McDonald’s is facing a rare global sales decline as budget-conscious consumers cut back on spending at the fast-food giant. In Australia, the chain is also feeling the heat from new competitors, with customers opting for burritos or charcoal chicken instead of the customary burger and fries.

This shift in consumer behavior raises questions about whether McDonald’s still offers a convenient and affordable meal after a series of price increases. In a cost-of-living crisis, has the famed burger chain become too expensive?

The Price Point problem

McDonald’s recently reported its steepest quarterly drop in U.S. sales since the early days of the pandemic,with same-store sales down 3.6%. Global sales also experienced a decline. These results reflect sluggish spending by consumers in the U.S. and key overseas markets, including Australia.

Executives have noted that high living costs are impacting not only lower-income consumers but also those with middle incomes, a worrying trend for a business that relies on the mass market.

Competitive Pressures

Shaun Weick, deputy portfolio manager at Wilson Asset Management, observes that the rise of competitors, such as the Mexican-themed Guzman y Gomez, is drawing customers away from McDonald’s.

McDonald’s has lost that perception of representing value.

Shaun Weick, Wilson Asset Management

Weick further elaborates:

I’m continually hearing that mcdonald’s is losing market share because they’ve priced themselves out of the market; they’ve gotten too expensive.

Shaun Weick, Wilson Asset Management

The fast-food market is highly sensitive to price changes, as customers constantly weigh the cost and convenience of their takeaway options.

The Cost of a Meal

Over the past three years, McDonald’s has increased the price of a six-pack of nuggets by approximately 22%, bringing it to over $8. A small big Mac meal now costs more than $12, while larger meal deals for bigger burger varieties can exceed $15.

Australian consumers are now questioning whether the narrowing price gap between a McDonald’s meal and more premium options-such as a sub-$20 burger meal at Middle Eastern-style chicken chain El Jannah-is enough to keep them coming back to the Golden Arches.

Research from Sydney-based Fonto indicates that McDonald’s consistently underperforms in customer satisfaction compared to other brands.

There is definitely a preference for those alternatives, particularly as the gap in cost for those meals reduces. McDonald’s has the least satisfaction of the major brands and this is mostly around the price people pay for what they are getting.

ben Dixon, Fonto’s chief executive

Strategies to regain Customers

Despite these challenges, Fonto’s research shows that customers still value convenience, an area where McDonald’s excels. Its Australian business is relying partly on its loose change menu to attract customers during the cost-of-living crisis. In Canada, offering a C$1 coffee has proven accomplished.

KFC, known for undercutting McDonald’s on price, quickly tried to regain customer trust by unveiling value deals for lunch and dinner after customers expressed dissatisfaction with its own price increases.

Economic Factors and Future Outlook

As inflation eases, there are early signs that households are getting on top of their finances. Further interest rate cuts could also benefit consumers, particularly those in the mortgage belt, who frequently visit fast-food outlets.

Weick raises the question of whether McDonald’s will share in this recovery or continue to lose ground to competitors.

The sector is not shooting the lights out at the moment, but there’s a feeling it has bottomed and there’s betterment. But I don’t think the recovery will be uniform.

Shaun Weick, Wilson asset Management