Al's Emporium: Fast Food Slows Down

Date : 08/13/2012 @ 8:05AM
Source : Dow Jones News
Stock : Chipotle Mexican Grill, Inc. (CMG)
Quote : 330.32  -13.55 (-3.94%) @ 3:00PM

Al's Emporium: Fast Food Slows Down

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   By Al Lewis 

Throughout this never-ending era of high unemployment and declining wages, McDonald's has served as a global food bank.

As recession fare goes, you simply can't beat a McDouble cheeseburger or a sausage biscuit for $1. If you hit an unexpected windfall-like finding lost coins in the cracks of your car seats -- you might even splurge on a Mango Pineapple smoothie for $2.49.

This is how the Golden Arches stayed golden, growing throughout the recession and the anemic recovery that's followed. But last week, McDonald's reported surprising dips in same-store sales for the first time in nine years.

Same-store sales, which do not include revenue from new stores, is how the restaurant industry measures growth. For McDonald's, they were down 0.1% in the U.S. In Europe they were down 0.6%, and in Asia, the Middle East and Africa, they were down 1.5%.

Every day, McDonald's serves 69 million customers from 33,500 locations in 119 countries. Its sales declines could mean one of two things: 1) The global economy is picking up, so more people are switching to pricier eateries. 2) The global economy is getting so bad that an increasing number of people can't even afford to eat at McDonald's.

CEO Don Thompson blamed a sluggish economy.

All a clown like Ronald McDonald can do is keep flipping burgers in hopes people can still find some spare change to eat. "We remain focused on providing high-quality, affordable meal options," Mr. Thompson said.

Meantime, Burger King and Wendy's have reported respectable increases in same-store sales. Both of these chains are considerably smaller than McDonald's, with 12,300 Burger Kings in 76 countries and 6,500 Wendy's in 27 countries. Both of these chains are also coming off low bases after years of declines. They have been remodeling old stores and refreshing stale menus to keep pace with McDonald's. Their recent sales growth may be only a sign that consumers are getting really sick of McDonald's.

If more consumers were trading up in their choice of restaurants, as opposed to just defecting to Burger King, one chain that would benefit is Chipotle. Chipotle makes burritos that are bigger than your head, stuffed with organic produce and antibiotic-free meats. Chipotle stock, however, has lost about a quarter of its value since last month when the company missed expectations for same-store sales.

Some industry analysts considered this an ominous sign for the fast-casual dining category. But stock of Panera Bread Co. has been up nearly 10% since last month when it reported an increase in same-store sales.

Amid these mixed reports comes one certainty: A drought across the Midwest is wreaking havoc on corn. That contributed to a 6% spike in global food prices in July, according to the Food and Agriculture Organization of the United Nations.

Fast food needs to be cheap, but the price of everything that goes into fast food is rising. You try running a restaurant without vegetable oil and high-fructose corn syrup.

If fast-food can't remain cheap in the future, maybe it can remain gimmicky. Taco Bell recently reported selling 100 million crunchy "Doritos Locos Tacos" in just 10 weeks. This $1.29 offering lifted same-store sales and transformed the humble tortilla chip into a meal. It was the single-most successful promotion in Taco Bell's 50-year history.

Maybe McDonald's should serve up a Cheetos cheeseburger. These hard economic times can sure be tasty.


Al Lewis is a columnist for Dow Jones Newswires in Denver. He blogs at; his email address is

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