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It’s difficult to reconcile McDonald’s recent commentary with a recent survey on British eating habits.

A Horizons consumer survey has indicated that frequency of eating out in Britain is at its highest for two years.  While Brits are eating out more often, according to the survey, spend for those who had eaten out in the two weeks prior to the survey had declined to £12.30 versus £12.69 a year ago.

Horizons’ director of services Paul Backman said: “It is surprising, given the difficult economy and the fact that retail spending remains low, that the respondents to our survey are still eating out on a regular basis, and in fact more regularly. Pub restaurants and takeaways are the most popular choices, perhaps as diners downgrade from more expensive establishments. “We expect the quick service and takeaway sector to receive a significant boost over the next few weeks with the start of the London Olympics”. 

Why does this matter for McDonald’s?

CFO Peter Bensen noted that McDonald’s is seeing “constrained consumer behavior” in global markets, but particularly in Europe where the downturn has persisted for so long.  While Bensen did not single out the U.K., he did say that in “several of the markets” in Europe, “the eating out market is simply declining.  People are staying at home.”  It can be a red flag when companies blame macroeconomic factors for sluggish performance and don’t offer any other company-specific factors as possible reasons. 

We continue to struggle with what is behind the recent results from McDonald’s.  A company of this size should have better intelligence than what was offered on the conference call on Monday.  If frequency of consumers in the U.K. eating out is up, but McDonald’s is not seeing a proportionate boost in its traffic, then perhaps there is a value perception issue for McDonald’s to address in the U.K.  We don’t know for sure, but we would appreciate more color from management.

Howard Penney

Managing Director

Rory Green

Analyst