Experts say a combination of rising household costs and the broader availability of healthy eating options have contributed to a decline in same-store sales growth at McDonald’s.
The slower growth comes as other companies such as Domino’s are experiencing strong growth in both revenue and profit, suggesting a trend towards spending more time in the home.
“The increased cost of living is taking a bite out of wallet share that companies like McDonald’s had previously been enjoying,” franchise expert Jason Gehrke told SmartCompany this morning.
McDonald’s chief operating officer Donald Thompson reportedly said the local market is “challenging”, while a spokesperson for McDonald’s Australia told Fairfax sales growth had been about 2-3% in “recent years”, when historically it had been in the higher single digits.
The company was contacted this morning by SmartCompany but a reply was not available prior to publication.
The revelation of slower growth comes despite the higher performance in the take-away food market over the past few years. After the financial crisis hit in late 2008, many takeaway stores were able to increase revenue and profits as shoppers shunned restaurants and preferred meals under $10.
However, Gehrke says the rise in living costs over the past year – and the onset of the carbon tax –have changed peoples’ minds.
“There are plenty of studies that show fast food brand such as McDonald’s do particularly well in lower socio economic areas, and unfortunately many of these tend to be the hardest hit when cost of living pressures increase.”
“It may not necessarily mean the McDonald’s menu is less relevant – in fact, it may be more relevant than ever – but the frequency of purchasing behaviour has been affected by living costs.”
Gehrke suggests buyers who may have infrequently visited McDonald’s may start cutting back, perhaps from a visit or purchase every month to once every two months.
“And it’s not just utility costs and fuel and groceries, but also rents are higher than they’ve ever been. I’d collectively say living costs are eroding the capacity to do these other things.”
However, other fast-food chains are continuing to thrive. Upmarket burger chain Grill’d is experiencing steady growth, and pizza franchise Domino’s continues to post record results with a profit of $12.3 million in the first half of the year – and nearly half its orders come from online channels.
Gehrke says this may be because of a tendency for people to stay at home, and he also points out that feeding a family of four with a pizza is cheaper than visiting McDonald’s.
However, Gehrke says there’s some good news. The fact McDonald’s is experiencing any growth at all is an achievement.
“The fact they are continuing to grow shows they are doing well. The fact they’re doing less well is probably because of the economic environment we find ourselves in.”
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
