On February 15, my Can CosMc’s Improve McDonald’s Results? guest post was published at Dividend Power.
McDonald's (MCD) has repeatedly boasted about its ability to raise menu prices without negatively impacting sales. A sizable segment of its customer base, however, is the lower income consumer. People can only put up with so much. Some are turning to social media to complain about the high cost of everyday necessities; MCD has become a regular target.
Many North American consumers have been treading water financially. It appears, however, that many have finally reached a tipping point. Credit card and car loan delinquencies in the US are at their highest point in more than a decade. Mortgage delinquencies in Canada continue to rise and some homeowners have mortgage amortizations that extend well beyond 50 years. Furthermore, many households are eating into their savings to cover their basic living expenses. For many, the cost of living far exceeds any income growth.
When an increasing number of consumers struggle financially, it stands to reason that people will be forced to change their lifestyle. Although some financially challenged customers may still go to MCDs, the frequency and average ticket size will likely change.
On February 5, MCD reported weaker than expected sales at its US stores. On the Q4 earnings call, management acknowledged that a large segment of its customer base cannot continue to indefinitely absorb price increases. In order to address this, MCD plans to lower the price of some menu items. This will undoubtedly contribute to margin pressure although the extent is currently subject to debate.
In my guest post I touch upon the CosMc's pilot program in which MCD hopes to determine whether it can capture business from consumers with more discretionary income.
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Disclosure: I am long MCD.
Disclaimer: I do not know your circumstances and do not provide individualized advice or recommendations. I encourage you to make investment decisions by conducting your research and due diligence. Consult your financial advisor about your specific situation.
I wrote this article myself and it expresses my own opinions. I do not receive compensation for it and have no business relationship with any company mentioned in this article.
