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Donald Trump’s return to the White House has been great for cryptocurrencies, big banks and big oil. Big Macs, however, have not benefited. Despite the US president’s well-publicised love of McDonald’s signature burger and Filet-o-Fish sandwiches, the association has failed to provide a midas touch for the Golden Arches, with the stock trading sideways over the past two years.
McDonald’s had an uneven 2024. It reported two back-to-back quarters of like-for-like revenue declines as it struggled to win back cash-strapped customers. An E. coli outbreak in the US has contributed to soggy sales. At the same time, sales in the Middle East and Europe took a hit as customers boycotted the fast-food chain, among other American brands, over the US’s support of Israel’s war in Gaza.
McDonald’s latest quarterly results suggest some of these headwinds are abating. Global same-store sales rose 0.4 per cent during the fourth quarter. Management also said the food safety scare that contributed to a 1.4 per cent decline in US same-store sales is largely behind it.
But investors who bid McDonald’s shares 4 per cent higher on the back of these results may be getting ahead of themselves.
For starters, much of the rebound in international sales was driven by Europe and the Middle East where boycott pressures appeared to have eased. The risk of such geopolitical stress flaring up again must exist. On top of that Trump’s trade wars with Mexico, Canada, and China have enraged citizens there. Do not be surprised if calls for boycotts of American products in those countries gain traction as well. The strong dollar will also take a bite out of any overseas earnings.
Then there is the US, where the restaurant industry continues to struggle with cautious consumers, food and labour inflation, and intense competition between chains.
McDonald’s size and scale means there are levers it can pull. Chief among them is its “barbell” pricing strategy. This involves offering traffic-driving deals on low-priced menu items alongside new, more expensive, offerings. The aim is to capture diners from both ends of the income spectrum while also encouraging trade-ups.
McDonald’s plan — to expand discount meal deals while pushing out new chicken offerings such as the Chicken Big Mac — is a delicate balancing act. Margins could be squeezed further if it leans too much on value items and if it prompts other fast-food chains to lower prices as well.
At 24 times forward earnings McDonald’s shares are trading at a discount to Chipotle and Shake Shack. But they are in line with the stock’s three-year average. That may be too salty for investors’ tastes.
pan.yuk@ft.com
