McDonald’s executives said visits from this cohort were down by double digits in the fourth quarter
Though there are plenty of predictions about stability and modest growth in 2025, several uncertainties remain. Perhaps one of the biggest questions is whether low-income consumers will return to restaurants.
We saw a drop off among this demographic sometime during the second quarter of 2024. McDonald’s acknowledged the trend and promptly put into place a $5 Meal Deal to lure these customers back, triggering a broader value battle across the industry. It was an important tactic, given that lower-income consumers — defined as those who make less than $2,000 a month — make up a big chunk of restaurant visits and especially quick-service segment visits.
For McDonald’s specifically, the value offering helped generate a traffic bump, but the chain’s full-year performance remained relatively lackluster — even taking into account its E. coli outbreak in October. During the company’s earnings call earlier this week, chief executive officer Chris Kempczinski said low-income consumer visits industrywide remained down by double digits in the fourth quarter.
“That low-income consumer is overweighted in the industry relative to the U.S. in total,” he said. “So that’s the landscape we’re looking to navigate through.”
That said, other restaurant companies reported gains across income cohorts. During the most recent earnings call from Brinker International, parent company of Chili's and Maggiano's, chief financial officer Mika Ware said, “Every income level is growing, every demographic is growing, all the dayparts are growing, off-premise, on-premise, all of it. All these things are working together so that all pieces of the business are getting better.”
Chipotle CFO Adam Rymer said all income cohorts are contributing “nicely” to his company’s comp performance, with same-store sales up 5.4% during the quarter. Meanwhile, McDonald’s QSR peer Taco Bell experienced a 5% same-store sales increase. During parent company Yum Brands’ earnings call, CEO David Gibbs said the chain increased consumer frequency across all income segments.
So, is the exodus of low-income consumers just a McDonald’s thing? Certainly, with the size of its footprint, the chain tends to affect broader trends. But, Revenue Management Solutions finds that 45% of diners are visiting the overall QSR segment less often than they did pre-pandemic. Low-income diners are driving this decline: 48% of those earning under $50,000 annually report visiting QSRs less, compared to 41% of middle- and high-income diners.
The drop in table-service restaurant visits is even more pronounced: 51% of all diners reduced their visits. Among low-income diners, this figure jumps to 57%, while just 41% of top earners reported a decrease. Thirty percent of high-income diners are dining out more often.
In other words, no, it’s not just a McDonald’s thing and brands like Chipotle, Chili’s, and Taco Bell are rather anomalous right now.
This year will likely be defined by a continued evolution of value pricing to try and win back lower-income consumers. For its part, McDonald’s rolled the $5 Meal Deal into something more holistic with the McValue platform it launched in January.
There are some reasons for optimism here. For starters, McDonald’s CFO Ian Borden said the fourth quarter marked a “high point” in terms of share with lower-income consumers. It’s also worth noting that restaurants are more favorably positioned than they have been in a while as grocery prices are currently rising at a faster clip.
But the overall price index also ticked up higher in January, meaning consumers are paying more this month than last month for their necessities. That puts less money in their pocket for discretionary food purchases. In fact, the jump in prices in January completely offset the 0.5% increase in average hourly earnings.
For over a year now, the industry has managed a resilient yet selective restaurant consumer and that doesn’t seem likely to change anytime soon given these conflicting trends. As the environment continues to evolve and competition intensifies, perhaps it’s worth pulling a page from one of those anomalous companies. Chipotle CEO Scott Boatwright describes what it takes to have a winning playbook as “benefit over price.”
“We understand that value for the consumer is grounded in high quality ingredients, abundance, variety, and speed at a price point that is heavily discounted compared to our peer groups,” he said.
Contact Alicia Kelso at [email protected]
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