The Big Mac Dilemma: Can McDonald's Fix Sales? | Fortune Daily

0:03Kristen Stoller: That is so good.

0:05Phil Wahba: That's Chris Kemsinski, the CEO of McDonald's, apparently taking a big bite from his big arch burger. That's a premium burger that it has to be said is the antithesis to the cheaper meals that he promised to his quote, lower income customers on an earnings call last year. McDonald's currently generates 40 % of its revenue from here in the United States. However, the Big Mac empire has only seen a tiny 0.8 % sales growth in its most recent quarter. Compare that to its rival Burger King, which has seen an 8.5 % jump over the same period. So why are those golden arches losing their gleam? Fortune's Phil Warber joins me to explain what it will take to get customers back eating those Big Macs.

1:00Phil Wahba: I'm Ellie Austin and from New York, this is Fortune Daily.

1:08Phil Wahba: Phil, welcome back to the show. Thank you. We're here today to talk about a big story you published yesterday about the decline of McDonald's, a much-loved chain that has come by some tough times in recent years. So McDonald's, its executive team, has spent much of this year essentially saying to customers, we've heard you, we'll do better, here are cheaper meals. Are they doing that, first of all?

1:34Ellie: They are, but they had some execution problems with it this summer, and that did not prevent them from having a decline in store visits. And every quarter of this year, sales growth has shrunk.

1:46Phil Wahba: Quantify these challenges that McDonald's is having right now for me.

1:49Ellie: Well, the challenges, to be clear, are mostly centered on its U.S. business. That's about 40 % of sales. But we saw in each of the last three quarters, the rate of growth has dramatically shrunk. And it was 0.8 % last quarter. And that's getting pretty close to zero and even negative. The most worrisome statistic last quarter for the company, and this was data from Placer AI, a private company, store visits fell 4.5 % in the second quarter at McDonald's in the United States. And that is bad because if people fall out of the habit of going to your restaurants, well, you can innovate until the cows come home, but it's not going to help you.

2:32Ellie: So, you know, sales can fluctuate, but you really need to keep people in the habit of getting their burger from you.

2:38Phil Wahba: And what did your reporting tell you about that drop in traffic? Why is it happening?

2:43Ellie: The lowest income diner who stayed away.

2:46Phil Wahba: So how much have prices risen at McDonald's? Set the scene for us.

2:49Ellie: Well, they've actually fallen because they had been a bit aggressive in prior years. And with the price of gas right now and rents and also interest rates going up, consumers at the lower end of the income spectrum are feeling pinched. And so they're much more sensitive. and that is where and the food catering to that demographic is where McDonald's had the real problems.

3:11Phil Wahba: I have to say I haven't had a Big Mac in a while. Can you give us a sense of what kind of their key offerings cost now?

3:18Ellie: A Big Mac is in the five six dollar range but now what they've been doing is they've been trying to bundle different items and be more creative with it so at one point they had this promotion you could get one of the regular meals plus another item for a dollar. But the result of a lot of this, because they've been trying a lot of things, a lot of promos at the same time, is that it has created a lot of complexity in the kitchen and it has hurt customer service and that has affected sales.

3:50Phil Wahba: So is that the execution problem that you alluded to in your earlier answer?

3:53Ellie: Yes, absolutely.

3:54Phil Wahba: So slow service.

3:55Ellie: Yeah, slow service, but also just changing the specials that they were offering. And that has really irritated the franchisees. And that's another big problem that they have on their hands.

4:07Phil Wahba: We're going to come to the franchisees in a minute. But first of all, we talked about lower income customers departing McDonald's, as it were. Where are they going instead?

4:17Ellie: Well, cooking at home more. It is, you know, McDonald's is, for most Americans, not that expensive. But it is a treat for the lowest income family. So people have been cooking more at home and buying the least expensive groceries.

4:33Phil Wahba: And tell me what the CEO, who's known as Chris Kay, has been saying in response to this. So I said at the top, he said to customers, we hear you. How else has he responded to the decline in the business?

4:45Ellie: Well he has offered more deals because their middle of the road offering has done better with customers than their lowest. So he's trying to find that balance between having enough for every demographic. I mean, they sell food to a lot of people. Everybody from Lizzo to the struggling single mother eats there. And it's been a mix of these offerings. But it's just in the meantime, you've had Burger King and some of the chicken chains that have just come in. And it's just been a much simpler business proposition. And they've just flown with it.

5:21Phil Wahba: So tell me a bit more in detail what Burger King, for example, is doing that McDonald's isn't, because they're key rivals.

