Should You Be Buying McDonald’s In This Recession?
In these tough economic times everyone is cutting back on everything. Dining out is one of the first areas to go. I should know, I’m cutting back myself.
I was looking at my budget last month, and all I can say is the money flowed freely. Freely from my pocket into the various stores and restaurants I frequent. When my girlfriend Linda and I started adding up our expenses, the number was staggering. I couldn’t believe how much money we spent on entertainment, eating out, groceries, and food.
It appears we were singlehandedly supporting the restaurant industry.
I noticed right away, a significant cost was eating out. Despite accounting for less than a third of our meals, the cost was more than half the budget. Like many Americans, we’ve made a conscious decision to cut back on our expenses. We’re going to reallocate a portion of the dining out dollars to other budget items.
The real challenge will be how two “foodies” like us are going to cope with the change.
Now, I have it from a reliable source we’re not alone. According to the Wall Street Journal, 2009 is supposed to be another down year for the restaurant industry.
An interesting trend is starting to develop.
Many people aren’t just cutting back on how often they eat out. Many are also downsizing what they will spend for a meal. Just look at the “quick casual” restaurant. Restaurants like P.F Chang’s, TGI Friday’s, Chili’s, were all big successes just a few years back. Now they’re getting hammered by the economic downturn.
People are changing their eating habits.
And I don’t mean shifting to a high protein diet. People are looking for deals when they eat out… and they’re finding them at fast food chains.
There are deals aplenty to be had at the traditional fast food places like McDonald’s, Burger King, and Wendy’s. The fast food companies are playing into the hands of these consumers. Many are introducing value oriented dining.
As an example, McDonald’s has a value menu (I’m sure you’ve seen it). These are all items that can be had for a buck. It’s hard to argue when you can feed yourself an entire meal for less than $4.
You can’t get an appetizer at a quick casual restaurant for that price.
Let’s look a little more closely at McDonald’s (MCD). Monday the company announced fourth quarter results. In one of the toughest economic environments they reported some great numbers. Same store sales (a big focus in the restaurant industry) are up more than 7%. All told the company serves some 58 million customers a day. Amazing to think about.
But that’s not all.
While other chains are closing (think Bennigan’s) McDonald’s is growing. This year the company will spend $2.1 billion building new locations and remodeling existing stores.
The company still manages to post solid earnings numbers with more than $980 million going to the bottom line. It’s down a bit from 2007, but not dramatically.
Management’s even being smart about buying back shares and managing the dividend. McDonald’s success shows in the stock price. They were one of only two companies to end 2008 in positive territory.
Not bad, especially when you compare that to say… the financial industry!
I think as the recession drags on McDonald’s will continue to outperform. Consumers are going to trade down in every way they can. For my money you can’t beat a Big Mac, and you can’t beat an investment in McDonald’s stock. Take a look for yourself. You might gobble some up for your own portfolio.
Category: Stocks
