Pricing Power and GLP-1: Coca-Cola vs. McDonald’s Q4 Divergence

🔑 Key Points

• Divergent Pricing Power: Coca-Cola continues to demonstrate exceptional pricing power, leveraging its "all-weather" strategy to maintain revenue growth (+6-7% in recent reports) despite flat volumes in developed markets. In contrast, McDonald's faces a "value wall," with low-income consumers aggressively pulling back, leading to negative US same-store sales and a forced pivot to value menus (e.g., $5 Meal Deal).
• Volume Growth vs. Spending Fatigue: Low-income spending fatigue has bifurcated the market. While Coca-Cola offsets domestic softness with emerging market growth and "mini-can" premiumization, McDonald's traffic struggles reveal that price hikes have outpaced the lower-income cohort's ability to pay, making volume recovery the primary challenge for Q4 and beyond.
• The GLP-1 Factor is Nuanced: The impact of GLP-1 usage is emerging as a "quiet revolution" rather than an immediate crash. Data indicates a ~6-11% reduction in grocery spend for GLP-1 households, specifically hitting "junk food" and savory snacks, but immediate earnings impacts are currently overshadowed by broader inflationary pressures and affordability concerns.

1. Executive Summary: The Great Divergence in Consumer Staples

As we analyze the Q4 earnings season, a distinct "K-shaped" divergence has emerged within the consumer staples and QSR (Quick Service Restaurant) sectors. The resilience of the consumer is no longer uniform; it is strictly divided by income level and brand value proposition.

Coca-Cola and McDonald's, often viewed as bellwethers for the global consumer, are telling two different stories. Coca-Cola has successfully navigated the inflationary environment by using "mix" (smaller pack sizes, premium options) to drive price per unit without crashing volume. McDonald's, however, has hit the ceiling of pricing power, with Q4 results exposing the fragility of the low-income consumer who is now "trading out" rather than just "trading down."

The backdrop of the "GLP-1 Era" adds a structural headwind, but the immediate data suggests that economic fatigue—specifically the cumulative effect of inflation on real wages for the bottom 40% of earners—is the dominant driver of current earnings results.

2. Coca-Cola: Pricing Power Defies Gravity

2.1 Q4 Performance Analysis

Coca-Cola's recent performance underscores its status as a "Pricing Power King." The company has effectively utilized its commercial strategies to pass through costs while maintaining brand loyalty.

• Revenue Resilience: Recent reporting indicates strong organic revenue growth (approx. +14-15%), driven overwhelmingly by price/mix (+9%) rather than raw volume (+1%).
• Volume Trends: While North American volume remains flat to slightly negative, the company relies on emerging markets (Latin America +3%, Asia Pacific +1%) to keep global unit cases in positive territory.
• Margin Expansion: Gross profit margins have improved (climbing to ~61%), reflecting the company's ability to raise prices faster than input costs—a luxury McDonald's no longer enjoys.

2.2 The "Mini-Can" Strategy

A key driver of Coke's resilience is its "pack architecture" strategy. By pushing smaller, premium-priced packages (like mini-cans) and Zero Sugar variants, Coke appeals to:

1. High-income consumers willing to pay for convenience and "healthier" perception.
2. Low-income consumers who can only afford the lower absolute price point of a smaller can, effectively keeping them in the franchise despite a higher price-per-ounce.

Coca-Cola Growth Drivers (Recent Fiscal Year)

3. McDonald's: The Limits of Affordability

3.1 Q4 Performance Analysis

In sharp contrast to Coca-Cola, McDonald's Q4 earnings reveal the severe strain on the low-income demographic. The "Golden Arches" have historically been a recession-proof haven, but aggressive post-pandemic pricing has eroded this defensive moat.

• Sales Struggle: Global same-store sales have decelerated significantly (+0.4% vs. expectations of higher growth), with US same-store sales turning negative (-1.4%).
• Traffic vs. Ticket: The decline is driven by a drop in guest counts (traffic), particularly among consumers earning under $45,000/year. Those who do visit are managing checks aggressively—skipping fries, drinks, or desserts.
• E. Coli Impact: While the Q4 E. coli outbreak was a temporary shock, the underlying trend of "value fatigue" is the deeper, structural issue.