5:27Ellie: They're key rivals, but Burger King has a simpler menu. They also have a slightly less price sensitive consumer, to be fair to McDonald's. And McDonald's has had problems. It's not a catastrophe yet. They're getting there, but they have to get out of their own way. Burger King has also, to come back to the franchise, is Burger King has been much more aggressive about remodeling and modernizing its restaurants than McDonald's has. And so their menu innovation has been there. They also have chicken products that are very popular. And so Burger King was really in terrible shape three years ago. And now look at them.

6:07Phil Wahba: And McDonald's has not remodeled its restaurants in the same way. I went to one relatively recently I remember thinking there were a lot of screens around, which there weren't when I was growing up. But what else does a McDonald's restaurant look like right now?

6:19Ellie: About 10 years ago, they modernized with kiosks where you could order on a screen. But typically there's a 10-year cycle and you need to remodel and renovate. And this is where we're coming up now. So McDonald's is getting its franchisees to do the mandatory remodeling. that happens every few years, but now the franchisees are, well, you're making our operations more complex and sales are falling. And so there's a lot of tension.

6:48Phil Wahba: Let's get into the franchisees. They own 95 % of McDonald's restaurants. And some have already resisted the company's discounting schemes. So how much room does McDonald's actually have to keep offering these kinds of deals when the people operating the restaurants are against those lower margins and kind of pushing back against them?

7:08Ellie: Well, McDonald's has to make peace with them, and that was a big part of their investor day last week. McDonald's is offering$8.5 billion to its franchisees that most of it will come in the form of help with capital expenditure, because they're each being asked to spend about a million dollars renovating and upgrading the restaurants per restaurant. And also rent break because McDonald's is not exposed directly to sales fluctuations. Those are really the franchisees. But of course, what affects the franchisees affects McDonald's.

7:44Phil Wahba: What are the franchisees saying about this handout from the umbrella company?

7:48Ellie: Well, it's fairly new, but they're skeptical. I think that they really just want to see that McDonald's menu innovations work and are attracting customers and also that their deals are working. Because one of the problems this summer was that franchisees, many of them opted out of the under$3 menu items that McDonald's had pushed to its lowest income consumers.

8:17Phil Wahba: Because of the margins.

8:18Ellie: Because of the margins. And also they weren't sold that it was going to be on whether it was going to work or not. And it turns out the franchisees had a point. It didn't really catch on and it was difficult and it added all the chaos in the kitchens that we've heard about.

8:32Phil Wahba: And how did head office respond to that?

8:35Ellie: Well, they have been putting on their diplomat hats and trying to make good with the franchisees. There are a lot of them. And it's not like there, I mean, some franchisees own hundreds of restaurants. It's not like each restaurant, individual restaurant as one franchisee. And so it's an important constituency and they can't really, McDonald's can't really get back to growth without them on board. And so it's a delicate dance.

9:00Phil Wahba: I've been reading a lot recently about how our consumer habits are changing as a result of GLP-1s, for instance, and how owners of restaurants are noticing that people want, they want smaller portions, they're eating less. And of course, that really impacts the bottom line. What impact is are GLP-1s having on the McDonald's model and the menu offerings?

9:21Ellie: Well, right now, what is the CEO, Chris Kay, Kimchinski, said he's heard customers loud and clear. And that included they wanted more menu innovation and not the same old, same old. But of course, the weight loss drugs have changed how a lot of Americans consume food. And so now food. And so now what McDonald's is trying out are bowls with chicken and healthier foods, protein bowls, a lot of emphasis on protein. And they're testing it out. And they say that the early results are promising. But to McDonald's credit, they are really trying a lot of new things.

9:58Phil Wahba: And is this ultimately about price or is it also about quality of food being sold at McDonald's?

10:04Ellie: You know, McDonald's has often had ups and downs. And in fact, you know, earlier this year, the stock was at an all-time high because things were looking great. And it just shows how fortunes can change very quickly in the fast food industry or the quick service industry. Yeah, as they prefer to be called.

10:23Phil Wahba: Quick service industry. We had our colleague Nick Lichtenberg on Monday talking to us about Red Lobster and kind of their struggles. And I wonder if you see a connection between the two here when we're talking about casual dining and the gradual decline? Is there a through line or are these two unique stories?

10:39Ellie: Well, they're very different because Red Lobster is a restaurant as we know them. But one thing's certain is that it shows how if you get your customer addicted to discounting and deals, then it's hard to get them off of that or and it devalues literally devalues your food offering and I mean there's a parallel to retail you just keep discounting that cashmere sweater then people all they see is deals and they forget that the sweater is actually a nice sweater or or not so there is definitely the challenge of enticing low-income diners for McDonald's without devaluing and cheapening their view of the product.

11:19Phil Wahba: What will you be watching for over the next few quarters to see whether this turnaround is working?

11:25Ellie: If they can get the franchisees to buy into all the offers that they're coming up with and also seeing initial take on the more experimental innovations that they're doing to attract the lower income consumer but also people who are interested in more protein and maybe not the same old same old.

