McDonald's: Exception to the Rule in Fast
by Doug Desjardins
Fast-food restaurants, once thriving in a down economy, have hit hard times as sales have slowed for most chains in 2010.
One of the casualties is combo chain Wendy’s-Arby’s. Wendy’s reported a 1.7 percent decline in same-restaurant sales in August while Arby’s registered a 7.4 percent decline. The decline in sales has led to talk that the chain, acquired in 2008 by billionaire investor Nelson Peltz, may be up for sale again.
“They’re a legitimate candidate to shop to private equity,” said Matthew DiFrisco, senior analyst with Oppenheimer & Co.
Over at Jack in the Box, things are even worse. The company reported a 9% decline in revenue for its third quarter, driven by a 9.4 percent decline in sales at company-owned restaurants. Executives cited low consumer confidence along with high unemployment in key markets like Texas and California as reasons for the sharp decline in sales (California’s 12.4 percent unemployment rate is third-highest in the nation).
Sales at Burger King have also been down all year. The #2 burger chain, which has cited the down economy for its problems, was sold in August to 3G Capital for $3.3 billion, and the new owners are expected to cut costs next year.
One of the few exceptions to slowdown in fast food sales is industry leader McDonald’s. The world’s largest fast-food chain continued to roll along in August with same-store sales improving 4.7 percent for the month following a 5.7 percent increase in July, the largest jump in more than a year. Total revenue at its restaurants took an even bigger jump, increasing 5.5 percent compared to August 2009.
McDonald’s outperformed other rivals thanks to its popular Dollar Menu items and its new emphasis on variety. The chain once known for just burgers and fries now features salads, high-end coffee and this summer added smoothies and frappes to the mix.
“Those are the types of products I think drive customers into their stores,” said Greg Badishkanian, an analyst with Citigroup.
Surprisingly, sales are on the upswing at “fast casual” restaurants, a sub-category of fast food with slightly higher prices in the $6 to $12 range that includes chains such as Applebee’s. Research firm Mintel estimates sales in the sector totaled $23 billion for fiscal 2010, a slight increase from 2009.
While McDonald’s is outperforming its rivals, they can take some solace in the fact its hamburgers were ranked at the bottom in a recent taste test conducted by Consumer Reports. McDonald’s ranked last in the taste test that sampled burgers at 18 different chains in the U.S., ranking just below Jack in the Box and Burger King. West Coast chain In-N-Out Burger was ranked at the top of the list.
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