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This week’s top story is the steady erosion of investor sentiment towards McDonald’s and the implications this has towards the so-called economic recovery. On Monday, shares of the fast-food giant tanked shortly after its earnings report release, which declared that global same-store sales fell 2.2-percent, while U.S. sales were surprisingly the hardest hit, down 4.6-percent. Just as critical to the future expansionary hopes of the company is the Asia/Pacific market, which slumped a disastrous 4-percent. Comments provided by its chief executive officer, Don Thompson, were startlingly opaque, who stated, quote,
“Today’s consumers increasingly demand more choice, convenience, and value in their
dining-out experience. We are working to bring the McDonald’s Experience of the Future
to life for our customers to better deliver against these evolving expectations.”
The Competitive Casual-Food Restaurant
Within the broad and extremely competitive causal-food restaurant industry, McDonald’s has been losing ground to places like Panera Bread and Chipotle Mexican Grill, establishments that are extremely popular with the younger generation due to its health-conscious menu, or so their marketing strategists would have you believe. According to Nickey Friedman’s article on the Motley Fool, the iconic Big Mac has 550 calories, 29 grams of fat, and 46 carbs. In a surprising contrast, a typical burrito from Chipotle will have more than 1,000 calories, 41 grams of fat, and 109 carbs. Despite the emphasis on its non-antibiotic, non-hormone, and non-GMO, grass-fed organic food, on a serving to serving comparison, Chipotle is empirically no better than McDonald’s, a fact that could come back and haunt them once patrons realize that the wellness benefits offered by so-called healthy eateries are mostly in the realm of perception.
Such faulty perceptions are also prevalent within the business news media outlets, with many pundits calling on McDonald’s to revamp its image to align itself with new consumer trends. What they fail to see is that fast-food franchises and health-conscious eateries cater towards completely different markets. For example, the balance sheet of both Panera and Chipotle indicate that a strong majority of their consumers pay in cash. On the other hand, a significant chunk of McDonald’s revenue comes from debt, a confirming sign towards the poor state of affairs for the average American consumer.
However, a critical trend to note is the acceleration of credit card usage by Panera and Chipotle customers on an annual basis, whereas the opposite trend is observed for McDonald’s purchasing behavior. That is a clue that the lower strata of the American economy is indeed improving, but at the expense of the middle class. In fact, the most recent earnings report for McDonald’s may have nothing to do with buying patterns or behavioral paradigm shifts, but rather, the first and subtle indication of a redistribution of wealth.
In financial news, U.S. equity markets stumbled throughout the week under the threat of yet another government shutdown, with the benchmark S&P 500 closing Thursday at 2,035 and the Dow Jones finishing the session at 17,596. The fundamentals have finally aligned itself with the precious metals complex, with gold closing firmly above technical support at 1,225, while silver gained a psychological victory with a move above 17 dollars. Palladium has also regained lost ground from last week, with the industrial metal closing at 818. Finally, bitcoin stalled as it failed to rally above 400 dollars, with the digital currency trading hands at 350 dollars at last count.