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Donald Trump’s return to the White House is perfect for cryptocurrency, big banks and big oil. However, Big Macs have not benefited. Despite the US President’s well-known love for McDonald’s signature burgers and filetfish sandwiches, the association has failed to make stock trading sideways over the past two years, offering a midastock to the Golden Arch.
McDonald’s was uneven in 2024. It reported two consecutive quarters of similar revenue declines as it struggled to get back cash-bound customers. The outbreak of E. coli in the US has contributed to the sale of water inundation. At the same time, sales in the Middle East and Europe became a hit as customers boycotted fast food chains among other American brands over US support for Israeli war in Gaza.
McDonald’s latest quarter results suggest that some of these headwinds are declining. In the fourth quarter, sales of the same stores worldwide increased by 0.4%. Management also said the food safety fear, which contributed to a 1.4% decline in the same store sales in the US, is largely behind its size.
However, investors bidding for McDonald’s could be sharing a 4% higher share behind these results.
First of all, much of the international sales rebounds was driven by Europe and the Middle East, where boycott pressure seemed to be eased. There must be a risk of this kind of geopolitical stress coming back to life. In addition to Trump’s trade war with Mexico, Canada and China, it is infuriating citizens there. Don’t be surprised if you seek a boycott of American products in these countries. Also, strong dollars will put overseas revenues into one sip.
Then there is the United States, where the restaurant industry continues to fight cautious consumers, food and labor inflation, and fierce competition between chains.
The size and scale of the McDonald’s means that there is a lever that can be pulled. The main one is its “barbell” pricing strategy. This includes offering traffic-driven transactions with lower priced menu items, along with new, more expensive products. The goal is to encourage trade-ups while capturing diners from both ends of the revenue spectrum.
McDonald’s plan to expand discount meal deals while pushing out new chicken products such as the Chicken Big Mac is a delicate balance act. If you are leaning towards valuable items and encourage other fast food chains to lower prices, the margins can be narrowed further.
On the 24th, McDonald’s stock has been traded at discounts to Chipotle and Shake Shack. But they are in line with the three-year average of stocks. It may be salty for investors’ preferences.
pan.yuk@ft.com
