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McDonalds Sales Plunge In Worst Month Since 2003 Following Dollar Meal "Sticker Shock"
Moments ago, McDonalds not only released earnings and revenues, both of which missed - something which was largely expected since the backward looking data had been telegraphed by MCD's recent global selling collapse - blanketed by atrocious commentary, but it disclosed its September global retail sales which were for lack of a better word, a disaster, after reporting global sales which dropped 3.8%, below the 3.2% expected, and the worst global month since at least 2003. The pain was everywhere, with Europe plunging 4.2% (est -0.9%), Asia down 7.5%, and the US down a whopping 4.1%, far below the 2.8% expected, and also the worst month in over a decade.
In fact, McDonalds sales in the US have have now gone a whopping 11 months without posting a positive sales month, the longest stretch on record!
But while collapsing MCD sales are a combination of both the insolvent US consumer, who can no longer afford to buy either MCD or Coke (as we commented earlier) especially after purchasing the latest and greatest iThing on credit, as well as shifting tastes and eating the "cool food du jour", things are only going to get worse from here.
Because in a world that is allegedly flooded with deflation, the one place where everyone considered safe for "dollar meals", just got more expensive. Bloomberg reports:
Mike Hiner used to take his grandsons to McDonald’s (MCD) when they wanted a treat. With higher wage and food costs pushing up prices at the Golden Arches, he’s increasingly taking them to IHOP, Denny’s and Chili’s instead.
The loss of bargain-seeking customers like Hiner underscores a growing challenge for McDonald’s Corp.: While the company still offers several items for $1, its menu is quietly getting more expensive. McDonald’s said its prices were up about 3 percent through the end of June compared with 12 months earlier. That’s more than the 2.5 percent gain in prices for food Americans purchased away from their homes in the year through August, according to the Bureau of Labor Statistics.
The chain’s diminishing appeal among budget diners -- coupled with rising meat costs -- are projected to take a bite out of third-quarter earnings due to be reported tomorrow. Analysts estimate that McDonald’s revenue fell 1.8 percent to $7.2 billion in the period. Net income, which also were hurt by a food-safety scare in China, slid 11 percent to $1.36 billion, according to the projections.
And sure enough, see the charts above. But that is only the beginning:
Some Americans are extremely price sensitive, and any increases may send them elsewhere, said John Gordon, principal at San Diego-based Pacific Management Consulting Group, an adviser to restaurants and franchisees.
“If you encourage and kind of seed the notion that you can come in for a couple bucks and get some food -- and then you can’t do that anymore -- there’s bound to be a reaction,” he said.
There is also bound to be a reaction when the already broke US consumer maxes out their credit card on a telephone and forgets to eat.
The result has been that fast-food chains, long thought of as the cheapest place to grab a quick bite, may now have that reputation working against them, said Joel Cohen, president of Cohen Restaurant Marketing Group in Raleigh, North Carolina. The higher prices may be driving some customers to seek alternatives either at fast-casual chains like Panera Bread Co. (PNRA) or even at sit-down places, he said.
“It’s sticker shock,” Cohen said. “You’re up at price where you could just about be dining at a casual-dining restaurant.”
And when you hear the phrase "sticker shock" in the same sentence as a McDonalds dollar meal, you know the end is in sight.
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I've never eaten at one, but here is what they claim:
Whatever "when practical" means is up for discussion, but it's better than McShitters. At the very least, they recognize it is a marketing tool.
I've never eaten one either and probably won't. Headbangers got me drooling for a sack of White Castles right now.
McDonalds problem is fairly simple, though the solution is not.
McDonalds has raised prices to the point their Dollar Menu is slim pickings.
Most all the former $1 items are no longer $1.
Last time I bought my favorite McDouble, it was about $1.50.
It used to be $1.
Dittos for other former $1 items.
And their fancier fare is pricey enough to make me want to go to a local budget restaurant as I would get a better meal for about the same price.
And the local BurgerKing has more $1 items than McDonalds.
But I will say the McDonalds coffee is normally good and often "any size for $1" which is nice.
But families with young kids do not go to McDonalds to buy a round of large coffees for the kids.
Our area has a minority of good jobs and a majority of service entry, lower pay jobs. so budget meals are appreciated.
McDonalds used to be the king of budget meals...no longer.
