McDonald’s US Promotions, China Expansion to Help Sales
McDonald’s (NYSE:MCD) which competes with Starbucks (NASDAQ:SBUX), Chipotle (NYSE:CMG), Yum! Brands (NYSE:YUM), Burger King (NYSE:BKC), and Wendy’s (NYSE:WEN), reported strong October sales earlier this month. We expect this trend to continue as the US economy recovers and McDonald’s increases its presence in Asian Markets.
This could help increase the average spend per customer, a key driver to our current price estimate of $73.58. Our price estimate is around 5% below the market price.
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Promotions Driving US Sales
McDonald’s recent marketing initiatives, including the Monopoly game promotion, helped the company boost October sales numbers and generate a 6.5% increase in global sales at established restaurants.
In the US, McDonald’s re-introduced the McRib sandwich for the month of November, which is now being offered nationwide for the first time in 16 years. The company will keep the item on the menu until December 5th.
In the recent sales figures, US sales grew by 5.6% YOY in October 2010 vs. -0.1% YOY in October 2009. Asian and European sales figure also grew by 5.3% and 5.8% on YOY basis. Europe accounts for 40% of its business.
China Growth
McDonald’s also plans to open 150 to 175 stores in China in addition to the current 1,100 stores already in China and 60,000 workers. [1] This past August, it issued a 3-year 200 million yuan denominated bond to help fund its expansion into Asia. The yuan denominated bond was largely seen as a symbol of its commitment to China as it was the first non-financial multinational to issue these bonds.
Increasing Customer Spend per Visit
Given McDonald’s expansion into China, its promotional activity in the US and a much hoped for recovery in US consumer spending, we could see a rise in average spend per customer beyond our current estimates included above. If we drag the trend line in the chart above to increase 2010 spend per customer by 5%, this translates to nearly a 4% increase in our price estimate.
See our full estimates for McDonald’s here.
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