Don't read too much into McDonald's (MCD 0.14%) October sales report. The hamburger joint said same-store sales came in better than expected both here and abroad, but it's not because customers are rediscovering why they loved the Golden Arches in the first place. Instead, it's because they want to advance directly to Go and hopefully collect $100,000.
While its annual game promotion helped lift results last month, the gains are about as helpful to McDonald's long-term growth as Monopoly money is to its bottom line. Source: Flickr via Rich Brooks.
McDonald's launched its annual Monopoly promotion in October, and just as it does every year, the game that's developed something of a cult following helped restore sales, even if it did little to bolster the bottom line.
Comparable sales, or those recorded at restaurants open at least 13 months, slipped 0.5% in October, much better than the 4.1% decline last month, though not as good as the 0.5% increase reported a year ago. But it was better than what analysts expected.
Comps were down 1% in the U.S., compared to an anticipated 1.9% drop, while sales in the Asia Pacific region were down 4.2% versus the 6.1% decline Wall Street was forecasting. Considering the fallout McDonald's is still experiencing from the tainted meat scandal in China, it's a really remarkable recovery.
Or is it?
The Monopoly promotion was launched last month, and franchisees were reportedly clinging to the hope that the game would staunch the hemorrhaging of sales. In comments made to Janney Capital Markets in a survey of McDonald's franchisees representing 256 stores, the restaurant operators said the promotion was the one thing they could hang their hat on. The outlook afterwards isn't so hopeful.
"Everything depends on Monopoly," Business Insider reported one franchisee said. "I am counting on Monopoly to stop the bleeding," said another.
The franchisees and their parent company are struggling to meet changing consumer tastes as well as more intense competition from Burger King Worldwide (BKW +0.00%), Wendy's (WEN +4.51%), and In-and-Out Burger, along with non-traditional chains like Taco Bell and White Castle, who've recently entered the breakfast market.
They also complain McDonald's menu became too complicated with too many new items, which slowed down service. Along with a streamlined menu, the hamburger palace has been experimenting with 60-second food guarantees this summer at drive-thru windows in Florida.
But McDonald's was also thrown into tumult after Chinese news media uncovered one of the company's suppliers using expired meat in the food it shipped to the chain.
The biggest impact was in McDonald's Japan stores, where it previously said it expected to post a net loss of 17 billion yen for 2014, or $156.7 million -- the first time in 11 years it hasn't turned a profit. It was also a big U-turn from the 6 billion yen profit it had been forecasting before the supplier scandal broke in July.
While the company has since said the losses won't be as bad as originally expected, they're still significant, and the scandal has touched others like Yum! Brands (YUM +0.79%), whose KFC chain was sent reeling in the aftermath as well.
While that's still a drag on McDonald's overall performance, it was able to ameliorate the worst effects with help from Monopoly.
They've run the game for 22 straight years, but despite the near-impossible odds of winning -- there's a 1-in-45 million chance of winning the $100,000 prize (which is surprisingly better than the 1-in-651 million chance of winning a trip to The Hobbit: The Battle of the Five Armies premiere) -- customers flock to the stores to get their games pieces anyway.
There will be no "get out of jail free" card for McDonald's when the impact from its Monopoly promotion wears off. Source: Flickr via Mark Strozier.
Since the promotion ended on Oct. 27, we can expect to see McDonald's performance returning to form this month. It may be changing up its marketing, streamlining its menu, and giving restaurant operators more autonomy over what they put on their menus, but without a chance to take a ride on the Reading again, there's no reason to expect the better performance will continue.
There will be no free parking for McDonald's next month, and it may go directly to jail after investors stop rolling the dice on a recovery.
