CASE STUDY Demand for the Big Mac on the Rise (NYSE.MCD) McDonald's (NYSE: MCD) has bucked the global recession in February as both global and U.S. same store sales rose. The company, which operates more than 32,000 McDonald's restaurants in over 100 countries, reported February comparable sales results on March 9 that showed global sales rising 1.4% year over year even as Feb.Theory of Consumption 2008 included an extra day due to leap year. to frequent the local and chain restaurants Excluding the extra day, sales grew 64%. more. However, MeDonald's will retain many U.S. sales climbed 2.8%, or 6.8% if you of these new customers who will continue to exclude the extra calendar day in 2008, Asia/ come back for a quick meal at a value. Pacific, Middle East, and Africa rose 0.7%, The plock is trading with a forward PIE or 4.1% if you exclude the extra calendar day. of about $12.50. MCD can be played as a long Only Europe saw a decline, losing 0 2%, but term and short buy. Today, MCD is trading if you exclude the extra day, even Europe at $51.50, the current trading range it is stuck increased 4%. U.S. gained on the back of the in for March is $50:50-54, It is an attractive chicken line-up, the core menu, especially buy between $50.50-62. I would set $56.50 am the Quarter Pounder, and the popularity of a short-term(I-3 months) trading target. This its breakfasts. Europe's growth was led by is a 61.8% move from the recent March low U.K. and Russia but was partially offset by of $50.44 to the March high of $59 25, and is a slower Germany. Australia continued to be also a 50% retracement from the March low strong in the Asia/Pacific region. China save to the January high of $63.87. I would set a weaker sales, primarily due to the celebration trailing stop of 4 5% once $55.50 is hit. And of Chinese New Year during the month, when I would use $62.50 as long-term (6 months +) in 2008, it was celebrated a month earlier in trading target. Once that level is hit, I would January. Despite sales growth in the first implement a trailing stop at $58.75 two months of the quarter, Mcdonald's still Source: http:/www.isfockanalyst.com warned on March 9 that volatile foreign Sentiment Beat currency exchange rates and commodity costs March 17, 2009 would pressure revenue and margins in the first quarter. Questions Foreign currencies have been especially 1. Illustrate and explain the changing weak in Eastern Europe, which the company demand for Big Mac using the indifference said will negatively impact the first quarter curve and budget line. results by at least 7 cents to 9 cents per'share 2. In this case study, what do you think are if rates remain at current levels. McDonald's the factors affecting the increased did not provide any actual numbers on the demand for Big Mac? What about the impact of commodity costs but said that competitor food chains? How do you commodity pressures are expected to have a greater impact on results in the first half think they are affected by this increased sales for MeDonalds? of the year." Overall, McDonald's has positioned itself 3. Do you consider the demand for Big Mac elastic or inelastic? Explain. well to ride out the global recession and even grow its customer base and grow earnings. SUMMARY With the expanded value menu and healthier menu options now being offered, more people Utility and Behavioral Factors these days than ever before are looking for a 1. Cultural cheap lunch option and MeDonald's offers Culture families trying to spend less during the reces- sion but still have night out an alternative . Subculture to the more expensive dinner out at a local . Social Class restaurant or chain restaurant like Apple- 2. Social bee's. I suspect this will be just a temporary trend and as the economy improves, families Reference Groups will revert to their old routines and start . Family Roles and Statuses