cost fast-food chain to an apparently high-end burger shop — at least in terms of price — caught many Americans off-guard, contributing to a massive rise in social media posts from customers in the throes of sticker shock.
Now, to be clear, gauging fast-food prices can be tricky, as they differ depending on the franchise’s location and management. Still, the company’s corporate headquarters certainly has the ability to guide or rein prices in if need be.
Additionally, McDonald’s argument that the higher menu prices result from higher input costs for ingredients and labor is belied by the company’s rising profit margins and earnings calls that touted the success of “strategic” price increases.
That is, McDonald’s profit hit a record-high $14.56 million in 2023 after setting back-to-back quarterly profit records in the first half of last year.
Even by the company’s own admission, prices are significantly higher than they were just a few years ago. In an effort at damage control that I can only describe as counterproductive, McDonald’s USA President Joe Erlinger argued that prices are only up 40% since 2019.
That includes a 27% increase in the average cost of a Big Mac, a 28% increase in the cost of a 10-piece McNugget meal, and a 44% increase in the cost of a medium french fry.
When you’re playing defense by saying that your fast-food prices have “only” jumped 30%–50% in five years, that’s not a great look. It also doesn’t refute FinanceBuzz’s math — they just used 2014 as a comparable, as opposed to 2019.
In any case, it’s McDonald’s that’s now paying the price.
In April, the company’s first-quarter earnings reflected a profound change in consumer sentiment, falling short on both revenue and earnings.
“Consumers continue to be even more discriminating with every dollar that they spend as they faced elevated prices in their day-to-day spending, which is putting pressure on the QSR industry,” CEO Chris Kempczinski said at the time.
The second-quarter results the company released yesterday were even worse.
McDonald’s reported revenue of $6.49 billion, compared with estimates of $6.63 billion, and adjusted EPS $2.97 also came in lower than the $3.07 Wall Street expected.
Worse, U.S. same-store sales actually fell 0.7% — the first decline in four years. And that’s in spite of an effort by McDonald’s to reestablish itself as a value chain with a new $5 value meal offer. Clearly that wasn’t enough to draw customers back, which suggests some lasting damage has been done.
It’s a new normal that a lot of companies must now confront. Consumers are simply done spending wildly.
A January poll by consulting firm Revenue Management Solutions found that about 25% of people who make under $50,000 were cutting back on fast food, pointing to cost as a concern.
That’s not a surprise when you consider McDonald’s competitors Popeyes, Jimmy John’s, and Subway have hiked their respective food prices by 86%, 62%, and 39%.
Casual restaurants like Applebee’s and IHOP have seen a drop-off in low-income consumers, too.
Now these chains must compete to win them back, which should bring menu prices down to a more enticing level. Of course, that will come at the expense of the price margins that made these stocks so fat in the first place.
They’re not going to like having to diet.
Fight on, Jason Simpkins Simpkins is the founder and editor of Secret Stock Files, an investment service that focuses on companies with assets — tangible resources and products that can hold and appreciate in value. He covers mining companies, energy companies, defense contractors, dividend payers, commodities, staples, legacies and more… In 2023 he joined The Wealth Advisory team as a defense market analyst where he reviews and recommends new military and government opportunities that come across his radar, especially those that spin-off healthy, growing income streams. For more on Jason, check out his editor’s page. Be sure to visit our Angel Investment Research channel on YouTube and tune into Jason’s podcasts. Want to hear more from Jason? Sign up to receive emails directly from him ranging from market commentaries to opportunities that he has his eye on. 
