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Price Increases Likely Unavoidable For McDonald’s

Posted on | May 29, 2011 | Comments Off on Price Increases Likely Unavoidable For McDonald’s

Rising input costs is affecting a great number of companies around the world, and McDonald’s Corp (MCD) is no different.  Some analysts expect input costs to rise 4-5% this year for McDonald’s which is one of the world’s largest food providers.

McDonald’s compensates by raising prices for their end-consumers, but it is a delicate process.  They recently implemented a 1% price increase on their products, and you can expect this to be a continual, gradual process as commodity prices remain elevated.

Since our policies which likely contribute to inflation are not likely to change any time soon, this is likely a constantly present process we will see with McDonald’s.  As an investor, the good thing is that every company and competitor of McDonald’s is dealing with the same issues, and I like MCD to be able to weather this situation as good if not better than any other company.

Indeed as price increases affect “higher end” restaurants, McDonald’s may see an increase in traffic as strapped consumers “trade down” to McDonald’s.  This is definitely a part of our investment thesis for McDonald’s Corp.