Coffee perks up McDonald’s global sales

Coffee perks up McDonald’s global sales
By Jenny Wiggins in London

Published: August 10 2009 17:51 Last updated: August 10 2009 23:43

McDonald’s move into mochas and iced lattes has helped the fast-food chain report its seventh consecutive month of increases in global sales this year, underscoring the resilience of its business model in the recession.

The company’s shares rose 1.9 per cent on Monday to $56.27 after it said comparable-stores sales had risen 4.3 per cent in July, compared with an increase of 8 per cent a year earlier but beating analysts’ consensus expectations of a 3.2 per cent climb and ahead of June’s 2.6 per cent rise.

Jason West, analyst at Deutsche Bank, said the global sales increase had alleviated concern about a possible “downward spiral” in comparable sales, as had been seen at competitors like Burger King. “Globally, they have not had a negative month [in sales] in several years,” he said.

Sales were up 2.6 per cent in the US – which contributes about half the company’s profits – because of strong sales of coffees and core menu items like hamburgers and fries.

McDonald’s expansion into fancy coffees under the McCafé brand is part of a strategy to capture more customers at breakfast time and win them over from coffee chains to its lower-priced drinks.

The move has forced Starbucks to defend its brand. It has been running marketing campaigns with the slogan: “It’s not just coffee. It’s Starbucks.”

In the US, McDonald’s is selling espressos and mochas in its existing stores.

In Europe, it is emulating its Australian business and opening separate McCafé counters, operating in or next to its restaurants. The group plans to have 1,200 McCafés in Europe by the end of the year.

McDonald’s strongest sales were in Europe, up 7.2 per cent because of the popularity of its “tiered menu” – which offers cheap, middling and expensive options – as well as summer specials such as chicken, bacon and onion sandwiches in France and burgers based on the “great tastes of America” in the UK.

These include a “New York special”, which has beef, streaky bacon, smoked cheese, lettuce, onions and onion mayo in a chilli, chive and sesame bun.

In Asia-Pacific, Middle East and Africa – which make up 13 per cent of total profit – sales rose 2.1 per cent. McDonald’s attributed the rise to the “creativity” of its Australian business, which runs marketing campaigns based on a single theme – currently, family – and has introduced apple and cinnamon mini-muffins and spinach feta strudels, as well as opening more 24-hour and drive-through stores.

But sales in China, where it has been slowing new store openings, were weaker as consumers favour cheaper local brands.

McDonald’s has some 1,000 stores in China and plans to open 150 this year, compared with earlier projections of 175.