McDonald’s Vows to Keep Burger Prices Competitive as Sales, Prices Rise

McDonald’s Corp. needs to make sure its burgers and coffee don’t grow too expensive for customers, its chief executive said, as restaurant owners raise menu prices to offset their own rising costs.

McDonald’s MCD 3.08% said Thursday that its U.S. locations increased menu prices by an average of 8% in the first quarter, compared with last year’s period. Those increases, along with its loyalty program and core menu items including burgers and Chicken McNuggets and poultry sandwiches, helped lift McDonald’s MCD 3.08% U.S. comparable sales by 3.5%, the company said.

Restaurants and food companies are trying to balance raising prices to offset more expensive ingredients and wages against consumers’ ability and willingness to pay higher prices. U.S. inflation hit a new four-decade high in March, driven by surging food and energy costs, as well as supply-chain constraints.

McDonald’s Chief Executive Chris Kempczinski said the company is focused on remaining a good value for diners, particularly for low-income customers who are more likely to notice inflation.

“We’ve always got to stay competitive on value,” Mr. Kempczinski said. “When we lose sight of that, there’s a long history of that being where we’ve kind of gotten off track.”

Consumers so far haven’t resisted McDonald’s menu price increases, executives said, but some diners are trading down to cheaper options, or ordering less food per visit. U.S. guest counts dropped roughly 1% in the quarter compared with a year ago, and store hours remain down slightly from prepandemic levels.

Higher menu prices helped lift McDonald’s total sales to $5.67 billion for the quarter ended March 31, outpacing expectations of analysts surveyed by FactSet. McDonald’s shares rose 2.5% to $253.37 in late-morning trading.

McDonald’s reported quarterly earnings Thursday of $2.28 a share, after adjusting for the closure of its Russian market and the potential settlement of an international tax matter, exceeding analysts’ expectations of $2.17 a share.

Drive-through and online sales are helping the company’s business, and the chain said that McDonald’s is now the largest fast-food delivery service in the world. Delivery is still growing in many countries despite markets reopening from Covid-19 restrictions, McDonald’s said.

The company said Thursday that it expects food and other costs to rise 12% to 14% this year on an annual rate, greater than expected. Labor costs in the U.S. are up 10% from last year, reflecting the company’s move to increase wages in its own restaurants, it said.

“Food and paper inflation has definitely increased substantially,” said Kevin Ozan, McDonald’s chief financial officer, on an investor call.

Airlines, gas stations and retailers use complex algorithms to adjust their prices in response to cost, demand and competition. WSJ’s Charity Scott explains what dynamic pricing is and why companies are using it more often. Illustration: Adele Morgan

Restaurants have steadily increased menu prices in response to rising costs, and investors are watching for signs of consumer pullback. Chipotle Mexican Grill Inc. said Tuesday that it boosted prices more than 4% at the end of its quarter ended March 31, and could increase them again to offset costs.

Chipotle Chief Financial Officer Jack Hartung said in an interview that consumer demand hadn’t slowed down despite inflation pinching consumers’ wallets.

McDonald’s said its same-store sales globally grew 11.8% during the quarter, compared with a year ago. Sales improved in countries such as France and Germany as Covid-19 restrictions relaxed, while a surge in cases in China led to a drop in same-store sales during the quarter, the company said.

The Chicago-based burger chain reported net income of $1.1 billion for the quarter, down 28% from last year’s period. The company said it incurred $127 million in costs in its first quarter related to the closure of its Russian market in response to the country’s invasion of Ukraine, with expenses coming from continuing payment of staff salaries and unsold inventory.

McDonald’s said its Russian restaurants remain closed, and that it expects the military conflict to hurt the chain’s sales and profit as long as it continues. The additional costs total roughly $50 million a month.

McDonald’s said it temporarily closed its Russian restaurants in mid-March, while continuing to pay the 62,000 people the company employed there. The company owns and operates 84% of its restaurants in Russia, with the rest run by franchisees. McDonald’s also owns 108 restaurants in Ukraine, which it closed at the end of February, the company said.