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JEREMY HOBSON: Now let’s get to today’s golden earnings from McDonald’s. The company beat Wall Street estimates by a long shot with a 7 percent sales jump in Europe, a 5 percent boost in Asia, and a 3 percent rise in the U.S.
For more, let’s bring in our regular Tuesday analyst Juli Niemann of Smith Moore and Company. She’s with us live from St. Louis, good morning.
JULI NIEMANN: Good morning Jeremy.
HOBSON: So I remember when fast food sales were rising back in 2008, in the early days of the recession. Analysts said that meant the economy was not doing well so people were eating more cheap food. Is that still the story today?
NIEMANN: Well that’s true, in recessions you give up higher end dining but why doesn’t everyone rush back to Applebee’s when you’ve got a few more coins in the jeans? Well the thing is — recessions bring in new permanent customers to places like McDonald’s. You know, there’s almost a reverse psychology here too. Once you’ve tried it, you like it. Getting into the elevator in the morning, I’m clutching my full meal deal, the very decent coffee for the same price paid as the cool people clutching their Starbucks Frappe Grandes. So we get some new permanent customers coming in, the constant marketing and the roll out of new products is another key thing.
HOBSON: All right Juli not all fast food chains are doing as well though. We just heard recently from Wendy’s/Arby’s that reported a loss last quarter. What’s so different about McDonald’s?
NIEMANN: Well, two things, one commodity prices are going up. McDonald’s is famous for containing their commodity costs. They have huge purchasing power just like WalMart does. They do test marketing, constantly rolling out new things — limited time only. If it works, it’s wonderful, if it doesn’t they can it. But they do it with the same equipment so there’s no new equipment required that keeps franchisees very happy. They’re on top of everything that happens to be trendy. Let other restaurants take what’s currently hot and they’ll do the innovation, and McDonald’s will keep it going if it happens to be a good area to look at. But new and fresh looks are what they’re looking at. Promotions, greed across marketing — Build-A-Bear had a huge number of things going through. That moved a lot of traffic as well. There’s low cost, short duration and it creates a sense of urgency. Collect ’em all! So good traffic promotions. They’re very successful at both of those.
HOBSON: Juli Niemann, analyst at Smith Moore and Company, thanks as always.
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