McDonald’s Corp. plans to raise menu prices to blunt higher costs, including what would be its first such increase in the U.S. in more than a year — a time when the burger chain’s sales have thrived amid lower prices.
The company expects to increase prices in the U.S. and Europe amid projections that commodity costs will rise between 2 percent and 3 percent in 2011, Chief Financial Officer Peter Bensen said Thursday during a conference call after McDonald’s reported a 10 percent increase in third-quarter earnings and added that October sales appear strong.
Timing and executing price increases can be tricky as McDonald’s and other companies are caught between paying more for key materials such as meat and wheat, and keeping prices low to attract price-sensitive customers in a still-weak economy. McDonald’s says it has the pricing power to pass on some of those costs.
“We’ll actively look at the opportunities and with some optimism, the economy will get stronger next year and we’ll get price increases,” Bensen said. McDonald’s didn’t disclose details of the plan.
For the U.S., the higher prices will come after McDonald’s so far this year had refused to raise prices in order to take market share from rivals, such as Wendy’s/Arby’s Group Inc. and Burger King Holdings Inc. McDonald’s last raised prices at its U.S. stores in late 2009. Profits since then have been bolstered by the sales of higher-margin items such as the blended-ice smoothie and frappe drinks, allowing McDonald’s to withhold raising prices on other items.
The strategy has helped McDonald’s win market share. Thursday, McDonald’s said its global sales at stores open at least a year rose 6 percent in the third quarter, including 5.3 percent in the U.S. It expects the metric to rise 5 percent to 6 percent world-wide this month year to year.
Shares in McDonald’s rose 1.3 percent, or $1.03, to $78.44 at 4 p.m. Thursday in composite trading on the New York Stock Exchange.
The fast-food company reported a third-quarter profit of $1.39 billion, or $1.29 a share, up from $1.26 billion, or $1.15 a share, a year earlier. Revenue increased 4 percent to $6.3 billion as sales at stores open at least a year rose 6 percent.
McDonald’s U.S. operations delivered 5.3 percent same-stores sales growth, aided by frappe and smoothie sales. Europe had a 4.1 percent gain. Asia, Pacific, Middle East and Africa had 8.1 percent growth.
I might eat something from McDonald’s once a month. I think they actually have pretty decent food there. Somebody mentioned that the meat doesn’t pass us inspections? That and other rumors about their ingredients belong on the urban legend pages.
McDonald’s for what it is worth sells a pretty decent product for a decent price. It is not something or somewhere you should eat everyday. I like the idea that they still have a dollar menu also. Sometimes it is nice to grab a couple of small cheeseburgers for 2 bucks.
Most of the time I usually fix something at home. You will get fat if you eat there everyday. It is not something to eat everyday.