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McDonald's senior management is on record saying that they are seeing more activity on the Dollar Menu, but it still remains consistent at 13-14% of sales. However, average unit volumes have improved significantly over the past four years so senior management's comments imply that there are significantly more customers using the Dollar menu.

It would also appear that management is very comfortable in the current environment growing traffic in its restaurants by using a value strategy. Management thinking here is that it's much harder to get customers to come back (from the likes of Wendy's, Jack in the Box, etc) than it is to keep them in the restaurant.

The question becomes at what cost?

This is where the friction between the franchisees and franchisor arise. Incremental Dollar menu transactions help revenues and transaction counts, but depress margins. Under this scenario the franchisors win at the expense of franchisees.

Since December 2007, McDonald's U.S. has seen a significant slowdown in reported same-store sales. Given the slowing sales trends and the increase in Dollar menu transactions, it's important to understand the components driving same-store sales. Until recently, menu prices were increasing faster than transactions. It's not inconsistent to think that the current economic environment coupled with the emphasis on value is causing transactions to grow faster than the average check.

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