McDonald’s To Raise Menu Prices

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If you plan on stopping by McDonald’s (NYSE: MCD) in the near future, plan on spending more for your Big Mac than you’re used to.  Today, McDonald’s announced that it plans to raise menu prices to offset the rising cost of commodities.

McDonald’s Chief Financial Officer Peter Benson predicted that commodity prices will jump 2% or 3% in 2011.  When the cost of the hamburger and cheese rises, it’s only natural that customers will be the ones paying the difference.

Benson does not believe the price hike will be a huge factor, as October sales have been strong.  MCD also posted an earnings increase of 10% for the third quarter.  The company has not disclosed how steep the menu price hikes will be.

This is the first price increase for McDonald’s since the end of 2009, and comes at a time when many Americans are pinching pennies. McDonald’s has thrived by offering customers low-price options, and by not raising prices earlier, MCD has been able to gain market share against competitors like Wendy’s Arby’s Group (NYSE: WEN) and Burger King (NYSE: BKC).

The fast-food giant has also offset higher commodity prices with its new McCafe line that proved very successful last summer.  The wide profit margin on its iced coffee and frappe drinks partly offset the narrowing margin on its burgers and fries. 

At the beginning of the month, McDonald’s started its Monopoly promotion, in which it offers a chance at various giveaways including cash prizes, vacations and even cars, when customers buy large-sized menu items.  The burger chain also reintroduced its McRib sandwich last week, which has become something of a cult sensation. 

MCD stock has climbed 25.7% year-to-date compared to smaller gains by the broader markets.  The stock has also outperformed earnings estimates for four consecutive quarters.  For the third quarter, McDonald’s reported profit of $1.29 per share, or $1.39 billion, compared to $1.15 per share last year.  The company also reported that same-store sales climbed 6% in the third quarter.

And while it’s increasing menu prices, the cost for many menu items will still be considerably lower than most other restaurants. MCD may still be a stock worth sinking your teeth into.


Article printed from InvestorPlace Media, https://investorplace.com/2010/10/rise-for-mcdonalds-menu-prices/.

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