Despite the recession, consumers still want to go out for dinner. However, more people want lower-priced food with a sheen of indulgence, and McDonald's (MCD) is turning out to be one of the beneficiaries of this shift in consumption patterns.
The world's largest restaurant chain said sales from restaurants opened more than a year rose 2.2 percent in August, boosted by sales of new products including the McCafe coffee drinks and the Angus Third Pounders burgers.
The sales increase comes from the company's efforts to lure consumers away from pricier options. Sales in the U.S. rose 1.7 percent for stores open 13 months or longer. With budgets tighter, some consumers may be forsaking their $5 lattes from Starbucks (SBUX) for a $3 fancy coffee from McDonald's. And the Angus Third Pounders offer burger lovers the idea they're eating meat culled from cattle synonymous with fine dining.
A big boost in sales for the company came from Europe, where sales at McDonald's restaurants open a year or more rose 3.5 percent. The company said it was helped by "limited-time" food offerings.
And maybe it's not just reasonably priced food with a luxury image that's helping the company grow during the recession. After all, McDonald's has a hefty marketing budget and has been known for its ability to key into consumers' desires. According to Bloomberg News, which cited TNS Media Intelligence, the fast-food company spent $822.7 million on U.S. advertising last year, which would make the company one of the country's biggest spenders on advertising.
Still, not all's rosy at Micky D's. The company said restaurants open 13 months or more in the Asia/Pacific, Middle East and Africa slipped 0.5 percent in August, crimped by results in several countries including China and Japan.
Meanwhile, other restaurants and food companies struggle with the recession. Burger King (BKC) said on Aug. 25 that sales at restaurants open more than a year declined 2.4 percent during its fiscal fourth quarter ended June 30. And high-end eateries are feeling the pinch of the recession, too: New York's tony Cafe des Artistes closed this month, just one of over 500 New York restaurants to shutter this year alone, according to Bloomberg News, citing data from NDP Group. Maybe some of those restaurants' former customers are opting for the low-cost luxury of a mushroom and Swiss cheese Angus burger washed down with an iced McCafe latte.
Basics of Diversification
Learn one of the fundamental concepts of building a portfolio.View Course »