Signal of slowing US consumption: Consumers are becoming increasingly price-sensitive, McDonald's extends $5 value meal promotion

As consumer sensitivity to prices increases, fast food giant McDonald's has decided to extend the promotion period of its $5 value meal, successfully attracting customers back to its stores.

The $5 value meal was launched on June 25th and was originally planned to last for about a month. The meal includes a McChicken or Double Cheeseburger, four chicken nuggets, fries, and a drink, with the combined purchase price much lower than buying these items separately.

According to a memo obtained by the media, McDonald's executives wrote that about 93% of McDonald's stores in the United States have decided to extend the promotion. The timelines vary across the country, with most restaurants planning to offer the meal throughout August, while some are planning to vote on whether to extend it.

McDonald's National President Myra Doria and Chief Marketing Officer Tariq Hassan emphasized in the memo:

"Our concept is resonating with millions of customers. When customers purchase our $5 meal, they are not choosing competitors. Early data indicates that this promotion has achieved the goal of attracting customers back to our restaurants."

They added:

"We must remember that increasing customer traffic is the core driver of our business development and a key factor in achieving sustainable growth."

Analysis points out that the reason McDonald's suddenly introduced the meal promotion about a month ago is that after years of inflation leading to price increases, consumers, especially low-income diners, are hesitant about high prices. Various restaurants have introduced promotions to increase customer traffic. In a competitive environment, McDonald's $5 meal faces competition from other chain restaurants such as Burger King, Wendy's, Taco Bell, and even Starbucks, which have also introduced $3-5 value meals to attract cost-conscious consumers.

The decision to extend the meal promotion until the end of the year by McDonald's now indicates that company executives understand that the trend of slowing consumption will continue. The memo states that McDonald's is considering "strengthening its value meals for the remainder of the year," including possibly extending the current meal for a longer period. The company is also considering extending operating hours to meet customer demand during off-peak hours.

McDonald's plans to announce its earnings on July 29th, providing more detailed information on the effectiveness of this strategy.

Recent signs all indicate that consumer spending in the United States is slowing down. For example, Wall Street's confidence in consumers is declining, restaurant stocks are falling, and Goldman Sachs' trading department warns of hedge funds suddenly selling consumer stocks. Walmart and Target have started a price war, and so on.

At the same time, the New York Fed predicts that the probability of an economic recession is still over 50%, meaning there is a higher likelihood of a hard landing for the U.S. economy in the next 12 months.

The latest survey by American Bank fund managers shows that the first rate cut may come as early as mid-September