As the Great Recession showed, few industries are truly recession-proof. Fast-food chains are now discovering that after sailing through the first year of the recession unscathed.
Burger King reported a profit during its first quarter that ended March 31 but weak sales in North America. The second-largest fast-food hamburger chain reported $41 million in net income but a 6.1 percent decline in same-restaurant sales in the U.S. and Canada. 
Burger King CEO John Chidsey cited bad weather throughout much of the U.S. in January and February for poor sales, noting that restaurant traffic jumped in March as weather improved. But he said the recession was still impacting sales even as the chain continued to focus on value, adding new items like $1 Double Cheeseburgers, BK Breakfast Sandwiches and Buck Double burgers.
“High levels of unemployment and underemployment will remain our industry’s biggest headwind,” said Chidsey.
Other chains are reporting similar results. Yum! Brands, which owns Kentucky Fried Chicken (KFC), Taco Bell and Pizza Hut, reported that first quarter sales in U.S. restaurants declined 1 percent even though revenues increased 9 percent overall, due mainly to strong international sales.
McDonald’s was an exception to the rule, reporting a 4.2 percent increase in same-restaurant sales for its first quarter and a 9.8 percent increase in revenue of $5.6 billion. The world’s largest restaurant chain generated $1.1 billion in income and credited its $1 value menu for attracting cash-strapped consumers.
“Our momentum continued into April with global comparable sales trending at least as strong as first quarter sales,” said McDonald’s CEO Jim Skinner.
The struggle some chains are experiencing is a recent development. For all of 2008 and most of 2009, fast-food restaurants cashed in on hard times with $1 value menus and relentless advertising that attracted new customers. But by late 2009, mounting job losses began to take their toll. The NPD Group cited a decline in sales the second half of 2009 for a 3 percent drop in overall sales for the year.
And continued high unemployment - particularly among young consumers that form the core of its customer base - is making it tough for chains to increase prices as commodity costs rise. Beef prices have increased 32 percent from the same period last year as of April 9, according to the U.S. Department of Agriculture, and fast food chains are reluctant to increase prices to compensate.
“They’re not going to be able to raise prices,” said Matthew DiFrisco, an analyst with Oppenheimer & Co. “We don’t have that strong of a recovery yet.” Beef prices are expected to increase up to 12% during the remainder of the year, putting added pressure on margins that may force some chains to rethink their pricing strategy.
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