***This post is a completely personal opinion as an investor and uses only public information. There is no private information or any relation to my current position***
Wikipedia McDonalds page / McDonalds HQ in Chicago
McDonald’s has seen a decrease in sales during this year after very good 2021, 2022 and 2023. Their focus on driving sales and increase in quality, added to the new restaurant designs has made the Golden Arches brand way more attractive for the general public.
But this increase has come at a cost. We saw how many Wall Street analytics mentioned how consumer reports show a complaint about the prices. And it is not only that in places such as Switzerland or Norway, the menu can be expensive, we are seeing other countries where the menu is close to 18$. At such prices, the gap between going to a McDonald’s or a small diner has closed, and many consumers are willing to spend a couple more bucks to have something more local. Meanwhile, the people who can’t afford the menu are jumping into other less expensive alternatives where we see a huge increase in people staying at home and cooking (maybe what we learned during the pandemic is helping us at home…).
And it is not only traditional “going out” people. We have seen a change in trend in the way we spend money. Fewer people are attracted to having a car in property or owning a house (partly because of the price increase, and partly because people are less willing to invest long term). Also, fewer people want to have a family. Combining both factors we get an increase in people having more money for the daily spending, which is used for buying more things. Clothes, watchers, luxury items, traveling or trying new restaurants are what new generations value and so have been registered everywhere.
LMVH, Apple, Hotel chains, and luxury items have seen a spike in sales for the past years while people overspent the money saved during the pandemic and the new money incoming. But as the economy slowly stops the trend is changing. Second-level clothes (such as Zara) are now seeing record sales while luxury brands are falling during 2024. The same will start happening with the restaurants. At some point in the near future fewer people will want to spend 200$ in a normal steak coming in a fancy box, and will value sharing with friends some fancy drinks at a normal place after or before getting some burgers…
And let’s not forget that Burger chains have always profited of slow terms in economics. If you don’t have enough money to go out, but you want to go out, there it is your favorite burger. Of course, there will always be similar brands or chains, but the prices are nowhere near. Just today I saw at a street food van a (yes, very fancy) burger for over 14€, which is 2.2 times the most expensive item on the McDonald’s menu in the same town. They are burgers as well, but as with cars we should see both concepts as different “burger-segments”.
McDonald’s, as well as some competitors such as Burger King, with a very smart move, have started offering a more “adapted to the times” 5$ menu while maintaining the luxury versions of the burgers. In my own opinion, this is going not only to save the year for McDonald’s (after two missed quarters) but it is likely to bring the beloved M back to the podium. This doesn’t mean the profit is going to skyrocket in the few months remaining, especially considering the profit margin you can get of the 5$ menu. But there is a big chance that McDonald’s see and big increase in visitors bringing sales up also in drinks and “added items” to the menu.
Is it a good time to buy McDonald’s? We don’t have only the menu prices problem and the economic situation. We should also consider the geopolitical situation across the globe for such an international company. But with all that into consideration and after a 12% decrease YTD in the stock price (with a very interesting 2.5% dividend), I don’t think it would be a bad idea.
Comments made on the company showcased are an expression of opinion only, and should not be construed in any manner whatsoever as a recommendation to buy or sell any financial instrument at anytime
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