Guess what, the original strategy has changed! Even though the original plan never worked, MCD continues to maintain that it is not slowing down the roll out – they can’t! The 2009-2010 business plan calls for the “beverage strategy” roll out! It is how management plans to drive incremental transaction counts, and without beverage sales, trends are going to slow for MCD. As an aside, it’s interesting to see that MCD is starting to test the “high-end” Angus burger in more markets. I guess if McCafe is not working, they need to go to plan B…
More than 7,000 of the 14,000 U.S. McDonald's restaurants have been retrofitted to include the separate “McCafes” that offer espresso based coffees, with the balance expected to be complete by mid-2009. Going forward, however, the espresso machines are being integrated into the front counter rather than moving ahead with the “McCafe” strategy! Are you kidding me! This is the strategy that was going to hurt Starbucks. Not even!
Lastly, I know management needs to tow the corporate line, but they almost sound delusional when it comes to the coffee strategy. A McDonald’s executive is quoted as saying; "That's the great part about McDonald's is that we are actually offering affordable luxuries, so for us we know our customers are looking for those affordable luxuries." Over the past year, McDonald’s US average check growth has been fueled solely by price increases as mix was negative in each of the last four quarters with the Dollar menu growing in popularity. This just magnifies the point that the same McDonald’s customers that are coming to eat off the Dollar menu are not going to pay $3.50-$3.75 for a cup of coffee.
On Monday, MCD will release February same-store sales. Consensus estimates for MCD are; Global +0.4%, United States (0.6%), Europe (0.4%) and APMEA +3.8%. The reported February numbers will be negatively impacted by about 4% as last year’s numbers included one extra day due to the leap year. The January results, on the other hand, were helped by about 2% from a calendar shift. That being said, neither month alone provides a good indication of the underlying trends. The February numbers need to be taken in context with January to get a better feel for what trends look like in 1Q09. Taking the two months together (and adjusting both for calendar shifts), the underlying 1Q same-store sales trends look like; Global +4.8%, United States +3.4%, Europe +4.4% and APMEA +8.0%. If the consensus numbers are close to being right, this would represent a slowdown across each region from 4Q08 when Global +7.2%, United States +5%, Europe +7.6% and APMEA +10%.
The headline on Monday will not look good, the overall trends are slowing and coffee is not working. This is not the MICKEY DEES the street is in love with.