MW Weight-loss drugs are an issue for McDonald's, but here's the bigger problem

By James Rogers

McDonald's core value perception 'appears to be increasingly challenged,' according to Redburn Atlantic

McDonald's Corp. is not alone in feeling the impact of GLP-1 weight-loss drugs, but "pricing fatigue" is a bigger problem for the fast-food giant, according to Redburn Atlantic.

The equities broker downgraded McDonald's stock to sell from buy Tuesday, citing concerns around GLP-1s, tempered growth expectations, and pricing.

McDonald's shares $(MCD)$ were down 1.3% in midday trading in the wake of the downgrade. They were headed for their seventh straight decline, which would be the longest such streak since the nine-day losing streak that ended Aug. 16, 2013, Dow Jones Market Data show.

Most fast-food brands are seeing only minor sales pressure from current GLP-1 penetration, according to Redburn Atlantic analyst Chris Luyckx, but the impact is cumulative. He warns that a 1% drag today could easily build to 10% or more over time, particularly for brands skewed toward lower-income consumers or group occasions.

"Behavior changes extend beyond the individual user - reshaping group dining, influencing household routines and softening habitual demand," Luyckx wrote in a note.

But "pricing fatigue" and "value perception" are growing concerns, specifically for McDonald's, according to Luyckx, who points to soft traffic, particularly in the U.S.

"After years of outsized pricing, McDonald's core value perception appears to be increasingly challenged," he wrote. "Rather than prompting trade-down from full-service or fast-casual, the brand now faces signs of traffic erosion among its core customer base who are reducing frequency."

In the company's recent first-quarter results, comparable sales decreased 1% globally and 3.6% in the United States.

Speaking during the conference call to discuss the results, McDonald's Chief Executive Chris Kempczinski said that people are more judicious about cutting back on visits. In particular, he pointed to a decline in morning frequency, with customers choosing to either skip breakfast or eat it at home.

McDonald's Chief Financial Officer Ian Borden also highlighted the pressure on U.S. consumers, particularly on lower-income consumers, around inflation and interest rates. This is spilling over into middle-income consumers as well, he said.

Other fast-food names are facing similar challenges. Chipotle Mexican Grill Inc.'s $(CMG)$ comparable sales fell for the first time since 2020 in its recent first-quarter results, and Domino's Pizza Inc. $(DPZ)$ also saw a comparable-sales decline in the U.S.

"Despite robust pricing power, the sector continues to grapple with weak traffic," Luyckx wrote, noting that most brands are seeing consistently negative guest counts. Value erosion and high menu prices are weighing on visits, according to the analyst.

In Tuesday's note, Redburn Atlantic launched coverage of Domino's stock with a sell rating and of Chipotle's stock with a neutral recommendation, and upgraded its rating on shares of Yum! Brands Inc. $(YUM)$, the parent of Taco Bell, Pizza Hut and Habit Burger, to buy from neutral.

"Domino's and McDonald's face the greatest near-term risk, with traffic softness already pressuring results," he wrote. "Chipotle and Yum! Brands appear better positioned, supported by category momentum."

McDonald's shares are up 3.8% in 2025, Domino's stock is up 8.8%, Chipotle shares are down 15.9% and Yum! Brands' stock is up 6.7%. In comparison, the S&P 500 index SPX has tacked on 2.5% this year.

-James Rogers

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June 10, 2025 13:14 ET (17:14 GMT)

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