(Reuters) - Neither premium chicken sandwiches nor Angus burgers could tempt U.S. consumers to spend more on higher-priced items at McDonald‘s, as a tepid U.S. economic recovery kept restaurant spending in check.
The world’s biggest hamburger chain on Tuesday reported a smaller-than-expected rise in April sales at established restaurants around the world, largely due to underperformance in the United States, where consumers continue to seek out very low-priced food.
U.S. sales at McDonald’s Corp restaurants open at least 13 months rose 3.3 percent, less than the roughly 5 percent gain analysts’ expected.
Global same-restaurant sales also were up 3.3 percent for April, falling short of the company’s own forecast for a 4 percent increase.
McDonald’s issued its global sales forecast on April 20 and the final results suggested that U.S. momentum flagged late in the month.
“First and foremost, the consumer continues to want value,” Lazard Capital Markets analyst Matthew DiFrisco told Reuters.
Advertised premium chicken sandwiches and Angus burgers failed to meet sales targets, and it took longer than expected to roll out new blueberry banana nut oatmeal, Bernstein Research analyst Sara Senatore said in a client note.
McDonald’s also promoted new “Extra Value Menu” items and combo meals with prices above the offerings on its famed “Dollar Menu.”
The new menu includes 20-piece chicken McNuggets, double cheeseburgers, chicken snack wraps, Angus snack wraps, medium iced coffees, and snack-sized McFlurries, plus up to four regional options that were previously listed elsewhere on its menu.
“A relatively rare promotional misstep in the (United States) may have opened the door for competitors who have stepped up their competitive intensity,” Senatore said.
The rivalry among U.S. fast-food chains is fierce and inflation at the grocery store is easing, making it harder for restaurants to raise prices to offset the higher cost of ingredients.
Those challenges exert more pressure on smaller chains such as Wendy’s Co, which is the second-largest U.S. hamburger chain but just a fraction of the size of McDonald‘s.
Wendy’s reported first-quarter profit on Tuesday below Wall Street’s expectations due to the higher cost of fresh beef and a lower-than-expected same-restaurant sales gain of 0.8 percent at its company-operated North American restaurants.
Wendy’s admitted to a pricing and marketing mishap during the quarter. The company had hoped that its $2.99 “W” hamburger promotion would spur diners to trade up from 99-cent hamburgers. The offer instead prompted customers to trade down from $3.49 Dave’s Hot ‘n Juicy hamburgers, which have less meat than the “W” burgers.
“Those 99-cent shoppers are generally 99-cent shoppers, and you’re not likely to be able to move them up to that $2.99 price point,” Emil Brolick, Wendy’s president and chief executive, said on a conference call with analysts.
Wall Street may have gotten ahead of itself in terms of expectations because of McDonald’s stellar gains in recent months.
“The momentum they’ve had has been very strong,” Steve West, a director at Investment Technology Group, told Reuters.
While McDonald’s is outperforming most of its peers, it also is sensitive to financial belt-tightening in Europe and higher food and labor costs in the United States.
Despite national debt woes, widespread austerity measures and high unemployment in Europe, McDonald’s same-restaurant sales in its top market rose 3.5 percent, above analysts’ average forecast of just over 3 percent, according to average estimates compiled by Thomson Reuters and Consensus Metrix.
McDonald’s said its major European markets -- France, Britain, Germany and Russia -- each contributed to the rise. Promotions and restaurant renovations bolstered sales in the region.
In Asia, McDonald’s same-restaurant sales were up just 1.1 percent, below analysts’ estimates, hurt by a drop in Japan.
McDonald’s shares closed down 2.1 percent at $93.55, while shares of Wendy’s fell 4.1 percent to $4.67.
DiFrisco said investors may recalibrate near-term growth assumptions for McDonald’s after the April same-store sales results.
But, given the company’s strength over rivals and other factors, he said, “There’s still more upside than downside at these levels.”
Reporting by Phil Wahba in New York and Lisa Baertlein in Los Angeles; Editing by Dave Zimmerman, Alden Bentley, John Wallace and Phil Berlowitz