McDonald’s and Domino’s provide totally different views on the consequences of stimuli
A family’s stimulus check from the U.S. Department of the Treasury for Coronavirus Aid (Covid-19) was received at the Post Office in Milton, Massachusetts, USA on March 25, 2021.
Brian Snyder | Reuters
Domino’s Pizza and McDonald’s both reported that government stimulus checks improved their results for the first quarter, but the two companies disagree on the longer-term effects of extra cash in consumer wallets.
The federal government began sending out the second round of stimulus checks of up to $ 600 to eligible individuals in late December, just before the start of the first quarter. A third round of checks for up to $ 1,400 for Qualified Individuals was sent out in late March. The IRS is still sending business stimulus checks to taxpayers whose payments have never arrived or have been under-paid.
Restaurant companies ranging from the owner of the Outback Steakhouse, Bloomin ‘Brands, to Taco Bell parent company Yum Brands, have cited the checks as a factor in their first-quarter sales growth. A report by Rabobank and Earnest Research estimated that consumers spent 10 to 15% more money in restaurants in the four weeks following the first two stimulus checks. However, it is still unclear whether the payments will actually kickstart the economy or just a temporary boost in restaurant spending that will dissipate.
Domino presented a possible theory.
“We are certainly still – you know, not just at Domino, but in the entire economy – still a bit affected by the wave of government incentives,” Dominos CEO Ritch Allison told analysts on Thursday.
The pizza chain told investors that the higher sales due to the stimulus checks caused the company not to run aggressive promotions for Boost Week during the quarter. Even without the promotions, Domino’s US sales grew 13.4% in the same store.
McDonald’s, on the other hand, downplayed the impact of the checks. CEO Chris Kempczinski told analysts Thursday that there is no question that they will benefit the business, but the chain’s 13.6% revenue growth in the same business for the quarter was “way beyond” checks. McDonald’s attributed strong performance in the US to other corporate initiatives, such as promotions around celebrity favorite orders, the launch of its Crispy Chicken Sandwich, and higher digital sales.
“I think you can argue that stimulus checks are generally on the wane now, but we are seeing continued momentum in our business,” said Kempczinski.
Kevin Ozan, CFO of McDonald’s, said the U.S. consumer is still pretty healthy and ready to return to the chain’s dining rooms when it reopens.
“I don’t think we have much concern right now about the ability of consumers to spend money,” said Ozan.
Like the rest of the fast food sector, McDonald’s U.S. sales recovered quickly during the coronavirus pandemic, attracting consumers with their convenient drive-through lanes and affordable prices. Domino’s saw soaring demand during the crisis, raising concerns about possible pizza depletion as the pandemic subsided.
McDonald’s stocks rose less than 1% in morning trading after the company beat Wall Street estimates for earnings and revenue and raised its full-year outlook for system-wide sales. At $ 180 billion, its market value is more than ten times that of Domino. Pizza chain stocks rose 2% in morning trading after reporting mixed results for the first quarter.