Can McDonald’s prevent Greggs from eating their lunch?

Commentators and institutional investors wondered if the first global sales drop since the pandemic was the result of a larger malaise.

Chris Kempczinski’s chief executive acknowledged that “it is clear that our leadership in value has shrunk”. Chris Kempczinski, chief executive of McDonald’s, acknowledged that “it is clear that our value leadership has recently shrunk” after a 1 per cent drop in same-store sales in the second quarter.

McDonald’s attributed the decline in its US customers to price increases, the “continued effects of the Middle East war” and a weaker Chinese demand.

McDonald’s UK has been operating in the UK since the year 1974. There are almost 1,500 McDonald’s restaurants throughout the UK and Ireland.

Danni Hewson is the head of financial analysis for AJ Bell. She said that although McDonald’s initially “stood up to the cost-of-living crisis by offering value to cash-strapped customers looking to trade-down”, inflation has “steadily scraped at household budgets”, and some of McDonald’s lowest-income clients have been forced to cutback, or even cut out Big Macs.

The golden arches are no longer a favorite of the UK public. Are customers switching their allegiances to Greggs, a chain of 2,500 bakeries?

McDonald’s has been the leader in value on the UK market for many years. However, due to the inflation of food prices, the gap between McDonald’s and other quick-service (QSRs) restaurants has shrunk considerably. This has given other players an opportunity. McDonald’s food prices in the UK increased by 30 percent between 2021 and 2024. The average cost of a Big Mac has increased from £4.49 to £7.90 in 2018, an increase of approximately 75 percent.

Wayne Brown, an economist at Panmure Liberum said: “I believe that’s where McDonald’s lost a little share.” It’s the price, but I think consumers are now questioning prices on most products they purchase.

“One should not forget that Greggs used to be a bakery. Its transition into QSR was a natural progression. What they have been able do in the last few year is to grab a significant market share from a very low baseline during certain day-parts.

They started with breakfast, and then very slowly increased their breakfast range by targeting basic bacon rolls and coffees. It was able do this because it had already redesigned its supply chain to support and supply a QSR (food on the go) business as opposed to a supermarket business.

He stated that Gregorys targeted players with significant share of market. “So you’re seeing a rise in the value end segment.”

Greggs invests in delivery, expanding its menu, extending its day-parts and loyalty schemes, improving customer convenience, and improving store layout.

Greggs also introduces food items that it knows will be a hit after testing them out in the stores. Brown explained that the goal is to deliver a product of higher quality for a lower price, and perhaps operate in the segment of market where McDonald’s left.

Wayne Brown, Panmure Liberum, says that McDonald’s isn’t going to be closing anytime soon.

Kempczinski (55), told investors the company needs to “rethink” its pricing structure. This includes meal deals and menu items. However, he also said that in the past, the company has shown that it is adept at navigating difficult consumer markets. He said, “We are experts at this.” “We have written the playbook for value, and are working with franchisees to make necessary adjustments.”

Some are still not ready to give up on the golden arches. Brown, Panmure Liberum’s director of marketing and communications, said that despite McDonald’s troubles: “I do not think the public has lost love with McDonald’s in any way.” For many years, I believe that it has been at the forefront of innovation and pricing. It also appeals to an extremely broad demographic. They have one of best distribution footprints in the industry.”