McDonald's: The Eatery of the New Depression

McDonald's is doing great, but it has nothing to do with the global recession, insists president and COO Ralph Alverez.  

He's lying, and not very eloquently. "It's such a misnomer that we're doing well because of that," he told the Wall Street Journal in an interview conducted last month and published Tuesday. He didn't elaborate except to talk about all the things McDonald's is doing right. It turns out they are precisely the things that are helping the company thrive during hard times.

The company on Monday said same-store sales were up 5.4 percent worldwide in February, adjusted for the extra day in February last year. The gains were more pronounced in the United States than elsewhere—up 6.8 percent—and both McDonald's and the Journal chose to highlight the relative struggles, if you can call them struggles, the company is facing in foreign markets.

In Europe, where McDonald's says people tend to cook at home more during slowdowns, same-store sales were up 4 percent. In the Middle East/Asia/Africa, they rose by 4.1 percent. In Asia, McDonald's made sure to note, cost-conscious eaters tend to buy food from street-vendors.

Overall sales were up 1.4 percent globally and were down slightly in Europe. And the company warned that first-quarter revenues would likely fall.

There is zero doubt, however, that the stalled economy is boosting McDonald's sales in a big way. The company, of course, doesn't want to be known as the go-to spot for the New Depression, so it's naturally going to downplay the fact that the slowdown is helping business.

To its credit, however, thriving in a downturn isn't automatic. McDonald's was doing well before the economy began to tank. The company is smartly managed, and Alvarez, who ascended to the No. 2 spot in 2006, is largely responsible. He's heading up the effort, which has shown early signs of success, to take on Starbucks in coffee. He has judiciously kept a lid on costs and has made store and menu improvements.

And even if he is lying about the present, he is wisely focused on an uncertain future, emphasizing lower-priced items and creating automated pricing systems for outlets to respond quickly and independently to changes in demand.

The Journal decided to highlight the rising dollar and its drag on McDonald's overseas earnings. And it's true—the dollar has crimped profits. But there's not much the company can do about that except what it was doing already, to great success.