Big Mac entices the cash-strapped

McDonald's is a major beneficiary of the impending US recession as Americans turn to lower priced restaurant food

Suzy Jagger, New York
OnlineSeptember 9, 2008
http://business.timesonline.co.uk/tol/busi...icle4718439.ece


The success of the early morning egg McMuffin and breakfast sausage burrito helped propel like-for-like sales at McDonald's at twice the rate of Wall Street expectations as the world's biggest restaurant company enticed cash-strapped Americans with cheap food.

McDonald's said today that like-for-like sales in America had jumped 4.5 per cent last month compared with expectations of a 3 per cent rise. The Big Mac company also boasted that globally, same store sales were up 8.5 per cent over the month - much higher than Wall Street forecasts of just 3.8 per cent.

Publication of the trading performance lifted shares in McDonald's by around 2 per cent to $64 in lunchtime trading in New York. The stock has recovered from around $50.75 in February.

McDonald's is a major beneficiary of the impending US recession as Americans, struggling to cope with high gasoline and food prices, turn to lower priced restaurant food.

The company, which is based in Illinois, attributed the strong global performance to European burger lovers, whose economies are slowing less rapidly than the US. In Europe, like-for-like sales jumped 11.6 per cent - Wall Street had pencilled in just 4 per cent prior to the trading numbers. The performance of European restaurants is critical for McDonald's because the region contributes 42 per cent of annual total sales and 39 per cent of group profits.

However, the US rise in sales still represents a slowdown from the same period last year when American like-for-like sales jumped 7.4 per cent.

McDonald's has devised a strategy over the last two years of taking on other fast food chains such as Starbucks and Dunkin Donuts by undercutting them on price for staple items such as coffee.

At the same time, McDonald's launched a dollar menu where Americans can buy a meal, including a cheese burger, for less than $1. It has also pursued a marketing campaign to promote its breakfast menu.

Same store sales in the Asia/Pacific, Middle East and Africa division jumped 10 per cent, as McDonald's cashed in on the increasing appetite in the Far East for Western, dairy-heavy diets.

While McDonald's attributed part of August's trading performance to Olympic-styled food items, analysts at Deutsche Bank in New York have expressed scepticism about the impact of the Games this year on the company's trading. In a note published this week, but before the publication of the trading figures, Deutsche told clients: "While it is unclear what impact the Olympics had on the monthly results, we note that August 2004 did not appear to see much lift from the Games, particularly outside the US."

Deutsche Bank is expecting McDonald's full year sales to rise in 2008 by almost 4 per cent to $23.61 billion and by another 2 per cent in 2009 to $24.13 billion.

Jim Skinner, McDonald’s chief executive, said: "We’re connecting with customers worldwide by providing a convenient, affordable and relevant restaurant experience. This ongoing commitment to customers continues to drive our momentum in every area of the world."