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Viewing report
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McDonald's Benchmark Analysis
Restaurant Research, LLC, Aug 2008, Pages: 11
McDonald’s continues to fire on all 8 cylinders as it puts more distance between itself and its competitors during a difficult economic environment (which will deal a disproportionately harsher blow to the weaker chains).
Presently, McDonald’s is doing a terrific job on marketing and menu and though consumer surveys continue to show operational weakness, you cannot tell by the chain’s consistent sales out performance. The concept’s new product pipeline looks great to us and we anticipate that it is good enough to continue gaining overall share in an otherwise mature market (that may be temporarily expanding somewhat because of casual trade-down but perhaps partially offset by low-end customers who are now sitting on the sidelines until this economic storm passes).
In our opinion, McDonald’s value strategy will play an increasingly important role in the system’s future performance and management has announced that the current dollar menu will not look the same in a year’s time.
As market leader, the chain has the ability to lead the dollar menu prices higher (which may necessitate a name change to the dollar menu by-the-way) as a way to combat escalating costs. However, such a move has the potential to prompt other chains (like Burger King) to hold their value prices in an effort to grab share – with the potential to hurt McDonald’s sales.
Further, we note that McDonald’s new upscale reimage is probably the right thing for the brand’s long-term direction but may be poorly suited as a near-term strategy if our current economic weakness persists for longer than anticipated. In any case and in conclusion, the game is obviously McDonald’s to win and the industry’s top brand has more than enough cushion for even a few miscues should they happen.
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