McDonald's (MCD): Raise Prices, Dump Customers

McDonald’s (MCD) is caught between the rising prices of commodities and the need to keep the cost of its food and drinks low. So, the company has decided it may raise what it charges customers. Just a little.

That is probably a mistake.

According to Reuters, "McDonald’s Corp said on Thursday it was considering further price increases, but would do nothing that slowed customer traffic into its global network of stores."

The slowing traffic part of the plan is not likely to work.

Consumers are already so pinched that they have nothing in their pockets most days other than lint. The price of gas is up too much. The cost of credit has not come down. Mortgages are resetting to higher interest rates and people are starting to lose jobs.

More and more citizens are eating at home.

McDonald’s has the balance sheet and operating income to keep its prices where they are. It will have to explain a dip in margins to its investors. If they have any sense the idea of customer loyalty should trump a modest drop in earnings for a quarter or two.

Raising prices for customers will just chase them away, and they may not be back.

Douglas A. McIntyre