Inflation Helps McDonald's Beat Chipotle And Shake Shack

Inflation is turning McDonald's into a place for all generations, as its menu is still a bargain compared to the menus of Chipotle and Shake Shack.

For years, McDonald's was the place for a quick, convenient and inexpensive meal, usually for the younger generations living on tight budgets.

Inflation, which has been squeezing family budgets for low and middle-income families, has changed McDonald's image, turning it into a popular dining place for the young, middle and older generations.

"When inflation hits, customers tend to 'trade down,' meaning they'll choose to spend less money at the cheaper option," Bob Vergidis, chief visionary officer of Pointofsale.cloud and restaurant industry expert, told International Business Times. "The problem here is price elasticity. If customers see that prices are increasing or are generally higher at restaurants like Shake Shack or Chipotle, best case scenario, they'll buy less. In a worst case, they'll choose another, cheaper option altogether."

That makes McDonald's one of the most favorable options when trading down. "Customers know what to expect and at a lower price than other, more luxury fast-food or fast-casual restaurants," Vergidis added.

Certified financial planner Andrew Latham agrees. "Whether you're a cash-strapped college student, a family on a budget or retired and on a fixed income, McDonald's has become the go-to spot for affordable and convenient fast food," he told IBT. "Inflation may have turned up the heat, but the golden arches have managed to keep their prices low and their burgers hot, making them an option for all generations. For the price of a single meal at some fast-casual restaurants, you could treat your family of four to a hearty meal at McDonald's and still have money left over for dessert. In fact, on average, a family of four can enjoy a meal at McDonald's for about 40-50% less than at other popular fast-food joints like Chipotle or Shake Shack."

Latham believes that McDonald's price proposition beats Chipotle's and Shake Shack's quality proposition in the current environment. "While Chipotle and Shake Shack may offer higher quality ingredients and more diverse menu options, their prices can be prohibitive for many consumers. In contrast, McDonald's offers a familiar menu at a lower price point, making it a more appealing option for those on a tight budget."

Aiding McDonald's transformation from a fast-food place for the younger generations to a home for all ages are newly refurbished stores and high-quality coffee, which helps lure customers away from Starbucks' third place.

In a recent report, QSR research firm InMarket ranked the top-performing QSRs for customer loyalty and found McDonald's is #2, outperforming chains like Wendy's and Taco Bell. "Known for its value menu items, McDonald's was among the top QSRs for consumers seeking the best value for their dollar," Michael Della Penna, the company's chief strategy officer.

McDonald's popularity among diners of all strands is reflected in the company's fourth-quarter and full 2022-year financials, showing a 12.6% increase in comparable global sales and a 16.5% jump in license revenues.

By contrast, Chipotle's comparable sales (comps) for the fourth quarter of 2022 rose by 5.6%, half as much as for the entire year. Shake Shack's comps rose at an annual rate of 5.1% in the fiscal fourth quarter of 2002, down from 6.3% in the third quarter.

Wall Street has noticed it. Over the last twelve months, McDonald's shares have gained 11.9%, compared to a 4.25% gain from Chipotle and a 22% loss for Shake Shack.

Editor's note: The author owns shares of McDonald's and is short on shares of Shake Shack.