McDonald’s is a chain for the times

Source Article: McDonald’s Profit Falls as U.S. Dollar Hurts Sales | www.bloomberg.com (See article)

Implicatons:

1) McDonald’s Global reach and Marketing muscle will allow increased share

2) Both operating profits and Revenues will continue to grow.

3) The “Wal-Mart” of Fast feeders – low-cost and well-run

Commentary:

While McDonalds profit may have fallen vs. last year’s quarter, they were up in terms of income from operations. Revenue was up, and the future looks bright. McDonalds, much like Wal-Mart has itself positioned to ride through the current economic climate and emerge stronger financially and holding even greater market share.

The “Dollar menu” has forced all the other players to feature dollar and value items, and upped the ante on efficiency and volume. The Wednesday and Sunday .49 Hamburger and .59 Cheeseburger promotions shows the muscle the McDonalds system can deliver. Even as they feature value, they are grabbing share and driving traffic into the restaurants.

The whole “Strength of the dollar” decreasing profits, while true, is a macro situation that McDonalds cannot control. As long as they continue to operate in the manner they are now, they are going to be a consistent and dependable earner who can continue to grow their business.

Consumers are looking for relief from the daily drumbeat of economic downturn news; unemployment and layoffs soaring, auto firms on the ropes, Wall Street bailout questions… here’s the antidote for middle America, and McDonald’s has it.

You can still easily feed a family of four at McDonalds for under $20.00, even if no one is taking advantage of the value items. If you’re watching your money closely, it can be done for $10.00/$12.00. The kids might not get those Happy Meal toys at that expenditure level, but you’re still having dinner out.

The time of reckoning is here for most families in the working class; they may not be facing economic disaster, but there is very little comfort in what the future holds at the moment. Most people have little confidence that things are going to rapidly improve with the nation’s economy.

That’s where an iconic brand and offering like McDonalds can make a big market share move through operational efficiency and value instead of fighting a marketing war with advertising dollars and giveaways.

Burger King, Wendy’s and the Yum brands are all offering value. Wendy’s 99 cent menu was really the first of these regular value offerings way, way back, but the store count and ability to deliver food at a low cost that McDonalds can offer will mean the others can’t be the driver in this competitive sector.

Denny’s Grand Slam giveaway was just completed an hour or so ago; while it’s tough to beat a “Free” offer, it’s not a sustainable competitive position, just a promotional gimmick. McDonalds can sit at the value menu prices as along as it needs to, and continue to earn just fine.