McDonald's raises prices and stocks go down

McDonald’s is the world’s fast food leader with about nineteen percent of the market. However, challenged with the increasing costs of commodities needed, the business has declared that it plans to apply minor price increases throughout the year to be able to offset some, but not all, of this pattern.

Guesses wrong

McDonald’s guesses that food costs will rise between 4 percent and 4.5 percent in the United States and Europe this year. This is a rise from earlier estimates, which projected only 2 to 2.5 percent increases in the United States and 3.5 to 4.5 in Europe. Paper costs were also cited in the projected price increases. According to McDonald’s, food and paper costs took up 33.6 percent in the first quarter of 2011 of the company’s sales. From the same quarter a year ago, costs increased a lot. Those costs went up 32.9 percent.

Avoid price boosts

Fewer individuals will go out to eat if the costs go up too much. People are already dealing with increases in prices for housing, fuel and food. According to Steve West, “It’s very hard to pass through price increase(s) right now.” West is an analyst for the Stifel Nicolaus business.

Concern flusters investors

Stock costs dropped in the middle of the day after the company announced its plan. On the New York Stock Exchange, shares dropped 1.5 percent.

The company’s CFO Pete Bensen states the company intends to sacrifice some short term profits in favor of long term growth.

Increase by 1 percent in costs

The U.S. and Europe saw a 1 percent increase in menu items at McDonald’s. This increase started in March. More increases are prepared. They will happen throughout the year. Price increases are also planned for its stores in China.

McDonald’s still the best

McDonald’s continues to outperform its competition. Peter Jankovskis said, “The bottom line is they’re still doing a great job of growing revenue.” Jankovskis is an Oakbrook Investments officer. In the first quarter, the corporation made $6.1 billion in revenue. That is a 9 percent increase. There a huge difference shown in the European stores especially.

Articles cited

Reuters

reuters.com/article/2011/04/21/us-mcdonalds-idUSTRE73K0U820110421

MSNBC

msnbc.msn.com/id/42695011/ns/business/t/mcdonalds-warns-higher-food-inflation/

Daily Finance

dailyfinance.com/2011/05/25/higher-food-costs-will-eat-into-mcdonalds-profit-margins/