Category leader McDonald’s finds itself raising prices an average of 8% to continue to drive revenue through an uncertain 2nd quarter. Despite commodity costs that have roughly doubled since the previous quarter in the United States and Europe and are tracking 14% higher for the year, total revenue increased 11% to $5.67 billion, beating expectations for $5.59 billion. The revenue increase was driven primarily by a global comparable sales increase of 11.8%, above estimates for an 8.2% gain. McDonald’s suspended operations in Russia following sanctions imposed as a result of the war in Ukraine, and the world’s largest burger chain reports it is spending $55 million per month to pay staff, landlords and suppliers, on top of an estimated $100 million loss from disposing of inventory from shuttered restaurants. The company said it expects to set a long-term strategy for their Russian restaurants no later than the end of this quarter.
As lower-income customers feel the effects of higher costs of staples like gas, rent and groceries, they are starting to buy cheaper or fewer McDonald’s menu items in some areas, Chief Executive Officer Chris Kempczinski said in a call with investors.
“In certain parts of the business and in certain geographies, there is a little bit of a trade down that we’re seeing that we’re just keeping an eye on,” Kempczinski said. “We need to make sure that we continue to have value be an important part of our proposition.”
Overview by Don Apgar, Director, Merchant Services Advisory Practice at Mercator Advisory Group