Fast food giant McDonald’s is trying to tamp down inflation by offering the $5 meal to lure back customers. In its most recent quarterly earnings report, the company admitted to challenges in the marketplace from competitors, higher food costs, higher wages, and slowing demand. As a result, the stock took a major beating, falling some 14% from all-time highs.
Can McDonald’s fight inflation on its own?
Last week, the company announced it’s bringing back the $5 value meal. It took everyone by surprise, but what really stood out for me is the fact that a global company is saying it’s also fed up with high prices. (CPG companies have already faced this backlash.)
Will their move be enough to bring down retail and restaurant prices?
Since 2020, companies have freely raised prices on their products, citing higher costs for raw materials, soaring wages, and strong demand. Chipotle, Williams Sonoma, Target, LuluLemon, and Nike – among many, many other companies – have made price increases stick. Most companies are not yet will to stop raising prices, let alone drop prices.
Consumers have had enough, and the news from McDonald’s should be taken seriously.
Their customers are fed up and unwilling to pay $15 (including tax) for a Big Mac meal deal (which is NOT a deal). With sales lagging, McDonald’s read the writing on the wall. And this is why economics works so efficiently. Demand won’t rebound until the consumer is satisfied that the price they are paying delivers value.
The Fed is watching how this plays out
This move by McDonald’s smells of desperation, but desperation is what often kickstarts a downward spiral in prices. The Federal Reserve Open Market Committee may not actually comment on this move, but they will certainly watch to see if it successfully lower prices to meet demand.
So this begs the question: Can McDonald’s spur others to reduce prices and ease inflation?
It’s been done before, but it might take some time. That doesn’t change the fact that consumers are tired of continuously paying higher prices for goods and services.
Data tells us that inflation has been easing over the past 15 months, but retailers and restaurants are not responding. Instead, they continue to raise prices whenever possible and pocket huge margins.
Let’s see what happens on May 15, when we’ll have the latest read on consumer inflation (CPI) for April, along with retail sales figures.
If those numbers are weak, it’s a sign that cracks are appearing in the inflation glass. We might only need to see a few more retail names join McDonald’s in this effort to slow down inflation. And that is typically where price drops start, not where they end.
