The Wall Street Journal profiles McDonald's Chief Financial Officer. An analyst is quoted, "Bensen “has to be the voice of reason,” said Andy Barish, managing director of equity research for Jefferies & Co. “There needs to be a little bit of balance and discipline” when it comes to pricing." This makes it sound like the CFO sets menu prices. While he's not supposed to be doing that he probably does have RMS on speed dial. The CFO Report - WSJ: .
A McDonald's Operator asks - "How are Operators planning to pass along costs to customers when the Affordable Healthcare Act kicks in?" In my humble opinion - in the short term - they can't. Quick Service Restaurant menu prices are already at the upper limits and speaking as your customer, we're just not going to take it anymore. Future increases are going to seriously damage guest counts. It's fine to ponder factors like Food Away From Home but because of the AHA and possible food shortages Operators are headed into the great unknown. Shareholders have enjoyed the fruits of food inflation in recent years and it appears that managements of QSR companies do not want franchisees or investors to see any challenges ahead. In particular, at McDonald's, the corporate folks are counting on a food inflation windfall to continue to indulge shareholders and to pay for MRPs. So McDonald's customers will be asked to pay $5.00 or $6.00 for a Big Mac to cover increased food costs, healthcare costs, and to help the Operator pay for remodeling their landlord's building? That's just not going to work. I'm suggesting McDonald's Operators do several things: * Don't count on food inflation when making plans for the future. Your customers will outsmart you and they'll certainly outsmart Oak Brook. * Back off on borrowing money. Even though interest rates are favorable you're in rough seas, there's a killer wave of unknown magnitude on the horizon, and Operators are willingly taking on water? * Do not let management use Operator "leadership" as a tool to rush you into taking on debt. * Take another look at our comments on the Dollar Menu. In a recent letter to fellow Operators a member of an RLC wrote, "Our finances are under pressure and will most likely continue to stay that way." The letter went on to encourage Operators to hurry and sign up for more MRPs! An obvious Oak Brook form letter but is this the kind of schizophrenic financial advice one gets for their McDonald's franchise fees? The challenges of 2013 and 2014 could not have been imagined five years ago and sticking to a corporate agenda developed a decade ago may do a lot harm. .
"But how many customers lured by ads for a $1 cheese-burger will shell out four
times that for an Angus burger? Lower prices won't help McDonald's franchisees
already struggling to preserve profits as food costs rise. This is the inherent tension
in the company's relationship with franchisees: McDonald's takes its money off the
top as a percentage of restaurant sales, while franchisees pocket what's left over
after paying all the expenses of running the restaurants."