July 28, 2012

Obamacare = Food Inflation?

We've previously mentioned the involvement of a former member of the McDonald's
top management team in the original drafting of the Affordable Care Act. This week
the Wall Street Journal covered the topic once more HERE

It's ironic that a former McDonald's executive and bushels of campaign contributions
from McDonald's corporate employees created something that might do major damage
to the McDonald's system over the next few years.

Speaking of that damage - during the investor conference call McDonald's CFO told
analysts he expected that health care might cost the average restaurant $10,000 to
$30,000 per year. However, the projections given to McDonald's franchisees in the 
field are three or four times those levels. Another case of telling investors what they 
want to hear.

And the CFO made another statement in reference to health care, "we have years like
last year where commodity cost increases were even greater than that. So while this 
is a significant item and it’s gaining a lot of attention as the P&L item we've managed 
through items of this magnitude in the past and I’m hopeful we can do that in future."

No, this time it's different. Premium and core menu prices are already too high at
McDonald's. It's doubtful McDonald's Operators can raise prices much further when
commodities increase, let alone raise prices again to cover health care.

But investors like to be told about food inflation in their franchised investments.

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