McD scores amid downturn, but doubts persist about espresso, Dollar Menu plans

McD scores amid downturn, but doubts persist about espresso, Dollar Menu plans

OAK BROOK ILL. McDonald’s Corp. [3], reported upbeat third-quarter results and its highest same-store sales gain this year. —As independent and chain restaurants nationwide struggled in recent months amid dwindling traffic and waning consumer confidence, the apparent main beneficiary of a growing trading-down effect,

Nonetheless, analysts continued to question the pace at which the industry leader would be able to implement a key strategy for sustained vitality—its rollout of espresso-based drinks and other specialty beverages—at a time when Starbucks [4] is shuttering hundreds of coffeehouses and consumers are stinting on little indulgences. In addition, nagging concerns still surround the uncertain future profitability of McDonald’s signature Dollar Menu. —As independent and chain restaurants nationwide struggled in recent months amid dwindling traffic and waning consumer confidence, the apparent main beneficiary of a growing trading-down effect,

Regardless, an 11-percent jump in net earnings for the quarter ended Sept. 30 gave an optimistic tone to McDonald’s’s conference call with investors late last month. “We continue to be recession-resistant,” CEO Jim Skinner said of the profit surge. —As independent and chain restaurants nationwide struggled in recent months amid dwindling traffic and waning consumer confidence, the apparent main beneficiary of a growing trading-down effect,

Net income of $1.19 billion, or $1.05 a share, compared with $1.07 billion, or 89 cents a share, for last year’s third quarter, beating Wall Street’s forecast of 98 cents a share. Corporate revenue rose 6 percent to $6.27 billion, from $5.9 billion a year earlier, and U.S. same-store sales grew 4.7 percent. —As independent and chain restaurants nationwide struggled in recent months amid dwindling traffic and waning consumer confidence, the apparent main beneficiary of a growing trading-down effect,

With those kinds of benchmark results, McDonald’s shone for investors seeking a seemingly safe harbor in turbulent economic seas. —As independent and chain restaurants nationwide struggled in recent months amid dwindling traffic and waning consumer confidence, the apparent main beneficiary of a growing trading-down effect,

“There’s nowhere else we’d rather go in restaurants right now,” stock analyst John Glass of Boston-based Morgan Stanley stated. “Remember, when people are down, they turn to the clown.” —As independent and chain restaurants nationwide struggled in recent months amid dwindling traffic and waning consumer confidence, the apparent main beneficiary of a growing trading-down effect,

Yet, not even a smiling Ronald McDonald could fully erase doubts among some foodservice watchers about the Golden Arches’ goal of completing the systemwide rollout of its specialty beverage platform next year. About 3,800 restaurants currently have the platform in place, leaving 10,200 mostly franchised units to complete the installations, said Ralph Alvarez, McDonald’s president and chief operating officer. —As independent and chain restaurants nationwide struggled in recent months amid dwindling traffic and waning consumer confidence, the apparent main beneficiary of a growing trading-down effect,

Pegged at a cost of about $100,000 per restaurant, the equipment and remodeling program enables sales of espresso drinks, frappes, smoothies and bottled sodas and includes new store configurations, primarily in drive-thru alterations, the company has said. McDonald’s stressed that franchisees were being aided in the rollout effort. —As independent and chain restaurants nationwide struggled in recent months amid dwindling traffic and waning consumer confidence, the apparent main beneficiary of a growing trading-down effect,

“We will pay up to 40 percent of leasehold improvement actual costs,” Alvarez said. “We are on track,” he added, in vowing that the mid-2009 rollout deadline would be met. The hardest part of the conversion, consisting mostly of architectural drawings and permitting, has been done, and most of the remaining unaltered restaurants are in some stage of preliminary construction, he said. —As independent and chain restaurants nationwide struggled in recent months amid dwindling traffic and waning consumer confidence, the apparent main beneficiary of a growing trading-down effect,

Refuting a recent report that banks today are unwilling to loan money to McDonald’s operators and other restaurants for such upgrades, Pete Benson, the chain’s chief financial officer, told conference call participants: “We have the highest credit rating in the restaurant industry and a network of national, regional and local lenders. Our prudent approach to financial management has given us strength in these times and enables us to seize opportunities when others can’t.” —As independent and chain restaurants nationwide struggled in recent months amid dwindling traffic and waning consumer confidence, the apparent main beneficiary of a growing trading-down effect,

