McDonald’s reported falling sales for the first time in over three years as consumers turned away from the rising price of Big Macs. Below, we look at why the Golden Arches are in danger of losing their lustre, why American rap superstar Lil Yachty was brought on board to remix the Canadian menu, and who was responsible for the disappearance of Ronald McDonald.
Up top
- A scoop to start: Wellington-Altus Private Wealth founder and chair Charlie Spiring maintained an ownership stake in the U.S. affiliate of Emerge Canada Inc. while his company promoted Emerge’s exchange-traded funds to clients for several years prior to the ETF manager’s collapse. Clare O’Hara and David Milstead report on how Spiring’s relationship with Emerge was not widely known among the company’s own advisers or its clients.
- Wireless: Canada’s largest telecommunications companies are trapped in a Catch-22, Tim Kiladze writes. Their aggressive discounts are keeping Ottawa and new customers happy, but hurt their chances of earning back the billions of dollars they spent on spectrum and other investments to offer superior service.
- Politics: Finance Minister Chrystia Freeland played down speculation her job might be at risk, saying she and other cabinet ministers as well as Liberal MPs are spending the summer listening to Canadians. “I feel I have the support I need to do my job and to focus on what my job is.” Robert Fife has the story.
- Exits: BlackBerry Ltd. chief financial officer Steve Rai has left the company, the latest in a series of high-level exits by loyalists of former chief executive officer John Chen since his departure from the Canadian technology icon last November. Sean Silcoff reports.
In focus
Ba-da-ba-ba-bad sales, and the bigger forces at play
Yes, but past performance is no guarantee of future results.Mario Tama/Getty Images
Let’s Start Here: Lil Yachty hated working at McDonald’s. Apparently, the feeling was mutual: the soon-to-be superstar performer made sloppy Big Macs, and was eventually fired for being late.
―
To the manager at McDonald’s that fired me
I need you to know, we did it
Oh, I need you to know, we did it, we did it.
- Lil Yachty, “We Did It”
―
So it was a bit of a surprise when, less than a decade later, the fast-food giant and the American rapper announced a partnership over a limited-run “Remix Menu” – and more surprising still that the campaign was limited to Canada. We guess they were able to put their beefs behind them.
But before we go further on a minor makeover at McDonald’s, here are the forces chief executive Chris Kempczinski said yesterday are weighing on the company:
- Persistent inflation forcing lower-income consumers to shift to more affordable food options at home.
- A slower-than-expected recovery in China.
- Boycotts linked to the Gaza war, which hit sales in the Middle East markets.
Those trends have been a drag on some of the biggest publicly traded fast-food companies in recent months.
Beyond burgers
So it’s not so much an issue for McDonald’s as it is one for the fast-food industry. But the company’s financial fortunes are notable for what they can reveal beyond burgers.
McCurrency: For one, a tongue-in-cheek “Big Mac Index” created by The Economist in 1968 is still regarded as a useful (if flawed) way to value currencies. A basket of goods might vary from country to country, the thinking goes, but a Big Mac is a Big Mac; its ubiquity therefore provides a more reliable gauge of purchasing power.
- Its most recent calculation finds the Canadian dollar undervalued by 2.4 per cent against the U.S. dollar. That means the loonie is worth more than the exchange rate implies.
- In broad strokes, a weak loonie (even if the index implies a little upside) means Canada’s manufacturers get a boost in exports, while imports are more expensive. My Amazon cart is becoming more aspirational by the day. A monument to modest extravagance.
- The index also suggested the yuan is undervalued by 39 per cent. If Donald Trump is on the way back to the White House, China might be wondering how closely he is monitoring the Big Mac Index. (Although history suggests he has exposure across the sector.)
McLending rates
Before we lay blame for the chain’s sales woes entirely at the feet of macroeconomic forces, we should note its chief executive also suggested – without saying so outright – that the company’s recent strategy of raising prices was not well-received.
- There is a lot more “deal-thinking” from consumers who have become “very discriminating,” he said.
- “Consumer sentiment in most of our major markets remains low.”
- Those two factors did not add up for a profitable period.
Still, that low consumer sentiment is closely watched by central banks, which are on a spree of decision making this week over their key lending rates.
In Canada, cooling inflation has given the central bank reason to cut its overnight rate twice at its two most recent meetings. Canadians are spending less on non-essential goods as they face accelerating prices for food. The same trend is squeezing U.S. consumers, though markets are anticipating the Federal Reserve will hold rates steady this week ahead of a cut in September.
McMarketing
Many money managers are bullish on the burger maker. And analysts are betting on the brand’s long history of success as the chain plans to invest hundreds of millions in the coming years in digital marketing.
Which brings us back to Lil Yachty, and the disappearance of Ronald McDonald. As part of its digital marketing ambitions, the chain aims to elevate its “marketing tailwind through creative excellence.”
A 2023 strategy document called Accelerating the Arches highlights “culturally relevant campaigns” like “Famous Orders” as a way to tap into the zeitgeist and have fun with consumers. The Lil Yachty mashup makes a little more sense in light of this.
"But zeitgeist is my middle name!"
From Ronny to Yachty
An incredibly incomplete history of McDonald’s marketing
In 2010, the organization that successfully ended Joe Camel’s marketing of cigarettes to kids came for the clown, arguing he unfairly targeted children’s attention and contributed to growing rates of obesity.
In 2016, the fast-food chain said it was being “thoughtful in respect to Ronald McDonald’s participation in community events” as a clown panic erupted around the world. Seriously. That happened. I feel like we should come back to that?
In 2023, a horrifying TikTok trend called the Grimace Shake might not exactly have been what McDonald’s had in mind when it said it wanted to tap into the zeitgeist.
In April, McDonald’s Canada teamed up with Lil Yachty to create a “remix menu” as well as a new take on the 1989 original.
The lookout
On economic policy: Harris and Trump are closer than either can admit, Tony Keller writes.
On deck: Microsoft’s costs are in focus as fears rise over slow payoff from AI.
From the fringes: Further into the mainstream. Crypto gets a bump from Trump and the backing of institutional investors.
In depth: Point Lepreau station is among North America’s worst-performing nuclear power plants. Can NB Power turn it around?
Morning markets
Global markets were mixed ahead of a slew of earnings and central bank meetings this week.
Wall Street futures were in the green while TSX futures were flat.
Overseas, the pan-European STOXX 600 was up 0.38 per cent in morning trading. Britain’s FTSE 100 lost 0.25 per cent, Germany’s DAX gained 0.37 per cent and France’s CAC 40 increased 0.43 per cent.
In Asia, Japan’s Nikkei closed 0.15 per cent higher, while Hong Kong’s Hang Seng was down 1.37 per cent.