McDonald’s beat Bloomberg Consensus estimates on both earnings and revenue for the second quarter, but that’s not the most interesting part. What’s more intriguing is that executives admitted breakfast has become the chain’s weakest-performing daypart, signaling a troubling shift in low-income customer behavior.
JPMorgan analyst John Ivankoe asked CFO Ian Borden about the “weakness” in the lower-income consumer base and how this may be a “leading indicator for the US.”
Borden responded by saying: “With the low-income consumer, despite improvements in wage gains, real incomes are down. So real incomes are down with the low-income consumer. That absolutely is going to put pressure on visits into the QSR industry.”
More interesting, Borden explained how the situation of “unease with low-income consumers” has resulted in these customers “skipping a daypart like breakfast, or they’re trading down either within our menu, or they’re trading down to eating at home.”
Here’s the conversation between Ivankoe and Borden on the earnings call:
Question via JPM John Ivankoe:
Hi, thank you. The industry has been talking about weakness in the consumer base and lower income consumer base really since at least the second half of 2023. So it’s been quite some time. So I’m really hoping for some diagnostics, I guess, at this point in terms of why that’s happening. If I were to take a step back and look at your compression of pricing versus grocery year-on-year total employment gas prices, some of the normal pressures that would be affecting quick-service traffic quite frankly don’t exist. I mean, at least from a macro perspective. So can you explain, I guess, what’s happening in the U.S. and is U.S. potentially a leading indicator for other major markets or might other major markets in some ways be a leading indicator for the U.S.? Thank you.
Answer via MCD CFO Ian Borden:
Well, I think if I had an easy quick answer to that, I’d probably be working in the government because I think that is a big question for all of us to try to unpack. But I would just note a few things. With the low income consumer, despite improvements in wage gains, real incomes are down. So real incomes are down with the low income consumer. That absolutely is going to put pressure on visits into the QSR industry.
Second thing is, there’s a lot of anxiety and unease with that low income consumer. I think we could all speculate the reasons for that, probably tariffs and the impact that might have, questions around employment situation, but it’s clear from the data that there’s also beside real incomes Being down that sentiment is being down is down. And the result of that is you’re seeing people either skip occasion, so they’re skipping a daypart like breakfast or they’re trading down either within our menu or they’re trading down to eating at home. So those would be sort of my simple kind of read on what’s going on. But I’d say it’s — that’s as much conjecture as it is being able to point to specific things, it’s a big question for the industry.
For low-income consumers already grappling with years of shrinking real wages under the Biden-Harris regime, spending $8 – $10, if not sometimes even $12 – $15, on a McDonald’s breakfast meal is a significant outlay, especially when compared to eating at home, which costs a fraction of that – and is much healthier.
Translation: McDonald’s serves millions daily, primarily working-class, lower-income, and time-starved consumers across 13,500 stores in the U.S. When these customers start cutting back on breakfast, it’s a flashing warning sign for the broader U.S. economy.
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