McDonald’s is losing its low-income customers

In the early 2000s, after a severe recession, McDonald’s planned a major makeover with the introduction of its dollar menu.

The menu, with all items priced at $1, shows how important it is to market to low-income consumers – who prefer to get the most bang for their buck.

At the time of slowing growth, falling stock and the company’s first reported quarterly loss, the dollar menu reversed the fast-food giant’s bad fortunes. News outlets reported at the time that it led to a three-year increase in sales at stores open at least a year and a 33% increase in revenue.

But not now.

McDonald’s Chief Executive Christopher Kempczinski told investors last week that industry-wide, fast-food restaurants have seen double-digit declines in traffic from low-income families, one of its main customer bases. Meanwhile, traffic from higher earners also increased by almost the same amount, he said.

The struggle for the Golden Arches in particular — long synonymous with cheap food for the masses — reflects a larger trend upending the consumer economy and making “affordability” a hot policy topic, experts say.

McDonald’s executives say the high cost of restaurant essentials like beef and salaries has driven up food prices and driven away low-income customers, already burdened by the rising costs of groceries, clothing, rent and child care.

Analyst Adam Josephson said that with prices rising for everything, consumer companies worried about the pressure on low-income Americans include the food, automotive and airline businesses. “This list continues to grow,” he said.

“The Happy Meal at McDonald’s is prohibitively expensive for some people because there’s so much inflation,” Josephson said.

Josephson and other economists say the declining number of low-income consumers reflects a larger trend of Americans varying their spending, with wealthier consumers increasing their purchasing power and lower-income shoppers retreating – what some call the “K-shaped economy.”

Among hotel chains, luxury brands are performing better than low-budget options. Revenue at brands including the Four Seasons, Ritz-Carlton and St. Regis has grown 2.9% this year, while economy hotels have seen a 3.1% decline over the same period, according to industry tracker CoStar.

“There are examples everywhere you look,” Josephson said.

Ricard Bandebo, chief strategy officer and chief economist at VantageScore, said consumer loan default rates reveal how much low-income households are being hurt, with households making less than $45,000 experiencing a “huge year-over-year increase”, while loan default rates for upper- and middle-income households have become low and stable.

According to VantageScore data for 60 days from January 2020 to September 2025, these homes were the first to experience dramatically increased crime rates after COVID-19-related stimulus programs ended, and crime has not declined since 2022. And although inflation has declined from its peak in 2022, people are still struggling with relatively high prices and “astronomical” rent increases, Bandebo said.

A report released this year by researchers at the Joint Center for Housing Studies at Harvard University found that half of all renters, 22.6 million people, were cost-burdened in 2023, meaning they spent more than 30% of their income on housing and utilities, up 3.2 percentage points since 2019 and 9 percentage points since 2001. Twenty-seven percent of renters are severely burdened, spending more than 50% of their income on housing.

As rents have risen, the amount of money households are left with after paying for housing and utilities has fallen to record levels. According to the Harvard study, in 2023, renters with annual household income of less than $30,000 will have only $250 per month of residual income to spend on other needs, a 55% decline since 2001, the sharpest decline since the pandemic.

“It is becoming harder every month for low-income families to make ends meet,” Bandebo said.

Miriam Gergis, a registered nurse at UCLA who also works a second job as a home caregiver, said she’s in a better situation than many others, and yet she struggles.

“I can barely afford McDonald’s,” she said. “But it’s a cheaper option.”

On Monday morning, she was sitting at a booth at McDonald’s in MacArthur Park with two other people. The three beverages he ordered, two coffees and a soda, cost him about $20, Gergis said, pointing to the receipt.

“I would love to eat healthy, but it’s hard when you’re on a budget,” she said.

Her brother, who works as a cashier, can’t eat out at all, she said. The cost of his diabetes medication has skyrocketed, about $200 a month, which she helps him afford.

“He would rather go hungry than eat out,” Gergis said. Due to non-payment, the bank has frozen his credit cards and he may soon lose his house, he said.

Prices at limited-service restaurants, including fast-food restaurants, are rising 3.2% year over year, which is more than inflation and is on the rise, said Marisa DiNatale, an economist at Moody’s Analytics.

Furthermore, rising prices due to tariffs adversely affect low-income households, as they spend a larger portion of their income on goods rather than services, which are not directly affected by the tariff. Wages for these families are also becoming more stable than those of upper- and middle-income families, DiNatale said.

“It has always been the case that the more affluent have fared better. But too many economic and policy barriers are disproportionately affecting lower-income families, and [McDonald’s losing low-income customers] This is a reflection of that,” DiNatale said.

Then again, it makes sense that any price increase would hit these consumers hard.

According to a corporate fact sheet, from 2019 to 2024, the average cost of a McDonald’s menu item increased 40%. For example, the average price of a Big Mac was $4.39 in 2019, rising to $5.29 in 2024, according to the company. A 10-piece McNuggets meal rose from $7.19 to $9.19 over the same time period.