3.2 The Pivot to Value

McDonald's response—the extension of the $5 Meal Deal—is a tacit admission that pricing power has been exhausted. While this strategy improves traffic, it pressures margins and highlights the "battleground" nature of 2025/2026: fighting for a shrinking pool of disposable income.

• Low-Income Retreat: Industry data suggests traffic from lower-income consumers is down double-digits across the QSR sector.
• Downtrading: Consumers are increasingly eating at home (grocery inflation has moderated faster than menu inflation) or switching to even cheaper alternatives like convenience stores.

McDonald's Same-Store Sales Growth by Region (Q4)

4. The GLP-1 Factor: A Quiet Revolution

While economic fatigue is the loud narrative, the rise of GLP-1 weight-loss drugs (like Ozempic and Wegovy) is the quiet revolution reshaping long-term volume assumptions.

• Grocery Basket Shrinkage: Data from Numerator and Morgan Stanley indicates that households with GLP-1 users reduce grocery spending by 6-11%. The decline is most pronounced in:
  • Snacks/Confectionery: -11% spend.
  • Soda/Carbonated Drinks: Moderate decline, though zero-sugar options offer some insulation.
• The "Snack" Risk: For companies like Coca-Cola, the risk is mitigated by their portfolio shift toward water, tea, and Zero Sugar sodas. For McDonald's, where the core menu is calorically dense, the threat is more direct.
• Current Earnings Impact: In Q4, the GLP-1 impact is likely "noise" compared to the "signal" of inflation. However, as adoption scales (projected 30-35 million US users by 2030), this headwind will become a permanent drag on volume growth, forcing companies to innovate (e.g., smaller portions, high-protein options).

5. Low-Income Spending Fatigue: The "Breaking Point"

The defining theme of the current earnings season is the bifurcation of the consumer.

• High-Income (>$100k): Spending remains robust. This cohort supports "experience" dining and premium CPG products, benefiting brands like Coca-Cola that have successfully premiumized.
• Low-Income (<$50k): This group has hit a "hard stop." Cumulative inflation of 20-30% over three years has exhausted savings.
  • Behavioral Shift: "Treats" are being cut. The "lipstick effect" (buying small indulgences) is fading as even small treats like a $4 soda or $12 fast-food meal become discretionary budget cuts.
  • Q4 Implication: Expect McDonald's and peers to guide for a "value war" in 2026, sacrificing margin to recover traffic. Coca-Cola will likely guide for "moderating" price increases, acknowledging that the pricing lever has been pulled as far as it can go.

6. Conclusion: What Q4 Earnings Reveal

The Q4 earnings season confirms that the "easy growth" era of price-led revenue is over.

• Sustainability of Pricing Power: Unsustainable for mass-market food (McDonald's), but Resilient for strong brand monopolies (Coca-Cola).
• Volume Growth: Will be the critical metric for 2026. Investors will punish companies that show negative volume, as it signals brand erosion.
• The Verdict: Coca-Cola remains a "Safe Haven" due to its global diversification and brand elasticity. McDonald's is a "Turnaround Story," requiring a successful re-engineering of its value proposition to win back the consumers it priced out.

Strategic Implication: The "GLP-1 Era" will demand healthier portfolios, but the "Inflation Era" demands immediate value. The winners in 2026 will be those who can offer perceived value without destroying margins—a test Coca-Cola is currently passing and McDonald's is struggling to master.

📚 Recommended Topics for Further Exploration

• The "Protein Pivot": How food companies are acquiring high-protein snack brands to cater to the GLP-1 consumer (who needs to maintain muscle mass).
• Private Label Resurgence: The shift of low-income consumers to store-brand sodas and snacks and its impact on branded volume.
• Menu Engineering in 2026: How QSR chains are redesigning menus to offer lower absolute price points (e.g., "Snack Wraps") rather than discounting core burger meals.
• The "At-Home" Eating Trend: Analysis of the widening gap between "Food Away From Home" (Restaurant) vs. "Food At Home" (Grocery) inflation rates.