11:46Phil Wahba: Phil what's your quick service restaurant of choice?

11:49Ellie: It would be Chipotle.

11:51Phil Wahba: Okay, bowl, burrito or taco?

11:54Ellie: Bowl.

11:54Phil Wahba: Phil, it's been a pleasure.

11:56Kristen Stoller: Thank you.

12:00Phil Wahba: Next up, CEO Source with Diane Brady, who's sitting down with the Whole Foods CEO, Jason Beagle.

12:08Kristen Stoller: So Jason, you have not just Whole Foods, but the whole weight of grocery on your shoulders. So tell us a little bit about what you see in terms of how Americans and the world is buying food right now. Yeah, well, the first thing I would share is grocery shopping has become more complex over time. Customers are juggling between purchasing in-store, online. They're juggling multiple loyalty programs. And in fact, right now, half of Americans don't even have a primary grocer. Is that a bad thing? What's like a primary care doctor? Do we need a primary grocery? Yeah, well, maybe you don't need just one.

12:46Kristen Stoller: But if you are shopping three to four or four to five different retailers a week to do your grocery shopping, you could be using that time probably in many other ways. And I think one of the things that, you know, customers really crave is the ability that they can get the best value, the selection they're looking for, and convene. What does Whole Foods represent? Because to me, it still has a premium sense, but yet I feel like it's been changing. Yeah. I mean, our purpose is to nourish people on the planet. And one of our goals is to bring organic and better-for-you products to our customers.

13:23Kristen Stoller: And not just a small bit, an elitist space, but how do we democratize and bring accessibility so everybody has access? And one of the things that I'm most proud of over the last nine years since we've been part of Amazon is the investment in price that we've been able to do. You know, one of the things that fascinates me recently you've done is investing in the people. There's been a lot of news around increasing, I believe it's$29 an hour now that people make if you include the benefits. Why now? Yeah. Well, this is something we've also been doing, you know, over time and been known for in taking care of our team member base.

13:58Kristen Stoller: In this particular announcement we just made two weeks ago, we're investing$230 million into wages and benefits into the Whole Foods Market workforce. And the big reason for this is ultimately our team members are the secret sauce of Whole Foods Market. Give me a sense, since we've talked about the skilled trades gap, what's the labor market like for grocery? I think of it as hourly workers, not necessarily people learning the finer points of cheese and fish. What is it you're trying to create there? Yeah, what we're trying to do is create, for those who want, a long-term career at Whole Foods Market.

14:37Kristen Stoller: You mentioned the apprentice piece. Another program I'm really proud of is for each one of our teams within the store, we have either launched or we're getting ready to launch an apprentice program. And so we've got a fishmonger program that team members can be part of. You've said no to certain things. things. What is it about the experience even of Amazon Go that maybe didn't quite work? I mean, give me a sense of what you're thinking around that, because certainly it was cutting edge, right? You could go in, you would automatically deduct money from your wallet. Yeah. So our Just Walkout technology is something that is still actually thriving within broader Amazon.

15:19Kristen Stoller: and we have many 3P partners that are using this solution in convenience stores to stadiums. And within our own store, one of the things we looked at is, how is this resonating with customers? And what is our priority within the business? And when we sort of looked at that, we said, okay, there's things we want to do to continue to evolve this. Right now is a good time to sort of pause those efforts. We're going to pivot to our same day, focus on grocery. We're going to get this right. And we're going to continue to find ways by which we can bring technology, just like Just Walk Out, to customers in advance ways of looking.

15:58Kristen Stoller: Give us a sense of the vision, what's around the corner, and sort of why bringing together grocery is so important. Yeah, you mentioned a little bit earlier, Amazon has been known as the everything store. And I believe with grocery, we are going to be the everyday store. Our ability for customers to now add groceries, including perishable items, into their same-day order. we want to help make our customers' lives simpler. And so our goal is to make grocery shopping easier, faster, more affordable. And as we can continue to do that, customers will have a greater engagement, not only just within grocery, but the broader store.

16:32Phil Wahba: Next up, in a slightly strange turn of events, I'm in the hot seat. Kristen Stoller is coming in to interview me about the Fortune Most Powerful Women's Summit, which kicks off on Monday in California.

16:46Phil Wahba: All right, Ellie, first question for you. How does it feel to be on the other side here today? I have to say it feels very discombobulating. Are you nervous? And a little intimidating. And it's a good reminder for me when I'm interviewing people of how it feels on the other side of the questions. Yes. Well, I love that. And I'll go easy on you. Don't worry. No, hold me to account. Okay. So I have been watching you for the past year, pretty much, putting together the Most Powerful Women Summit 2026. Talk to me about what you're most excited for this year. Wow. Okay. So some context on what the NPW Summit is.

