MCD – Premium products are not driving incremental traffic

Given the sluggish sales trends in the USA, senior management must be questioning the most expensive new product launch in the company’s history.

 

Relative to my August sales preview, both the U.S. and APMEA numbers were bad and Europe results were neutral.  In the U.S., MCD’s same-store sales growth was up 1.7%, which signals a return to the slowed 2-year trends we saw in May and June, making the strength in July look like an aberration.  Again, I would point to bad timing.  MCD is pushing more premium menu items (the Angus Third Pounders and McCafe espresso-based coffees) at exactly the wrong time, considering the difficult economic backdrop.  The all important 16-24 year old age group is facing extremely high levels of unemployment so for the most part, they don’t have the discretionary income to pay up for these more expensive menu items. 

 

Additionally, this continued slowdown in the U.S. highlights that MCD’s espresso-based beverage platform is still not working.  MCD’s business is coming under pressure at the same time SBUX’s is posting sequentially improved results.  SBUX’s numbers are still negative relative to MCD’s low single-digit increases but the directional moves are telling.  SBUX’s results are becoming less negative at the same time MCD is really pushing its McCafe products. 

 

APMEA’s August comparable sales growth came in down 0.5%.  This decline marks the first time this segment has posted a YOY monthly decline since May 2005 and represents a significant shortfall from the 5%-plus numbers to which investors have become accustomed.  MCD attributed the decline to weakness in China and Japan.  On a 2-year average basis, August results were similar to June and July, which signals that MCD may be facing a period of sustained weakness in its APMEA segment. 

 

In Europe, MCD reported 3.5% same-store sales growth.  I outlined this type of result in my sales preview note as Neutral because it represents a 2-year average trend that is similar to that of July.  For August, the two-year average growth is 7.6%.  To be clear, this is a strong result, but people expect this type of growth out of Europe. 

 

MCD – Premium products are not driving incremental traffic - mcdussss

 

MCD – Premium products are not driving incremental traffic - mcdeursss

 

MCD – Premium products are not driving incremental traffic - mcdapmeasss