McDonalds Hikes Japanese Burger Prices And Sales Slide; Now It's India's Turn

Tyler Durden's picture

Confirming that while Central Banks may have halted economic logic and reason indefinitely, supply and demand still have some relevance in the real world was today's earlier news that in the aftermath of McDonalds' 20% price hike of basic burgers in Japan three weeks ago, that the company's Japanese same store sales tumbled by a whopping 3.7% in April, a major contributor for the miss in the expected global same store sales for April which came at -0.6%, below Wall Street expectations. One can only guess what the SSS drop would have been had MCD implemented the price hike at the start of the month. One can also guess if the increase in average price offset the drop in sales volume - we will know soon, but just to make doubly sure if what MCD loses in volume it makes up for in price, McDonalds announced that one month after the 20% price hike in Japan, its Indian franchise operator said it too would proceed with a price hike - the second one this year - amounting to 5-6%.

From Reuters:

An Indian franchise operator of McDonalds Corp  may increase prices for the second time this year, responding to rising inflation which, along with an economic slowdown, it expects to temper demand growth for at least the next 7 months.

 

The company, Hardcastle Restaurants, said on Tuesday it could raise prices by 5-6 percent. That follows a 5 percent hike after the government increased the service tax rate in February.

 

"There is pressure and it's a tough environment, no doubt. But inflation is at 8-10 percent so we have to hike our prices," said Amit Jatia, vice-chairman of Hardcastle Restaurants, which owns the McDonalds franchise for west and south India.

Pop quiz: does consumption increase when prices rise? For the S&P500, yes. In India, apparently not.

Consumer spending in India has taken a hit in the past three quarters as rising food prices, meager salary increases and the slowest Indian economic growth in a decade hurt buying appetites for clothes, cars and eating out.

 

With its 1.2 billion people and growing middle class, India is a large market for global chains, though for now most Indians cannot afford to eat regularly in western-style restaurants.

 

The burger chain said its same-store sales remained under pressure and although they would grow, the increase would not be at the 22 percent achieved in the fiscal year ended March 2012.

 

The burger chain plans capital spending of 5 billion-10 billion rupees ($92 million-$184 million) in India over the next 3-5 years, mostly for store expansion, Jatia said, adding India's long-term consumption growth story remained intact.

 

McDonalds has 309 stores in the country.

In other news, with inflation rampant in the world's second most populous country, the local citizens just can't get enough of selling synthetic gold via synthetic CDOs such as the GLD ETF, if it means being able to buy actual physical gold at cheaper prices. Because remember: deflation is just inflation on the sidelines, and the Chairsatan can kill the sidelines in 15 minutes.