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The McBites Just Aren’t Biting: McDonald’s Corporation (MCD)

I’ve talked before about the McDonald’s Corporation (NYSE:MCD) and the company’s plan to keep customers coming back for more with limited-time offerings like the McRib and Spicy Chicken McBites. Unfortunately for McDonald’s, the best laid plans of clowns and Hamburglers often go awry when the economy hits a major slump. (Assuming, of course, that anyone remembers who Hamburgler is these days.)

McDonald's Corporation (MCD)

The latest limited-time offering seemed like it was destined to be a success: Fish McBites, which as their name implies are made of Alaska pollock instead of the chicken used in the previous “McBites” offerings, became available just before Lent. They were even available in Happy Meal form, marking the first time that a new Happy Meal has been offered since 2003. Despite the seemingly-perfect timing of the new McBites, however, McDonald’s Corporation (NYSE:MCD) has seen sales declining for the past two months as the nation tightens its collective belt.

Global sales dropped 1.9% in January when compared to the January 2012, while global sales slipped another 1.5% in February. Much of the February shift can be explained through the addition of an extra day in 2012’s leap year, but taking the calendar shift into account the company still experienced only slight gains. Consumer confidence problems in China coupled with economic doubt in the US has turned into a 1-2 punch against a business strategy that was working very well for the company last year.

McDonald’s Corporation (NYSE:MCD) isn’t the only one who’s potentially feeling the pinch of economic uncertainty in the US, either. Internal emails at Wal-Mart Stores, Inc. (NYSE:WMT) last month revealed that the company was experiencing the worst sales start to a month in almost a decade, while US CEO Bill Simon talked with executives about the increasing trouble that the company’s having with keeping items stocked for customers. Consumers aren’t spending as much at Wal-Mart as they used to, and when they do go shopping they may have trouble finding the items that they want. That’s not a good combination for a store that’s been struggling to maintain its prices while attempting to turn around its image with more “American made” products.

The problem that McDonald’s and Wal-Mart are both facing is that they largely cater to lower-income individuals. That’s not to say that middle-class families and even the wealthy don’t enjoy an order of Chicken McNuggets every now and then, but those who have more money have a lot more food and shopping options available to them. When economic troubles hit, they have a larger nest egg and may have more job security as well. Those who make less tend to have less in savings, a higher likelihood of being laid off due to cutbacks at work, and might start looking for ways to cut costs sooner than their wealthier compatriots. That means a few fewer trips to McDonald’s Corporation (NYSE:MCD), more controlled spending at Wal-Mart, and more time clipping coupons or shopping for deals both in person and online.

What this all boils down to is that McDonald’s, Wal-Mart and other fast food and retail outlets that receive a large portion of their business from lower-income families might see sluggish sales for a while yet. This will likely result in more promotions and advertising in hopes of attracting potential customers who are on the fence as to whether they should splurge a bit after cutting back on their monthly budgets. It will also likely result in further corporate cost reductions such as the rumored elimination of Chicken Selects chicken strips and Angus beef burgers at McDonald’s Corporation (NYSE:MCD) to eliminate waste and keep profits coming in.

With careful management and sufficient cost-cutting, it’s entirely possible that the restaurants and retailers most affected by economic slumps can still remain profitable and come out of their current slumps better than ever before. Until then, at least we’ve got the Egg White Delight McMuffin to look forward to.

The article The McBites Just Aren’t Biting originally appeared on Fool.com and is written by John Casteele.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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