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McDonald’s customers shrug off higher menu prices as revenue jumps

By Danielle Wiener-Bronner, CNN Business

McDonald’s has been raising menu prices and customers are eating it up.

Sales at McDonald’s US restaurants open at least 13 months jumped 3.7% in the second quarter, the company said Tuesday.

That growth was driven by higher menu prices and “value offerings” on its regular menu as well as through its app, according to McDonald’s.

Restaurant chains have been raising their menu prices as inflation soars, both because their own costs are rising and they see that customers are not shying away from paying more. But consumers could push back eventually, so McDonald’s is taking baby steps.

“We’re taking smaller, more frequent price increases because it gives us the flexibility to be able to see how consumers are reacting and then adjust if or when necessary,” said CFO Kevin Ozan during an analyst call Tuesday.

“Even though we’re pushing through pricing, the consumer is tolerating it well,” CEO Chris Kempczinski noted. That’s in part because McDonald’s has lots of lower-cost value options. “We’re still doing very well from a value score standpoint,” he said.

Ozan noted that some McDonald’s customers, particularly those with lower incomes, are avoiding combo meals and opting for value items instead. That could be a cheaper menu item or a limited-time deal.

McDonald’s also has been offering some freebies to customers, provided they are part of the brand’s loyalty program and order through the McDonald’s app. Earlier this month, for example, the chain gave away free fries to those customers in honor of “National French Fry Day.” Late last year, the brand partnered with Mariah Carey to give away freebies to app users.

And McDonald’s has had success with its celebrity meals platform, which allows customers to order favorite items of musicians and other stars they admire.

Customers may also feel like they’re getting a better value at a fast-food joint because they’re spending so much more at the supermarket. Grocery prices jumped 12.2% in the year ending in June, not adjusted for seasonal swings, according to data released by the Bureau of Labor Statistics earlier this month. In that period, menu prices grew a relatively modest 7.7%.

“Food at home has increased pricing significantly faster than what … McDonald’s and others in our industry have done,” said Kempczinski Tuesday. “I don’t know what the impact of that is. But certainly, we expect that there is some benefit.”

Consumers may eventually pull back spending, however, especially as more people feel like the US is in a recession.

During the call, Kempczinski noted that consumer sentiment is weak in Europe. “That’s one area of concern,” he said.

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