17:19Phil Wahba: It's an event that's been around for almost 30 years at this point. It started in the late 90s as a response to the list, the most powerful women in business list that we had published the year before. The women on that list were a very unique cohort at that time of women running global businesses. And they needed a space to come together and kind of exchange ideas and support for one another. 28, 29 years on, it's still going. and how I like to frame it is it's a business conference that just happens to be for women. So we talk about very hard business ideas. We talk about the global markets.

17:53Phil Wahba: There's less on the empowerment side of things. Obviously, there's a space for that, but it's not particularly what we do at Most Powerful Women. And so what am I excited about this year? Well, we have an opening conversation with our editor-in-chief, Alison Chantel and Ruth Porat, who is the president and CIO of Google. And she is a titan, to quote Al. show, our fortune show name of the tech and business space and is really overseeing Google's next chapter, the AI build out and kind of compute era. So I'm fascinated to hear from her. We've got various NPW list women and CEOs joining us. And then I will be closing the three days of the conversation with Hayley Bieber and her business partner, Lauren Ratner, about Rode, their wildly popular beauty brand and how it was acquired by e.l.f.

18:40Phil Wahba: last year for$1 billion. dollars. Well, let's start there because I am personally very excited for the Hailey Bieber conversation. What do you want to know? So I met her four or five years ago in my previous role. And back then she had not sold Road yet. It was just starting out. So I'm curious what her blueprint was that she took it from where it was when she just founded it to selling it for billions of dollars. But what are you excited to ask her? I want to talk to her about the founder, the celebrity to founder entrepreneur playbook and how she has thought about reinventing that, who she's looked up to and wanted to follow in the footsteps of.

19:20Phil Wahba: I'm very interested in Robe's pretty large expansion into Europe. They've gone into Sephora stores in the US recently, and they're also massively expanding into Europe. I also want to talk to her a bit about like modern beauty standards and the responsibility that she feels with her enormous platform to model healthy sense of self to the younger women who look up to her. Yeah, I love that. I can't wait to tune in. And I use the word blueprint because your theme is actually the new blueprint for power. Yeah, that's the overarching theme. Okay, so tell me about like, why is now the time for that?

19:53Phil Wahba: Why did you decide on that? So it's always a challenge, as you know, to come up with sort of timely, fresh themes for our events. What I was thinking this year was that the world is in a pretty upside down state at the moment. we are seeing kind of political leadership mold into quite populist forms in various places of the world. And so I think we're going to be looking at alternative ways to hold and deploy power. There's always traditionally been this male view of what power looks like, that it's loud, that it's dominating. And I don't think that's the only way to do things anymore. You know, a conversation we always have at Most Powerful Women is about diversifying pipelines of leadership and succession.

20:42Phil Wahba: Obviously, in the U.S. here, there's been a rollback on DEI. So how do you reconcile those two elements in a way that works for your business and in a way that works for future generations? Basically looking at what effective, smart power and the deployment of it looks like in 2026. And it's not a question I have an answer to right now, but maybe the three days in Santa Barbara will help. That's what I love. And I feel like the best part of MPW is when you get all these women in a room and especially the conversations they have off stage where they like come up with ideas and solutions. And deals are made at MPW.

21:15Phil Wahba: Like if you go back in the history of the conference, there's significant deals, hiring decisions that were made, as you said, on the edges of what was happening on the stage. You're bringing The Daily Show to MPW for the first time. We are taking The Daily Show on the road. So what's that going to look like? Give us a preview. Kristen, that is a very good question that we have spent the last few weeks figuring out. So you're going to be on the ground. I'm going to be on the ground. A lot of our fellow journalists are going to be on the ground. I'm going to be doing interviews with you all before, after you go on stage.

21:42Phil Wahba: We're also going to be pulling our interviewees. So we've got an incredible lineup who are going to be floating around at the Ritz Carlton in Santa Barbara for the course of the three days. So it's a really brilliant opportunity for us to take the show where the leaders who we want to speak to are. And part of it will be kind of going behind the scenes of what they've said on stage. And then another part of it will be asking them different questions that we didn't get the time to cover in the 20-minute slot they have. I love it. How are you going to sleep is my next question. And how much coffee and water and a tea drinker can I bring you?

22:13Phil Wahba: I mean, there has not been a lot of sleep over the past few weeks. But let me tell you, when we hit 11.15 next Wednesday when MPW is over, I am switching my phone off. I will not look at my laptop. And I will be on a beach speaking to no one for three days. As your friend, I support it. Thank you, Kristen. Thank you, Ellie. That's it for Fortune Daily. I'm Ellie Austin. Thank you for watching. As ever, let us know in the comments what you thought about today's show. I'll see you next week.