McDonald’s CEO Chris Kempczinski says low-income consumers eating at home and finding other ways to economise.

McDonald’s has reported its first drop in global sales in over three years as inflation-weary consumers seek out cheaper options and cut back on eating out.

McDonald’s worldwide sales fell 1 percent in the April-June period, the fast food giant said on Monday, the first drop since the last quarter of 2020, when the COVID-19 pandemic and government restrictions closed businesses and kept millions of people at home.

Outlets in so-called international developmental licensed markets, which are operated by licensees, saw a steeper decline, with sales falling 1.3 percent amid weak consumer sentiment in China and boycotts in the Middle East over the fast-food chain’s perceived support for Israel.

McDonald’s CEO Chris Kempczinski said consumers had become “very discriminating” about their spending after previously benefitting from consumers who “traded down” to the fast food chain from more expensive eateries.

“We are seeing trade down, but what we’re seeing is that the loss of the low-income consumers is greater than the trade-down benefit,” Kempczinski said on a conference call with investors.

“You’re seeing with that low-income consumer, in many cases, they’re dropping out of the market, eating at home and finding other ways to economise.”

Kempczinski said that while customers still recognised McDonald’s as the best-value fast-food chain, the “value leadership gap” with its rivals had shrunk.

“We are working to fix that with pace,” he said.

Executives said that a $5 meal deal launched in June had sold ahead of expectations and that the promotion would be extended at most US outlets beyond August.

“We are resolved to reignite share growth in all our major markets regardless of the prevailing market conditions. This won’t happen overnight, but it will happen,” Kempczinski said.

Despite the lacklustre results, McDonald’s shares rose 4.5 percent on Monday morning as investors appeared to be convinced by the fast food chain’s plans to reserve its fortunes.