In a small-scale survey of McDonald’s franchisees published by longtime restaurant analyst Mark Kalinowski, some disgruntled operators complained that costs of installing the beverage platform are too high and returns so far have been too low. What’s more, 29 of 36 franchisees who responded to Kalinowski’s question about the rollout timetable doubted the mid-2009 deadline would be met. —As independent and chain restaurants nationwide struggled in recent months amid dwindling traffic and waning consumer confidence, the apparent main beneficiary of a growing trading-down effect,

McDonald’s itself recently had given some indication that it might not expect the beverage program—the chain’s biggest menu modification in three decades—to be in place chainwide in U.S. outlets until 2010. —As independent and chain restaurants nationwide struggled in recent months amid dwindling traffic and waning consumer confidence, the apparent main beneficiary of a growing trading-down effect,

Echoing comments of some of these franchisees, one anonymous respondent to Kalinowski’s survey was quoted as saying: “First, this is not the time to make major investments in our business. Second, these coffee and smoothie products will be higher-ticket items that the customers will do without as their incomes are reduced.” —As independent and chain restaurants nationwide struggled in recent months amid dwindling traffic and waning consumer confidence, the apparent main beneficiary of a growing trading-down effect,

Meanwhile, McDonald’s management has been meeting with franchisees to discuss options to make the Dollar Menu more profitable. The $1 price point has not been raised in five years although commodity costs have skyrocketed, and McDonald’s expects its overall “grocery cart” price to rise 7 percent more in the fourth quarter, with beef and chicken prices expected to increase the most. —As independent and chain restaurants nationwide struggled in recent months amid dwindling traffic and waning consumer confidence, the apparent main beneficiary of a growing trading-down effect,

Dollar Menu discussions about standardized pricing have focused on “the lead sandwich,” namely, the Double Cheeseburger, Skinner said. “We expect to have a decision soon,” he added while noting that the Dollar Menu generates 13 percent to 14 percent of total sales. —As independent and chain restaurants nationwide struggled in recent months amid dwindling traffic and waning consumer confidence, the apparent main beneficiary of a growing trading-down effect,

McDonald’s is trying alternatives like a $1.09 Double Cheese-burger in the test market of Savannah, Ga., and an even higher price in New York City, while using less cheese. Portion sizes also could be reduced, which some competitors have done on their value menus for similar burgers. —As independent and chain restaurants nationwide struggled in recent months amid dwindling traffic and waning consumer confidence, the apparent main beneficiary of a growing trading-down effect,

“We will stick with the name ‘Dollar Menu,’” Alvarez said. “That should tell you something. We know it’s not without risk.” —As independent and chain restaurants nationwide struggled in recent months amid dwindling traffic and waning consumer confidence, the apparent main beneficiary of a growing trading-down effect,

However, “you can’t raise prices on everything else and not on the Dollar Menu in inflationary times,” he added. —As independent and chain restaurants nationwide struggled in recent months amid dwindling traffic and waning consumer confidence, the apparent main beneficiary of a growing trading-down effect,

McDonald’s overall menu has been repriced in the past year by an average hike of 3 percent to 5 percent, which Alvarez said is less than most grocery prices have risen. Falling gas prices should benefit McDonald’s, because customers will have more disposable income, he and Skinner said. —As independent and chain restaurants nationwide struggled in recent months amid dwindling traffic and waning consumer confidence, the apparent main beneficiary of a growing trading-down effect,

As for possible effects on business if the Democrats win the White House and majorities in both houses of Congress, Skinner said he is not concerned, considering that McDonald’s “has been around for 52 years under every administration.” —As independent and chain restaurants nationwide struggled in recent months amid dwindling traffic and waning consumer confidence, the apparent main beneficiary of a growing trading-down effect,

Overseas, recession worries have not affected McDonald’s, Skinner said. Same-store sales for the third quarter rose 8.2 percent in Europe and 7.8 percent in the Asia-Pacific/Middle East/Africa region. Top growth opportunities in Europe include building more drive-thrus, now in about half the McDonald’s there, and expansion in Eastern Europe. Growth in China should total 150 new restaurants for 2008, a 17-percent surge, the company said. —As independent and chain restaurants nationwide struggled in recent months amid dwindling traffic and waning consumer confidence, the apparent main beneficiary of a growing trading-down effect,

Underscoring the higher sales results abroad, compared with the 4.7-percent U.S. same-store result for the quarter, McDonald’s “international success continues to put pressure on the domestic operations to perform,” said Darren Tristano, executive vice president of Chicago-based Technomic Information Services. —As independent and chain restaurants nationwide struggled in recent months amid dwindling traffic and waning consumer confidence, the apparent main beneficiary of a growing trading-down effect,