McDonald’s shows signs of resistance to recession

Posted by Daniel Palmer on 23rd October 2008

McDonald’s, the world’s largest hamburger chain, has announced a global sales increase of 7.1% for the third quarter despite the recent economic turmoil.

The strong results have led some, including Chief Executive Jim Skinner, to label the fast-food giant as ‘recession-resistant’. With such strong results it is hard to dispute the claim, although one suspects that any further weakening in the global economic climate would have begin to have some impact. For starters, it is noticeable that their American operations were not quite as successful, with comparable sales results of 4.7%. Such figures are commendable, however, given the fact that America has been at the centre of the economic crisis and hit hard by a downturn in consumer spending.

The resistance to the US recession can be put down to two factors: a reduction in competition and a ‘trading down’ in food spend. The deteriorating economic conditions have caused a shake-out in the American restaurant industry, with many forced to close due to a lack of demand. As a result, the stronger companies in the category, such as McDonald’s, have been granted a great opportunity to boost their market share – shielding them from the crisis.

Additionally, many research firms have noted that consumers are eating out at restaurants less often, but it appears to be the mid-tier and fine dining restaurants that have been under the greatest pressure as consumers seek cheaper options. As the ‘trade down’ has occurred, fast-food restaurants have lost some customers looking to save by cooking at home but have been fortunate to also gain customers who are searching convenient food at a cheaper price than at mid-tier restaurants.

McDonald’s also realised that a focus on value was necessary to help keep their sales momentum, with the introduction of a $1 menu among their recent initiatives in America.

“The strength of McDonald’s ongoing results is a testament to our multi-dimensional ‘Plan to Win’, which features quality food, compelling value at every level of our menu and dependable convenience,” claimed Chief Executive Officer Jim Skinner. “Our unwavering commitment to providing an outstanding restaurant experience to every customer, every time is driving comparable sales momentum and profitability growth in each area of the world.”

The company reported that Australia and China were key drivers of a 7.8% comparable sales increase in Asia/Pacific, the Middle East and Africa. Convenience, core menu extensions, breakfast meals and an increased focus on value were among the primary reasons for the growth, according to McDonald’s.

The company is also optimistic about the coming months, believing the structures they have in place will hold them in good stead.

“Disciplined financial practices are the foundation of our enduring performance and provide critical support to our strategies,” Mr Skinner advised. “As we enter the final quarter of the year, October sales trends remain strong and I am optimistic about McDonald’s outlook. McDonald’s is a strong, stable global business and remains well positioned to generate long-term profitable growth for our System and our shareholders.”