Today’s numbers from McDonald’s show that, despite inflation and economic pressures, customers in the US and overseas are still lovin’ the fast-food giant’s menu.
Admittedly, poor exchange rates took the shine off some of the revenue figures, but on a comparable and constant currency basis, it is clear the company has a lot of traction.
Same-store sales growth of 10.3 per cent in the US is an exceptionally strong performance, especially as it comes off the back of a 7.5 per cent uplift in the prior year. The number is partly inflated by higher menu prices, but it is also driven by an increased number of customers and transactions.
With households under increasing financial pressure, our consumer data show three dynamics are working in McDonald’s favor. The first is customers trading down from mid-market family restaurants to cheaper fast-food outlets like McDonald’s; this saves them money but still provides them with the treat of eating out.
The second is a group of consumers who have increased their use of fast-food outlets, including McDonald’s, because they find it is an occasional, cost-effective way of feeding the family. This underlines the strong value for money message of McDonald’s is resonating, even after menu prices have increased.
The third group comprises those who are indulging themselves a little more because of the gloomier economic outlook. Among this group, there is something of a ‘you only live once’ mentality which is driving them to small, inexpensive treats, like McDonald’s on a more frequent basis.
Taken together, these dynamics have boosted trade at McDonald’s.
It is fair to say that the same factors are also operating in many overseas markets such as the UK and Europe. There, the numbers have also been flattered through societies that are now far more open than they were last year which has resulted in an uptick in trade for day parts like eating on the way home from a night out.
Away from the general trends of the market, McDonald’s also deserves credit for keeping itself on the radar and fending off the competition with good menu innovation. Initiatives like the McRib ‘farewell tour’ and the Cactus Plant Flea Market promotion resonated with consumers and gave them excuses to visit McDonald’s. This kind of activity is necessary in a more challenging and crowded market, and we expect McDonald’s to keep up the pace across the course of its next fiscal.
The solid top-line numbers and the menu price increases have helped McDonald’s to expand the bottom line where operating income is up by 8 per cent and net income by 16 per cent. This is a robust outcome.
The challenge in the year ahead is to keep this momentum going and to do so against come tougher comparatives. While many of the factors that have aided this quarter will remain, inflation is still high and will continue to push up ingredient costs and erode the spending power of consumers. These things could potentially take the shine off the numbers on both the top and bottom lines and will require even more effort and imagination from McDonald’s to drive trade.
About the author: Neil Saunders is MD at GlobalData.
