The cost of price increases! McDonald's stock price plummets 30% in six months, poised for its worst performance since 2002.

A fast-food giant is paying the price for years of price hikes.

McDonald's stock price has fallen nearly 31% from its high in February this year, with a year-to-date decline of 22%. If this trend continues throughout the year, it will be the worst annual performance since 2002.

Just this week, McDonald's announced at its investor day event that same-store sales in the U.S. will see "slight negative growth" this quarter. Last quarter, its sales grew by only 0.8%, the slowest pace in over a year.

Following the announcement, the company immediately unveiled an $8.5 billion multi-year improvement plan, encompassing technology investments, store upgrades, and expansion into chicken and beverage categories. However, the market reacted negatively—investors worried that the significant increase in capital expenditures would erode profits, causing the stock price to fall again.

Price hikes alienate the public.

McDonald's predicament stems from its pricing.

Following the pandemic, McDonald's has continued to raise menu prices to offset rising costs of beef, labor, and fuel. According to The Economist Big Mac Index, the price of a Big Mac in the United States is projected to increase by approximately 23% from 2019 to the end of 2025.

At the same time, consumers themselves are tightening their purse strings under the pressure of inflation and rising interest rates, becoming increasingly picky about every dining expense.

Among the analysts tracked by Bloomberg, Jacob Aiken-Phillips, the only one to give a "sell" rating, bluntly stated:

Their prices have gone up a lot, and McDonald's is no longer considered the best value option for dining out. I could go to Texas Roadhouse, spend about the same amount of money, and enjoy a real dine-in experience with my family.

In 2024, a post showing a Big Mac meal priced at $18 went viral on social media, causing a huge uproar. McDonald's later responded that this was an isolated case at just one of its more than 13,700 stores across the United States.

Competitors seize the opportunity to get ahead

McDonald's price pressure appears even more glaring in the face of its competitors' impressive figures.

Burger King, owned by Restaurant Brands International, saw its U.S. comparable sales grow by 8.5% in the latest quarter, exceeding market expectations. The revamped Whopper and Star Wars collaboration played a significant role in this success. Taco Bell, owned by Yum! Brands, saw same-store sales growth of 7%, with its $5, $7, and $9 combo meals effectively driving customer traffic.

In terms of stock performance, Burger King's parent company has risen 5% this year, while Taco Bell's parent company has fallen 8.4% this year—both underperforming the S&P 500's 13% gain, but still far behind McDonald's 23% decline this year.

Franchisees are not cooperating, making it difficult to implement discounts.

McDonald's value strategy also faces internal resistance.

McDonald's CEO Chris Kempczinski revealed in the second-quarter earnings call that about one-third of franchisees did not follow the company's pricing guidelines, and consumer awareness of related promotional activities was also lower than expected.

Nearly 95% of McDonald's stores are franchised. Franchisees generally resist discount promotions—such as this year's "10 items under $3" combo meal—because while such promotions can boost sales, they directly squeeze already strained operating profits.

Will the "Next" plan work?

Faced with immense pressure, McDonald's launched a new strategy called "Next," which aims to revitalize the brand through technology investments, store renovations, and the reopening of children's play areas that were closed during the pandemic.

Seaport Global analyst Eric Gonzalez is cautiously optimistic, but notes that these changes "will take at least a year to produce noticeable effects." He also believes that negative factors such as increased capital expenditures and recent sales pressure are already reflected in the current valuation—McDonald's stock currently has a price-to-earnings ratio of approximately 17 (based on earnings forecasts for the next 12 months), far below the five-year average.

Despite this, Wall Street as a whole remains positive on McDonald's: among the analysts tracked by Bloomberg, 24 have given it a buy or equivalent rating, 16 are neutral, and only one recommends a sell. The average target price implies approximately 28% upside from Friday's closing price.

Rebecca Walser, chief investment officer at Walser Wealth Management, stated that her firm currently holds McDonald's stock, but investors now need to see tangible improvements in food quality and value for money, as well as signs of a continued recovery in customer traffic. Walser said:

McDonald's is part of American culture: Happy Meals, Burger Thieves, Ronald McDonald, Play Area. They need to reinvent that experience. We truly believe McDonald's can overcome this challenge.

A McDonald's spokesperson reiterated on Friday that the company will act with a sense of urgency to get its U.S. operations back on a stronger track by the end of 2026.

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