Tuesday, January 29, 2008

Not Recession Proof After All - Back to the $1 Menu Drawing Board

Wall Street is not very forgiving! MCD's found this out on Monday. The conversation might have gone something like this: 'Oh, so you had ONE bad month...no biggie! It's ok...you've had, let's see...FIFTY-SIX CONSECUTIVE MONTHS of higher year-over-year U.S. comprable same store sales. We'll let this one slide."

NOT! Mr. Wall Street pushed McDonald's down to a 4 1/2 month low. Said another way, MCD's went from a nice $54.36 stock price on Friday down to a relatively hard hit $50.80 by close of bell Tuesday. That's not very nice...but it was the worst quarter in 5 years. A flat December is not pretty. And worse yet, it's not a good sign.

What did McD's have to say for itself? Excuses, excuses. Mr. Wall St. hates 'em. Especially if their not believable. MCD's did it's best though, blaming it on the weather - "It was COOOOOLLLLDDDD outside.." If that were to be believed, things would be OK in Oak Brook, but things are a little shakey because people believe otherwise: It's the economy, stupid!

Higher food costs, higher energy costs, an overall weak economy tied to the housing "downturn"...these are more likely culprits. And if McDonald's is feeling it, that is NOT a good sign. A canary in the coal mine!

What shocks me is that, considering McDonald's "not lucrative" price point, they are suffering at all. Do people REALLY not go spend...$5, $6, maybe $8 at McDonald's and apparently make their lunch and save...a $1? Apparently they do.

What will McDonald's do? What will be their "corporate mission" in such an environment?

They'll go even CHEAPER. "You want cheap...we've GOT cheap" is what their gearing up to do. How so? They'll look at their trusty balance sheets and recognize a couple things: 1. their value meals account for 14% of their TOTAL REVENUE. That's a lot of cash. They will start going to their strengths and cashing in on that little tid bit of information in the form of...more Happy Meals! And two...$1 Menu. Yup...it's what got 'em out of their first jam, and they'll bet it will carry them through this pickle, too.

Look for slight changes to their menu in '08 emphasizing their creme' de la' creme: cheap!!!!

Interesting Update:

Burger King is seeing NO slowdown in it's same store, Q1 sales...hmmm...it's actually experiencing an "uptick".


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