McDonald's customers aren't pushing back on higher prices, analyst says
McDonald's (MCD) customers in the U.S. are still lovin' the fast food chain, even with higher prices.
In the third quarter, U.S. sales at the Golden Arches increased by 6.1% as more customers made their way back inside restaurants while delivery sales saw a record-high quarter and drive-through sales returned to pre-COVID levels. This positive momentum came despite menu prices increasing by 10% year-over-year.
"McDonald's in the U.S. had positive traffic — not many restaurants today have positive traffic in the U.S.," Peter Saleh, managing director and restaurant analyst at BTIG, told Yahoo Finance Live (video above). "Consumers are not necessarily pushing back on the higher prices, which are up about 10% year-over-year, despite all the inflation that we're seeing."
In September alone, McDonald's saw foot traffic increase by 6.2% year-over-year, according to Placer.ai's Bracha Arnold. That surpassed foot traffic across the wider quick service restaurant (QSR) category, which only saw an uptick of 0.8% during the same time period.
On an earnings call with analysts Thursday, McDonald's executives emphasized that the company was still able to "push through pricing" despite challenges in the current macroeconomic environment, proving the "strength of the brand proposition" compared to its competitors.
CEO Chris Kempczinski also noted that the restaurant industry continues to benefit from higher prices for food at home.
In September, grocery prices increased by 13% while the price of food away from home went up 8.5%, per the U.S. Bureau of Labor Statistics.
With a recession potentially underway, Saleh, who has Buy rating and $280 price target on McDonald's stock, noted that consumers will likely look for value when it comes to food purchases.
"Bottom line is consumers still have to eat, so you're either eating at the grocery store or you're eating at restaurants," Saleh said. "Grocery store pricing is up more so than restaurant pricing. At this point, restaurants are actually providing a little bit more value than they have historically."
However, should key economic factors deteriorate, it may not be all golden for the food chain, Saleh warned.
"If we go into a recession, where we start to lose jobs and unemployment goes up, that's when I think you'll see consumers start to push back," Saleh said.
Brooke DiPalma is a reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.
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