McDonald's To Benefit From Recession

Unlike many large-cap stocks, McDonald’s shares have not sold off in the market slide. As a matter of fact, they have done much better than any of the three major indexes. McDonald’s continues to be one of America’s huge recession-proof companies.

Consumer-facing companies fall into three categories during a recession.

The first are those that sell things people cannot do without. Verizon and AT&T are high on the list. The next are companies that sell things people can definitely do without. Airlines, despite strong performances recently, are among these. Falling consumer purchasing power because of high inflation and job-retention troubles force many people to consider the least expensive option in the final category. McDonald’s holds a strong position in this segment.

Undoubtedly, McDonald’s faces price pressure. The cost of many ingredients in its foods has already risen sharply. The price of diesel fuel has spiked. Labor costs may rise some, but McDonald’s has been adroit at keeping hourly pay low.

McDonald’s continues to have pricing power because what it charges for food is already cheap. McDonald’s still has $1, $2, and $3 menus.

As the economy weakens, “cheap” is at the top of many consumer spending behaviors.

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