Le Big Mac

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Hamburger aficionados in Europe are still lovin’ the Golden Arches. A healthy appetite in the region for McDonald’s burgers helped the fast food chain increase global like-for-like sales by 6.1 per cent in the second quarter. Europe, McDonald’s largest region by revenues, is easily outpacing the more sluggish US.

Will the old world keep gorging at such a rate? Overseas earnings have flattered headline figures as the dollar has weakened. Currency effects accounted for $0.07 of the second quarter’s $1.04 earnings per share. In a bid to keep up momentum, the company is set to spend $800m, a third more than last year, sprucing up existing outlets in Europe and opening new ones.

An economic slowdown in Europe presents a possible headwind. But in this regard, McDonald’s experience in the US is, thus far, reassuring. Certainly, McDonald’s is having to work harder at home. Comparable sales dipped into negative territory in March, but recovered in the second quarter helped by new product launches. Value-for-money choices, like the Dollar Menu, and McDonald’s expansive network mean cost-conscious consumers have a nearby option to eat out.

McDonald’s is supporting the top line by absorbing some of the impact of more expensive commodities. The chain’s prices in the US rose 4.2 per cent in the second quarter, less than the industry-wide cost of eating out. That food and paper expenses increased only slightly year-on-year in company-operated outlets gives some credence to McDonald’s claim that it can use its bulk in negotiating with suppliers. Cost pressures, though, remain strong. The company now expects prices of beef, chicken and cheese to increase much faster than previously thought. In such a stagflationary environment, McDonald’s can only hope more people on both sides of the Atlantic resort to comfort eating.

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