By Jonnelle Marte
Americans may finally have a reason to envy Europe and its financial woes: Cheaper Big Macs.
McDonald’s said Friday that its first quarter earnings grew 4.8%. But since commodity costs – particularly beef – rose 7%, executives hinted the company may need to increase menu prices. But analysts say while American customers pay more for burgers, their counterparts on the continent will likely get a pass. European outposts may be unwilling to hike prices as consumers are more cautious there, R.J. Hottovy, an analyst with Morningstar. “I suspect price increases would be more in the U.S. than they would be in economically sensitive regions like Europe.”
American fast food prices aren’t helped by the fact that food costs are expected to increase about 4.5% this year, compared to 3.5% in Europe, says Hottovy. Indeed, though business remains strong in the U.S., rising commodity and labor costs offset stronger sales, executives said. As a result, consumers may soon see changes to the “Dollar Menu,” as some items are removed or swapped, said Don Thompson, McDonald’s chief operating officer, who is expected to take over as CEO in July when current chief Jim Skinner retires.
Meanwhile in Europe, McDonald’s is pushing its lower-cost menu items as part of a campaign executives say has helped them gain market share in the region. “Particularly in France and Germany we have had more aggressive conversations on how we position our value menu and value offerings,” said Thomspon. And in Australia, for example, McDonald’s launched a “Loose Change” menu last month that includes soft serve ice cream that costs 30 Australian cents and a $2 burger.
That said, drastic price hikes are unlikely, analysts say. Price increases this year are likely to be “less severe than what we had in 2011,” says Hottovy. The chain says it is aware of signs of weakening economic growth at home and points out that much of its success is due to the popularity of cheaper menu items like fries and snack wraps that sell for less than $2. Commodity prices may also ease later in the year, which would reduce the need for higher prices.
McDonald’s also hopes to boost its bottom line by expanding some of its more profitable offerings–smoothies. The company is rolling out smoothies in more countries and it plans to expand its breakfast offerings in Europe. And so far the outlook remains strong, as the chain expects April sales at stores open more than a year to rise about 4%.