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Fast food giants rising prices

As has noted more times previously, any recession has winners and lossers. Especially the US recession, where the share markets are so developed that it is very tempting to take advantage of the market conditions to boost your share price.
It is true that the food producers now face dramaticaly rising costs. According to a web survey, the main factors leading to cost increases for the food producers are:
– the packaging prices (which follow the price of oil, out of which the plastics are made), which are up more than 150%;
– increased regulatory pressures, especially from the EU authorities, keen to improve the final quality for the consumers, and the US tougher laws issued by FDA.

It is no wonder then that these days the giant food producers astarted to announce price increases for their products. The world’s largest restaurant chain, McDonald’s, posted second-quarter profit that beat expectations on strong international sales, but said to offset mounting commodity pressures it was looking at changes to the popular Dollar Menu, which lures value diners. Translated on the consumers language, it means that Mc Donald’s knows that the costs are increasing together with the inflation, so they will increase the prices too (probably more than their own inflation, which will further boost the profits). And if the consumer does not accept this, he/she can go to the competition, which is more or less inexistent in the markets where McDonald’s has a strong first mover presence (see China or other emerging markets).

Much speculation is made about the Dollar Menu double cheeseburger, which McDonald’s has tested in certain markets at prices up to $1.29. During the first half of the year, McDonald’s raised prices in the United States by 4 percent and prices across Europe were boosted by 2 percent to 4 percent.

On the other hand, KFC and Burger King are moving explicitely to more healthy menus, in a conscious move to improve their capabilities to command higher prices on the market. They have introduced kid-targeted menus which should not exceed the daily caloric amount for those. “KFC is proud to offer a variety of Kids’ Meals for those looking for lower calorie, lower fat options. The KFC information in the report is inaccurate, as KFC offers a number of Kids’ Meal options well below 430 calories,” the chicken restaurant chain said in a statement.

It remains to be seen whether these fast food giants will manage to increase both the sales and the prices, based on their international markets expansion under way. Our spot survey at shows that following these announcements the McDonald’s share price is up to a year high of 62,14 USD (so pretty expensive), whilst Burger king is a US$ 28,94 per share, very close to the maximum 52 weeks level of US$ 30,75. This might mean that the market is already building in the price their announced strategy, so DoItInvest would reccomend buying those shares only for the long term.

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