McDonald's chicken is having a moment as Americans balk at high beef prices

By Bill Peters

The chicken market is quite competitive: 'There's certainly a lot of activity happening in chicken across the industry,' McDonald's CEO says

McDonald's said it plans to focus more on selling more chicken, as more people choose poultry over more expensive beef.

Beef is getting expensive enough to draw a government investigation. And with prices near record levels, some fast-food diners are instead choosing chicken tenders and sandwiches as they hunt for bargains.

McDonald's (MCD) CEO Chris Kempczinski said during the burger chain's earnings call on Thursday that when beef prices rise, chicken tends to get more popular - and he said McDonald's plans to compete more aggressively for people looking for it.

"Certainly right now in the environment that we're in, I think chicken is benefiting" relative to beef, due to their respective costs, he said.

How long that trend plays out, he said, depends on how long beef prices stay high. Kempczinski said McDonald's market share for fast-food chicken stood at around the high-teens, compared with roughly "mid-40% share" for beef.

"Because of the underlying growth, you're seeing everybody else is also excited about it," he said. "And so, there's certainly a lot of activity happening in chicken across the industry."

Fast-food chicken has grown more competitive over the years. Shares of Wingstop (WING) fell this week, following weaker demand.

Meanwhile, Restaurant Brands International (QSR) CEO Josh Kobza, during the company's earnings call on Wednesday, said that competition encouraged them to improve their own offerings as well.

"We've tightened our tender spec a bit," he said.

Overall, McDonald's on Thursday stuck with the outlook it provided in February, when it projected a tough setup for the year but said value meals were bringing back customers. High-income and lower-income consumers alike have become more budget-conscious as prices for gas and other basics rise, hitting low-income diners most acutely.

Beef prices are sitting near record highs, with the average price of ground beef in U.S. cities hovering around $6.70 a pound in March, according to government data. On Monday, the Department of Justice confirmed it was looking into potential antitrust violations in the U.S. cattle and beef industries. Other factors, from drought and tariffs to lower supplies of cattle and fewer processing plants, have pushed prices higher.

Fast-casual burger chain Shake Shack (SHAK) on Thursday also called out the impact of rising beef prices, after the company put up its first loss in years. On Wednesday, Restaurant Brands noted "unprecedented beef pressure that we've seen over the last year."

Also on McDonald's call Thursday, Kempczinski said the chain had picked up market share among higher-income shoppers. The struggles for lower-income shoppers, he said, didn't appear to be as bad, but would likely continue nonetheless.

"We think we've recaptured some of those low-income consumers because of our value program," Kempczinski said.

"But, clearly, when you have elevated gas prices . . . that is going to disproportionately impact low-income consumers. And so we expect the pressures there are going to continue," he continued.

McDonald's on Thursday reported first-quarter adjusted earnings per share of $2.83, up 6% from a year ago and above FactSet forecasts for $2.74. Revenue of $6.52 billion was up 9% year over year, topping forecasts for $6.47 billion. Same-store sales rose 3.8%, above estimates for 3.7%.

Shares of McDonald's were up 0.1% on Thursday, but are down 9.3% over the past 12 months.

-Bill Peters

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05-07-26 1553ET