McDonald’s CEO Says ‘Sticky’ Inflation Is The New Operating Reality — Doesn’t Expect Industry To See Robust Traffic Growth ‘All Of A Sudden’

• McDonald’s is pursuing market-share gains, tighter cost controls, and restaurant upgrades to adapt to a tough long-term operating environment.
• McDonald’s is targeting 1.5 percentage points of market-share gains in both chicken and beverages markets by 2030.
• The fast-food restaurant chain is aiming for low-to-mid 50% operating margins by 2030.

McDonald’s (MCD) CEO Chris Kempczinski said the fast-food giant is preparing for elevated inflation and weak industry traffic to stick around, making market-share gains increasingly important for future growth.

In a CNBC interview on Wednesday, Kempczinski said McDonald’s no longer views the current inflationary environment as temporary.

“We’re not expecting that the industry, all of a sudden, is going to have robust traffic growth. It’s going to be largely flat. We do think inflation’s going to be with us for, unfortunately, many more years at an elevated level,” he said.

Kempczinski said inflation remained “sticky” globally, highlighting the increase in beef prices. Beef prices rose about 14% last year and have nearly doubled over the past five years in McDonald’s largest markets, he said. That has changed how the company thinks about growth.

“And the biggest thing that you need to do in an environment like that is you have to be able to earn share,” he added.

At the time of writing, MCD stock was down 6.2%, its biggest single-day slide since March 2020. The stock was also trading at near 4-year lows, having declined in 9 of the last 11 sessions.

McDonald’s Sees Potential For Growth In Chicken And Beverages Markets

Two areas where McDonald’s sees significant room to gain market share are chicken and beverages.

Kempczinski said the global chicken category is worth roughly $130 billion, compared with around $50 billion for beef. McDonald’s has about 20% of the chicken market versus roughly 40% in beef, he said. Beverages represent an even larger $230 billion category, where McDonald’s has around a 10% market share.

The ‘NEXT’ Strategy

McDonald’s also unveiled its new “McDonald’s > NEXT” strategy, targeting 1.5 percentage-point gains in market share in both chicken and beverages by 2030, while maintaining its leadership in beef.

Under NEXT, McDonald’s is targeting an operating margin in the low-to-mid 50% range by 2030 and about 250 basis points of gross restaurant-level efficiency gains. The company estimates that those efficiencies could eventually provide roughly $100,000 in annual cash flow benefits for the average U.S. outlet.

McDonald’s also plans to provide around $8.5 billion in financial support to franchisees through 2036, including roughly $5 billion through 2030, to help fund restaurant modernization, technology, and operational improvements.

The strategy also focuses on efficiency, as McDonald’s seeks to offset persistent cost pressures without relying too heavily on menu price increases.

Kempczinski acknowledged the company needs to be careful with pricing, saying McDonald’s previously made the mistake of raising prices beyond what some consumers were willing to pay.

“There will be a desire to certainly try to pass some of that through, but at the end of the day, we've got to make sure that we're providing better value than any of our competitors,” he said.

Retail Sees Buying Opportunity

Retail sentiment surrounding MCD on Stocktwits remained ‘bullish’ over the past 24 hours, amid ‘high’ message volumes.

Another user saw a buying opportunity.

The stock is down 23% so far this year.

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