So less business in this bad economy (well, adtually Wall Street and the Big Banks are doing very well...thank you Obama!).
But the little people of Main Street who are not the ones stuffing cash into Obama and other politicians' back pockets, are not doing well and do not receive the goodies from DC...other than the FSA.
DK
And another IMO problem is that McDonalds only sells food off their Breakfast Menu until...forget, 9 or 10am is it?
And their Dollar Menu for their breakfast items has few remaining dollar items.
Most all the former $1 items are noticeably more expensive now.
McDonalds used to make its profit via selling volume and making a smaller profit on each item...but with large sales volume, the money can still be good.
With price increases, the sales volume drops.
Remember also in this Obama Economy, while unemployment is a mere 6%, about 90 million working age adults have no job (if no job and if have run out of unemployment benefits, Obama says you are no longer unemployed...thus the magic of 6% unemployment).
So a good chunk of former McDonalds customers are now very income limited and the routine family meal there is no longer routine.
All this, not to mention the issue of rasing min wage to $15 or more desired $20 per hour.
If the Dems succeed in that, what will it do to McDonalds (and other fast food places) cost of doing business?
They will have to jump the prices higher.
And thus lose another chunk of customers.
And that would be a shame as fast food places have long been a place where young people could get their first job and get job experience.
Raising the minimum wage hurts high schoolers looking for a summer job, if no one else.
btw, if $15 or $20 is a good minimum wage, why not $100 per hour?
'Then we eliminate poverty in the USSA!
Worked in Zimbabwee just fine, did it not?
DK
The solution is simple. Start accepting EBT cards
They already do. That happened at least a year ago.
Also you forgot to mention McDonalds patrons and staff. If I want to chance getting in a shootout, brawl, wilding or armed robbery then I dine at McD's.
burgers and poon!!
I am pretty sure this is because my doctor made me quit eating Big Macs in May, after the little heart attack episode
Or maybe the problem with the closings in Russia?
Or maybe Chipoltles?
I bought my first McDonald's burger in 1965 for twelve cents ($0.12). It was three cents cheaper than Burger King. But then that was six years before 1971.
In September of 1972, I drove from St. Louis to Los Angeles with an average gallon of gas running about $0.21.
Sure am glad the USD remains strong today!
I think the wood pulp meat extender might have a bearing here.
I still think the film "Super Size Me" is what caused McDonald's decline.
For those who are interested, a little education about McD's. First of all, McDonalds is not in the fast food business; they're in the real estate business (Their Monopoly promotions should be your first clue). Although they operate some "company" stores, the majority of the Mcd's are franchise operations. They actually make very little from their company owned stores. Although their gross revenues for the first 6 months from company stores was over $9 billion, the net income (when all expenses are properly allocated), was probably close to break even. Their franchise revenue (amount collected from franchise store owners for rent, royalties, fees, etc.), while only about half ($4.6 billion), generated a net income of 2-3 billion. So, the true source of their cash flow is collecting rents, not selling fictitious meat products.
But, the true value of the company is in its real estate holdings. McD's lists its property & equipment at $41 billion dollars, but these values are at book value (cost at time of purchase), not market value. So let's say Mcd's purchased a piece of property in or near Beverly Hills in the 1960's to build a restaurant. Let's say they purchased it for $100,000. That asset would still be on their books for the purchase price, not the market price, which could very well be worth 10-100 times the purchase price. Now assume that property values have increased on average 10 times during Mcd's tenure, they would realistically be sitting on $410 billion dollars worth of property (I actually believe the value is much higher). Given they have a market cap of approx. $95 billion, means that McD's liquidation value is 3-4 times its current stock price.
That, my friends, is the true value of McD's. Does the Monopoly promotion make sense now?
Interesting i guess you learn something new everyday i never knew that
Anyone who eats fast food deserves whatever they get.
the govt is subsidizing mcdonalds real estate so that they can stay in business and continue feeding the poor mcgovt food that kills them faster.
think of how much mcdonalds saves the govt on welfare. HUGE. poor groundling don't have a chance. dupont might as well make mcdonalds food there's so much chemicals in it. people who eat at mcdonalds fart chem trails all the way home.
Took the wife and 2 kids out for dinner, went to Bob Evans for under $50.00 including tip. MD probably would have benn about $30.00.