The loss of low-income diners cost McDonald’s a lot of money last quarter

McDonald’s apparently failed value deal in the spring cost the company and its franchisees a lot of money and highlighted the chain’s ongoing challenges with lower-income diners.

Same-store sales at the chain rose 0.8% in the U.S. in the period, but its results from lower-income consumers were far worse.

According to the data firm Numerator, spending at the chain among low-income consumers fell 2.4%.

That loss alone cost the Chicago-based chain and its operators $310 million in sales, according to Numerator. Burger King, by contrast, saw its sales among that group grow 0.3%, even though that chain didn’t do near as much value-based marketing.

McDonald’s loss of low-income consumers halted the progress the chain had been making with that group in recent years. According to Numerator, that was McDonald’s first quarterly decline in sales among low-income consumers in a year.

According to data from Restaurant Business sibling company Technomic, McDonald’s lost considerable share among low-income consumers compared with 2019.

In 2018 and 2019, for instance, 34% of spending at McDonald’s came from consumers making less than $35,000 a year. And 51% came from consumers making under $50,000 per year.

These days, however, McDonald’s gets 30% from consumers making less than $35,000 and 42% from those making less than $50,000.

For Wendy’s, the results are similar: Before the pandemic the chain received 47% of its sales from consumers making less than $50,000. These days that number is down to 43%.

Americans on average have cut back on dining, particularly at chain restaurants, compared with five years ago. Much of that has been driven by a low-income consumer that has been burdened by inflation, both among menu prices but also housing, car, health insurance, and other costs.

Restaurants have responded with an aggressive set of discount offers, including menus of items under $3 or $4, boxes priced at $5 and up, and other items. Three out of ten visits to restaurants are on some sort of perceived deal, according to the data firm Circana.

McDonald’s, however, replaced a buy-one, add-one for $1 offer with a menu of 10 items under $3. Yet despite the lower prices for items like McChickens and McDoubles, customers perceived it as a price increase because of the price of two of those sandwiches together would be higher than they were under the add-one arrangement.

The failed discount offer represented the bulk of McDonald’s underperformance on sales and CEO Chris Kempczinski called it a “bad trade.” Wendy’s, meanwhile, changed its Biggie Deals offer, which contributed to a 12.5% decline in traffic last quarter.