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McDonald’s Shows Strength, Eyes Price Increase

Filed under Business, Food Costs, Pricing

A remodeled McCafe in the Czech Republic.

Despite the ongoing debt crisis hobbling several European nations’ economies, McDonald’s Corp. reported a 4.9% increase in same-store sales for Europe for the quarter ended Sept. 30, 2011. That even bested the 4.4% comp-sales increase for the chain in the U.S. Global net income rose 9% for the quarter.

But CFO Peter Bensen also cautioned that commodity prices continue to be higher than the chain had anticipated, which already resulted in a 1% menu-price increase in March and another jump, 1.4%, in May. Because the food-at-home price index is now rising faster than that for food-away-from-home, another upward price adjustment may be justified, CEO Jim Skinner told analysts today. He declined to say when or if an increase might take effect. 

Menu-pricing decisions are driven primarily by the at-home/away-from-home data, Skinner said, but he added that it “takes intuition and gut feeling on when to pull the trigger” on an increase. 

Bensen added that McDonald’s “continues to be mindful” of the debt crisis’ impact on consumer confidence and spending in Europe and is being more cautious about raising prices there. But Skinner emphasized the brand’s resilience in the face of the global economic difficulties, saying the most recent quarter shows “how well our business model adapts” to changing economic realities. 

Skinner said McDonald’s performance was helped by sales of Chicken McNuggets in the U.S. (up 10% vs. a year ago thanks to ad support) and strength at breakfast, which accounts for 25% of U.S. sales. In China, breakfast has risen substantially, hitting 8% of sales, Skinner said. Morning sales account for 13% of sales in the UK. Remodeling of unit interiors will continue through 2012 in Europe, he said, with 600 locations updated this year.

McDonald’s will expand McCafé locations and menus, Skinner said. That includes the introduction next month of Real Fruit Smoothies in Australia.