Companies Counter Pushback on Price Increases With Promotions

The president of McDonald’s USA, Joe Erlinger, pushed back on “inaccurate” reports this week that said the chain had more than doubled its prices on some items over the last decade. But his retort wasn’t exactly reassuring: The average price of a Big Mac is up 21 percent from 2019.

Erlinger’s rebuttal underlines the heat that some companies are facing as the news media, politicians and consumers focus on steadily rising prices. Whether persistent price increases reflect price gouging, or simply companies’ own rising costs, is a matter of fierce debate. Either way, one thing is clear: Consumers are becoming fed up.

McDonald’s first-quarter earnings fell short of analyst expectations on sales, as “consumers continue to be even more discriminating” with their dollars, the chain’s chief executive, Chris Kempczinski said. Starbucks, Target and Yum Brands, the parent company of Pizza Hut and KFC, also reported earnings misses, each acknowledging increasingly cautious customers among other factors like the war in the Middle East.

Consumer spending remained surprisingly resilient in the face of stubbornly fast inflation, but now savings from the coronavirus pandemic have dried up, economic growth has slowed and many companies are working to counteract the belief that their prices have gotten out of control.

As one banker told DealBook: “The consumer was a fat pig — now there’s nothing left, and they need to feed the pig again.”

The message: Consumers have hit their limit. During periods of rapid inflation, companies tend to push to see how far they can raise prices. “We’re taking smaller, more frequent price increases because it gives us the flexibility to be able to see how consumers are reacting and then adjust if or when necessary,” Kevin Ozan, the chief financial officer of McDonald’s, told analysts in 2022.