Retailers, consumers and prices
The world’s biggest fast-food chain posted a 1.4 percent increase in February sales at its restaurants open at least 13 months. Strong same-store sales in the U.S. softened the blow from a stronger U.S. dollar, which eats into the value of overseas sales.
McDonald’s cited demand for its ‘Quarter Pounder’ hamburger sandwich in the United States — a testament to the trend that more consumers are migrating to cheaper restaurants as they try to save money in a global economic downturn.
For example, the Arby’s unit of Wendy’s/Arby’s, which competes with McDonald’s, faced a tough time in the past quarter as rivals offered discounts to lure diners, while the Wendy’s segment, with its revamped 99-cent value menu, fared better.
McDonald’s, which caters to roughly 58 million consumers every day, still expects the dollar’s strength to pressure its sales and margin comparisons in the first quarter.
My, how times have changed.
Chief Executive Howard Schultz in July said the upscale coffee chain would not combine menu items and sell them at a discount, a move made popular by fast-food chains like McDonald’s.
“We’re not going to go down the fast-food lane,” Schultz told investors back then — when the company’s business was hitting the skids in a housing-led slowdown.
McDonald’s CEO Jim Skinner says 40 percent of the burger giant’s “value burger” sales are now coming from its new McDouble — a burger with two patties and one slice of cheese.
That burger replaced the popular Double Cheeseburger on McDonald’s Dollar Menu on Dec. 1, when McDonald’s raised the price on the Double Cheeseburger — which has two patties and two slices of cheese — to $1.19.
Nevertheless, Skinner said the Double Cheeseburger still reigns with 60 percent of McDonald’s value burger sales.
Have you made the switch?
Check out those popular fast-food chains.
Global sales at McDonald’s restaurants open 13 months or more jumped 7.7 percent in November. Same-store sales rose 4.5 percent in the United States, where bargain hunters enjoy the Dollar Menu. In November 2007, U.S. same-store sales rose 4.4 percent.
McDonald’s and credit card company Visa are extending a hand to employees to help them figure out their personal finances in a deepening recession. The two have launched a free online money management course for workers at the hamburger chain’s 14,000 U.S. restaurants.
“Now more than ever, it is crucial that people have the financial tools they need to spend responsibly and this collaborative effort is a critical part of addressing America’s financial illiteracy epidemic,” the companies said in a statement.
McDonald’s is banking on diners lovin’ its new global packaging that will emphasize the hamburger chain’s products and food over the lifestyle of its customers.
The new wrappers, boxes and other containers will now carry photographs and graphics of food and ingredients, as well as playful stories and information about the products. The new packaging is meant to build brand loyalty with the 56 million customers served daily, even as McDonald’s has seen an increase in demand for its low-priced menu items amid the weak U.S. economy.
Despite the wide range of organic and other “green” coffee on the market, 67 percent of coffee drinkers who frequent coffee shops admit to discarding used paper cups into a regular trash can rather than a recycling bin, according to a new survey of 1007 Internet users conducted by Kelton Research and commissioned by Tata Group’s Good Earth Coffee.
That means about 28 billion cups (100 million pounds of paper) end up in U.S. landfills every year.
The study also showed that 42 percent of Americans believe it takes less time for a paper coffee cup to decompose (20 years) than a newspaper (2 weeks). Not to mention the fact that many paper coffee cups can’t be recycled or composted because of the materials with which they are coated.
McDonald’s, fancy coffee’s new kid on the block, appears to be stealing a page from the U.S. Presidential campaigns with an advertising blitz targeting the alleged coffee snobbery promoted by its upscale rival from Seattle.
McDonald’s restaurants in western Washington State — Starbucks’ home turf — have taken to the Internet with Unsobbycoffee.com, a site that provides a menu of McDonald’s new McCafe coffee drinks as well as tips for how to intervene when someone you love is addicted to “snobby iced espresso.”
Check out the strong sales at McDonald’s in the … United States?
The world’s biggest restaurant chain posted its largest monthly U.S. same-store sales gain since February, when Leap year added an extra selling day. Barring the Leap year, July was the best month in 11 months.
It seems like only a few months ago people were worried that cash-strapped U.S. consumers would start shunning restaurants altogether, even the less expensive ones like McDonald’s.
In fact, it was. The company posted a drop in U.S. same-store sales in March, the first such decline in five years.
But the U.S. rebounded and strength in U.S. sales in July is a sign that the company is benefiting as consumers trade down from casual-dining restaurants like Red Lobster and Applebee’s, and that the value message of McDonald’s is attracting customers, analysts said.
Growth in high-margin items like drinks could also help the company offset rising hamburger commodity prices, UBS restaurant analyst David Palmer said in a research note.
Also in the basket:
Hormel gives lower 3rd-qtr view; cuts ’08 outlook
Rising grain costs hit consumers (Wall Street Journal, subscription required)
Check out the demise of the dollar menu as we know it?
McDonald’s, dealing with rising commodity costs in the U.S., said it is looking at changes to its popular Dollar Menu, which accounts for about 14 percent of U.S. sales.
“What fits on that menu will look different than now because it has to be profitable,” said McDonald’s Chief Operating Officer Ralph Alvarez on a conference call with analysts.
“We’ve got to make sure we’re pricing smart, not just pricing low. We’ll make the move at some point,” Alvarez said.
The comments from Alvarez come two months after Chief Executive Jim Skinnner said the company was willing to absorb some rising costs in order to ensure customer loyalty.
“This is not the time to be passing that on to consumers. They have long memories,” Skinner said.
One analyst said the popular double-cheeseburger could disappear from the Dollar Menu.
But pegging an offering, or even a business, to the dollar can prove to be a dicey proposal. The dollar has weakened and costs have gone up. Most “dollar” stores, for example, stopped capping prices at one dollar years ago.
But analysts do not see McDonald’s straying too far from the dollar.
“We do not expect McDonald’s to abandon the dollar price point, but rather evolve the menu with either new products at a near-dollar price point or adjust the pricing of select products that have seen significant cost pressures,” Goldman Sachs analyst Steven Kron said in a research note.
Perhaps calling it the “Mighty close (to a) Dollar Menu” would solve the problem. To long? Well, that could always be shortened to “McDollar Menu.”
Also in the basket:
RadioShack 2nd-qtr profit tops view, sales rise
UST profit dips, premium brands weak
And the plot thinned… (N.Y. Times)