Here are the three biggest risks facing McDonald's in 2024

  • McDonald’s investor day focused on the company’s long-term future, but there could be more turmoil in the short term.
  • Low-income consumers are spending less, hurting companies like McDonald’s and Walmart.
  • McDonald’s unveiled aggressive expansion plans that haven’t worked well for the company in the past.

The Ronald McDonald balloon floats through Central Park West during the Macy’s Thanksgiving Day Parade on November 23, 2023 in New York City.

Gary Hershorn | Corbis news | Getty Images

McDonald’s executives painted a rosy picture of the fast food giant’s strength and ability to achieve long-term goals at its investor day, but the company faces some potential obstacles between now and 2024.

The event, which took place on Wednesday, brought few surprises and some new long-term goals, and Wall Street’s reaction was muted. McDonald’s shares have remained roughly flat since its investor day presentations. Amid concerns about the broader economy and fears about weight-loss drugs, McDonald’s stock is up just 8.7% this year, lagging the S&P 500’s 19% gain.

These fears about business have not stopped the fast food company from setting ambitious goals.

McDonald’s plans to open nearly 9,000 new restaurants by 2027, including 900 locations in the United States. Its greater global presence will boost the company’s sales and help meet higher demand for its Big Macs and McNuggets, executives said.

But these ambitious plans intersect with an uncertain global economy. China, McDonald’s second-largest market by number of locations, is still struggling to recover from the pandemic. The unrest in the Middle East has hurt McDonald’s sales in that region – and some markets outside it. And in its home market, recession predictions have not yet come true, but some economists believe a downturn could still occur.

Here are the three biggest risks facing McDonald’s in 2024:

In late January, CEO Chris Kempczinski said the company was forecasting a “mild to moderate” recession in the U.S. and a “deeper and longer” downturn in Europe in 2023. But his predictions haven’t come true.

“Here we are a year later, and, boy, was I wrong,” Kempczinski said at the investor day. “That’s why I’m a little wary about the year ahead because I think we continue to see that the consumer has been very resilient.”

Although a recession has not yet hit, Kempczinski also reminded investors that McDonald’s saw low-income consumers cut back on spending last quarter. Other companies like Walmart have also pointed out this trend.

While McDonald’s benefits from selling to high- and middle-income consumers up to its Big Macs and French fries, low-income diners are still an important part of the business.

“We left Investor Day more concerned than ever about the plight of low-income consumers,” Bernstein analyst Danilo Gargiulo wrote in a note to clients.

Since the pandemic, McDonald’s has moved away from using limited-time menu items to attract customers. Instead, marketing focused on the brand itself, such as selling core menu items through promotions based on celebrities’ favorite orders. This approach has led to strong same-store sales growth in recent years, even as inflation has put a strain on customers’ wallets.

In general, the fast food giant spends a lot of money on marketing and advertising to maintain awareness and affinity for its brand. McDonald’s spends more than $4 billion on marketing investments each year, three to four times more than its nearest competitor, Kempczinski told investors on Wednesday.

But McDonald’s may see some of its competitors increase their advertising spending next year. Low-income consumers visiting restaurants less often means some fast food chains are turning to deals and limited-time menu items to drive traffic.

McDonald’s may need to decide whether increasing its short-term traffic is worth the potential long-term consequences.

“It will be interesting to see how [McDonald’s] adapting to a potentially more supportive environment and being willing to sacrifice the short-term perspective to keep it moving forward [long-term] “Brand positioning,” Citi Research analyst Jon Tower wrote in a note to clients.

Much of Wednesday’s investor presentations focused on McDonald’s plans to accelerate new restaurant openings. The company aims to achieve a global presence of at least 50,000 locations by 2027 and thus expand as quickly as possible.

But history shows that aggressive expansion usually doesn’t end well for McDonald’s. Sales often decline after new restaurants cannibalize existing locations’ customers, hurting franchisee profitability and distracting from other areas of the business, such as menu innovation.

Investors are largely skeptical of restaurants with expansion plans in 2024 and beyond given ongoing economic uncertainty and uncertain consumer conditions, Barclays analyst Jeffrey Bernstein said in a note to clients. But he also noted that McDonald’s is coming from a position of strength and has spent the last few years remodeling locations rather than building new ones.

Bernstein isn’t the only analyst optimistic about McDonald’s expansion strategy.

“Expanding units from an already transformed existing unit base where the core menu drives high profitability and targeting only the best franchisees represents a change from previous arrangements,” wrote JP Morgan analyst John Ivankoe Securities, in a research note.

And executives reassured investors Wednesday.

“We’ve learned the lesson that quantity is more important than quality… We’ve spent the last year country by country, literally city by city, making sure we’re confident about where we see the growth opportunities and how we can actually achieve them.” “We have to put teams on the field to execute it,” Kempczinski said.