McDonald’s 3Q22 comps increased +6.1%, driven by a +10% menu price increase & positive traffic offset by a mix decline. Notably, the brand’s leading consumer scores around value for money & affordability allow MCD to push through menu price increases which are generating a 70% flow-through (a $1 menu price increase drives an extra $0.70 in sales, in line with its historical range).
Management believes it continues to enjoy pricing power (benefitting from the widest-ever gap between food away-from-home vs food-at-home), especially among the low-income demo where MCD is gaining share. In other words, McDonald’s menu price increases have been more subdued compared to price increases taken by the grocery stores. All the same, McDonald’s order mix decline reflected less high ticket off-premise sales (including delivery) as customers return to using the drive-thru while lower-income consumers also trade down to value deals.
In conclusion, McDonald’s +10% menu price increase seemed better tolerated vs. Chipotle’s +15% menu price increase. This may reflect that McDonald’s prices are the cheapest game in town for consumers that still want to eat out as a treat (or as a necessity). In contrast, there are more choices for Chipotle’s higher-income customers that can always trade down to cheaper chains like McDonald’s.