The company says the increases are in line with the cost of running restaurants – including rising labor costs and higher prices for beef and other goods.

Beef prices are skyrocketing, and U.S. cattle herd inventories are at their lowest in 75 years due to drought and parasites. And President Trump’s trade war and tariffs have led to a decline in beef exports to the US. As a result, prices for ground beef sold in supermarkets rose 13% year-on-year in September.

McDonald’s has placed blame on the meat-packing industry in a lawsuit it filed last year against the industry’s “big four” companies — Tyson, JBS, Cargill and National Beef Packing Co., accusing it of artificially inflating prices. The companies denied wrongdoing and paid millions of dollars to settle lawsuits alleging price-fixing.

McDonald’s Chief Financial Officer Ian Borden said on a recent earnings call that the company has managed to keep expenses from getting out of control.

“The strength of our supply chain means our beef costs, I think, are certainly lower than others,” he said.

McDonald’s does not disclose how the company assesses the income levels of fast-food customers, but businesses often analyze the market by guessing their customers’ backgrounds, where they are shopping and what they are buying.

In California, the debate over fast-food prices has focused on labor costs, with legislation enacted last year raising the minimum wage for fast-food workers at more than 60 locations nationwide.

But more than a year after the fast-food wage raise was announced, its impact is still being debated, with economists divided and the fast-food industry and unions debating its impact.

Fast-food restaurant owners as well as trade unions such as the International Franchise Association, which has led the effort to block the minimum wage increase, have said businesses have been forced to cut staff hours, stop organizations from hiring or lay off people to offset the cost of higher wages.

Meanwhile, an analysis of nearly 2,000 restaurants by researchers at UC Berkeley’s Center on Wage and Employment Dynamics found that a $20 wage led to no reduction in fast-food employment and led to “a minimal increase in menu price” which was “about 8 cents on a $4 burger.”

Labor groups have argued that increasing the minimum wage gives workers more purchasing power, which helps stimulate the economy.

McDonald’s said last year that the company’s spending on restaurant staff salaries has increased nearly 40% since 2019, while the cost of food, paper and other goods has increased 35%.

The success of its dollar menu in the early 2000s was notable as it came amid complaints of the chain’s highly processed, high-calorie and high-fat products, food safety concerns, and worker exploitation.

As the company marketed the dollar menu, which included a double cheeseburger, a McChicken sandwich, French fries, a hot fudge sundae and a 16-ounce soda, it also added healthier options to its regular menu, including salads and fruits.

But the healthiest menu items didn’t make the difference. The $1 double cheeseburger generated far more revenue than the salad or chicken sandwich, which were priced from $3 to $4.50.

Steve Lavigne, vice president of United States business research at McDonald’s, told the New York Times in 2006, “The dollar menu attracts low-income, ethnic consumers.” “These are the people who don’t always have $6 in their pocket.”

However, the dollar menu eventually became unsustainable. As prices rose due to inflation, McDonald’s stores, especially franchised locations, struggled to afford it, and by November 2013 it was rebranded as “Dollar Menu and More” with prices up to $5.

Last year, McDonald’s introduced a $5 deal for McDouble or McChicken sandwiches, small fries, small soft drinks and four-piece McNuggets to attract cash-strapped customers. And in January it launched a deal offering $1 menu items with items purchased at full price, along with an ad starring John Cena, and in early September launched Extra Value meals – offering combos that cost 15% less than ordering each item separately.

The marketing didn’t immediately appear to be resonating with customers, with McDonald’s reporting in May that U.S. same-store sales in the most recent quarter declined 3.6% from a year earlier. However, in its most recent third-quarter earnings, the company reported a 2.4% rise in sales, even as its chief executive warned about a growing two-tier economy.

Some customers said the iconic brand still has staying power despite rising prices.

“Prices are going up everywhere. This is the only place I eat out, because it’s convenient,” said Ronald Mendez, 32, who said he lives about a block away from the McDonald’s in MacArthur Park.

18-year-old DT Turner ate hash browns and pancakes, with several still-wrapped McMuffins and cheeseburgers sitting on trays between him and his friend. In total, he said, his shipping cost about $45. He eats at McDonald’s several times a week.

“We grew up eating it,” Turner said.

His friend chimed in: “The breakfast is great, and the nuggets are great.”

That other businesses are also reviving deals is a sign of the times. San Francisco-based burger chain Super Duper promoted its “Recession Combo” on social media. For $10, customers get fries, a drink and a “Recession Burger” at one of the chain’s 19 California locations.

It’s clear companies are wary of passing on higher costs to customers, said DiNatale of Moody’s Analytics.

“A lot of businesses are saying, ‘We don’t think consumers will stand for this,'” DiNatale said. Consumers “have been put through high prices for years, and have little tolerance for higher prices in the future.”