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McDonald's has a hot January, navigates price hike rumors

February 7, 2011

Global comparable sales for McDonald's Corporation rose 5.3 percent in January. These numbers were especially boosted by strong European sales (7 percent).

The U.S. system was up 3.1 percent, while Asia/Pacific, Middle East and Africa (APMEA) was up 5.2 percent.

In Europe, January comparable sales were led by strong performances in Germany, the U.K., France and Russia. Europe's performance continues to be driven by signature offerings and new products across all price tiers, service and design upgrades to the restaurant experience, and increased accessibility through the breakfast daypart and drive-thru component.

In the U.S., comparable sales increased as customers enjoyed value, core favorites and innovative new offerings, such as fruit & maple oatmeal.

Comparable sales in APMEA were driven by positive results in China, Japan and Australia, with locally-relevant menu items, value and convenience initiatives.

"We begin 2011 with a continued focus on our customers, building on our strong foundation of value, convenience and menu variety," said Jim Skinner, McDonald's CEO. "We're offering high-quality, customer-driven food choices in modern, comfortable restaurants with convenient hours and locations. I am confident in our plans and our ability to keep innovating, investing and delivering what our customers want today and into the future."

McDonald's tentatively plans to release February sales on March 8. In the meantime, it is still navigating price-hike rumors.

All eyes on McDonald’s: Industry awaits possible price hikes

As McDonald’s keeps turning in positive sales numbers across the board, many continue to wonder whether the food industry giant will raise its prices this year.

“Our CFO has stated that as commodity and other cost pressures become more pronounced as we move throughout the year, we will likely increase prices to offset some, but not all of these costs,” said Lizze Roscoe, global external communications/media relations for McDonald’s Corp. “As this is only a possibility and not a certainty, we cannot speculate on which menu items would possibly be affected.”

Things look bleak for menu costs in all foodservice segments. The U.S. Department of Agriculture’s Economic Research Service’s 2011 Consumer Price Index analysis reported that overall food prices are expected to increase 2 percent to 3 percent this year.

This prediction comes after a couple of years of modest increases, including 0.8 percent from 2009-10. For food consumed at home, that time period experienced the lowest food inflation rates in the U.S. since the 1960s.

Among the contributing factors to the climb are rising commodity prices, decreasing supplies and more demand for corn-based ethanol to fuel cars. Feed prices were up significantly last year, which also have affected the cost of beef and pork from 2009-10 by 6.1 percent and 11.2 percent, respectively.

The Chicago Tribune reported that McDonald’s pays for its most-used ingredients, including wheat, beef, cheese and chicken, which are collectively expected to rise about 2.5 percent this year.

Foodservice intel group Technomic predicts less conservative figures, at 2.5 percent to 3 percent across the board. Whether the anticipated price increases will affect bottom lines at McDonald’s or anywhere else is hard to predict, however, considering consumers are more willing to eat out this year than in the past few years. In the meantime, it seems all eyes are on McDonald’s.

“With commodity prices on the rise, many suppliers will be forced to raise prices to restaurant operators. In order to maintain margin, operators will likely have to raise prices this year. The economic situation seems to be improving which will give operators a chance to raise prices in 2011 versus 2010,” said Darren Tristano, executive vice president at Technomic. “I believe many look to McDonald’s as an industry leader and will follow their lead. Many chains in fast casual and even full-service will begin to increase prices and watch whether there is a backlash on traffic and check average.”

Photo provided by iChaz.