McDonald's defies the downturn with bulging profits

by Catherine Boyle - 23/10/2009

"Fast-food restaurant group reports better than expected third quarter figures as consumers seek out cheaper eats"

Clouds of recession may have enveloped the world, but the golden arches of McDonald’s have continued to pierce the gloom — a beckoning point for cash-strapped consumers. So much so, that profits at the fast food giant are up by 6 per cent.

In Britain, McDonald’s attracted 8 per cent more customers in its third quarter, Steve Easterbrook, its UK chief executive, said.

Sales of “Extra Value Meals” increased by 8.6 per cent from the same period last year as customers in Britain went for familiar McDonald’s fare.

Although working at McDonald’s has often been seen as a dead-end job — with the sobriquet “McJob” coined to describe a menial occupation — the company has seen a surge in would-be employees, with 15 applications for every available post.

As the number of jobless grows, McDonald’s is employing 4,000 more people than at the same time last year, and is attracting older workers.

Mr Easterbrook said: “We are getting an increasingly broad range of people who are considering a job at McDonald’s as something they’d like to do.”

As the effects of the recession continued to be felt in the three months between July and September, the lure of fast food at McDonald’s, as an alternative to more expensive eating-out, proved irresistible to many consumers.

“I think while the market is in general decline, our growth is making market share gains. People are eating out less and spending a little less when they do,” Mr Easterbrook said. “There are cracks appearing within our competition and customers see that, but they still want to go out.”

Tootsies, the more expensive burger chain, collapsed this month, with 11 of its 21 outlets sold for £2.5 million to Giraffe, the restaurant group backed by 3i and Risk Capital Partners, which is run by Luke Johnson, the millionaire behind Pizza Express. Other upmarket chains have had to use meal deals and two-for-one offers to attract customers, eroding their profits. About 15,000 jobs were lost in the low-cost dining-out sector in the year to July, according to Allegra Strategies, the analysts.

McDonald’s was suffering a few years ago under an apparent shift to healthier food by consumers. It introduced a range of salads to help to boost sales. The company has cut costs in the past year and expects same-store sales to remain positive this month even though people are eating out less often. In Britain, it has focused on refurbishing restaurants rather than opening new ones. More than 200 outlets have been given a makeover this year.

Breakfast was particularly popular with British customers and more restaurants opened at 6am or stayed open 24 hours. Coffee sales performed well, despite sales falling at more expensive chains such as Starbucks.

The company performed particularly well in Europe, where same-store sales rose by 6.9 per cent, with rises of 3.2 per cent in the US and 5.3 per cent in Asia-Pacific, the Middle East and Africa. Consumers seeking value boosted sales in each of these regions, with people trading down from more upmarket chains. A new premium burger sold well in America, as did espresso-based coffees. A similar product in Britain, the M Burger, has just been withdrawn after a six-weeks’ promotion.

McDonald’s third-quarter net income rose to $1.26 billion (£760 million), or $1.15 a share, from $1.19 billion, or $1.05 a share, a year earlier, beating analysts’ average estimate of $1.11 per share. Revenue fell 4 per cent to $6.05 billion, below the $6.09 billion analysts expected, as the chain faced pressure to keep prices low.

In New York, shares in the world’s largest burger chain rose $1.17, or 2.01 per cent, to $59.50.

More Details: http://business.timesonline.co.uk/tol/business/industry_sectors/leisure/article6885548.ece