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Despite high commodity prices and challenging market conditions that put pressure on consumer spending, McDonald's Corp. (NYSE: MCD) was able to surprise Wall Street by reporting a stronger-than-expected second quarter profit. However, investors' positive reaction didn't last too long as the company announced it anticipates further high beef costs, which could lead to an increase in prices on its popular dollar menu.Back in May, McDonald's executives announced they had no plans to make changes to its "everyday affordability" concept, but the company's chief operating officer, Ralph Alvarez, recently noticed that the dollar menu is coming under pressure from rising ingredient costs. "The cost implications of having that value menu have changed when you see what's going on in beef and chicken," Alvarez stated to the Chicago Tribune.
Alvarez didn't offer too many details on how the dollar menu might change. However, the news is not great for all you lovers of the famous double cheeseburger. A spokesman for the hamburger giant said one of the company's strategies that is already tested in some markets was to lift prices for this best-selling U.S. sandwich.
Looking ahead, McDonald's said it expects cheese cost to jump by 21% this year in the U.S., while the price it pays for chicken may see a growth in a range between 5% and 6%. For 2008 U.S. beef costs, the company also anticipates an increase between 8% and 9%.
Rising commodity prices was one of the main reasons why the research firm Deutsche Bank to lower its rating on the company to a hold earlier this morning.
Eliza Popescu is a financial writer for the online investment advisory service Investor's Observer.
Reader Comments (Page 1 of 1)
1. why have a dollar menu if you are going to charge more than a dollar for what's on it? just eliminate t the double cheese burger from the dollar menu and just have a cheese burger instead.
Posted at 1:49PM on Jul 24th 2008 by stormlewis
2. When is Mac going to wise up that all that junk they put in their outlets for the kids just collects dust. No real businessman could justify the sq. ft. cost (insurance, etc.) and would probably go broke or out of business. The real steady customers are the retired who are increasing in numbers. Fast food has changed but not the companies. They are still stuck in the 20th century.
Posted at 5:02PM on Jul 24th 2008 by Philip Block
3. Phillip Block do you have ANY IDEA how much money Mcd's make I don't think they are throwing away any food because its not selling. They are straight up banking... sure in 5-10yrs they will have to change a bit but right now they are in the money and rolling in it as well which means if they ever have to switch to new markets they have the capital to do so with ease. They are the WALMART of fast food
Posted at 12:27AM on Jul 25th 2008 by nfxneofight
4. I really think that the owner of mcdonald's has gotten super fat off of profits from food that is bad for you and now you want to raise the prices. I think you and that asshole George Bush should get together and discuss how to rip off the american people even more then he already has. I think we should put an end to your bullshit and unionize all of your companies so that your workers can have a decent life like you do, in your million dollar mansion so stop bullshiting us.
Posted at 10:39AM on Aug 5th 2008 by ed
5. Actually there isn't a $ menu anymore. I work at Mcd's and they just got rid of it tuesday. I've seen price lists, i know how much that stuff cost and trust me it's a LOT less then what they charge. But at the same time i don't know what they actually are making after all other cost are factored out. But i'm pretty sure that the owner wouldn't own all the ones he does if he didn't profit. It's only a trial thing anyway. They'll change it back if people don't take it well. But it's going over really well surprisingly.
Posted at 5:51PM on Aug 23rd 2008 by kooistra