McDonald's And Chipotle Showed The Power Of Comfort Food Over Inflation-Strained Consumers

On Monday, McDonald’s Corporation MCD reported its third quarter results with revenue and earnings topping Wall Street estimates as increased prices boosted its U.S. sales. Last week, Chipotle Mexican Grill Inc CMG easily topped earnings estimates as higher prices helped it offset rising costs of beef and queso.

McDonald’s Continues To Dominate The Fast-Food Field

For its third quarter, McDonald’s reported $6.69 billion in revenue that rose 14% YoY, topping LSEG’s estimate of$6.58 billion. Global same-store sales grew 8.8% in the quarter, beating StreetAccount estimates of 7.8% while U.S. same-store sales rose 8.1%, fueled by strategic price increases. Despite higher inflation in Europe, demand in Germany was strong, as was in the U.K. and Canada which fueled same-store sales growth of 8.3% of the international operated markets division. Also, the international developmental licensed markets segment, which includes China and Japan, experienced a same-store sales growth of 10.5%, despite the slow comeback of the Chinese economy. 

But this was also the first quarter this year that its U.S. traffic fell. Although CEO Chris Kempczinski emphasized the company will be vigilant when it comes to consumers making less than $45,000 as the drop is the result of them making fewer visits, Kempczinski also noted that the fast-food chain gained market share with middle- and high-income consumers who traded down from more expensive options.

McDonald’s earned a net income of $2.32 billion, or $3.17 per share. Adjusted earnings amounted to $3.19 per share, also exceeding LSEG’s estimate of $3 per share.

Chipotle Benefited From Raising Prices For The First Time This Year

For the third quarter, the burrito chain reported revenue rose 11.3% which was in line with expectations of $2.47 billion while earning a net income of $313.2 million, or $11.32 per share. Adjusted earnings that exclude corporate-restructuring costs amounted to $11.36, easily surpassing LSEG’s estimate of $10.55.

Fueled by higher transactions and menu prices, Chipotle reported its same-store sales rose 5%, topping StreetAccount’s estimate of 4.6%.

Chipotle reiterated its 2023 forecast, guiding for same-store sales growth in the mid-to-high single digits. Next year, Chipotle plans to open 285 to 315 new restaurants.

The burrito chain raised its menu prices for the first time this year after pausing aggressive price hikes due to lowered consumer spending.

The burrito and fast food chain delivered the affordable indulgence that inflation-strained consumers needed.

When it comes to perception of value and affordability, McDonald’s showed it is still beating its rivals across its biggest markets and Chipotle proved it’s an affordable indulgence as consumers splurged on burritos. Healthy or not, we tend to turn to comfort food in times of stress to get a glimpse of a ‘feel-good’ pleasure that at least for a while, makes us think we can eat our way to happiness. McDonald’s and Chipotle are just one of the many living proofs of how a business can financially benefit from being an affordable ‘provider’ of instant, yet short-term, pleasure during dark times.

DISCLAIMER: This content is for informational purposes only. It is not intended as investing advice.