Caught with ketchup on its face

TALLINN - Global fast-food giant McDonald’s, famous for its expertise in flipping burgers and frying fries, now faces an investigation on suspected flipping of prices. The fast-food restaurant is being probed by Estonia for misleading customers over promises it would not hike prices in conjunction with the country’s New Year switch to the euro, officials said on Jan. 25, reports AFP. “We launched an investigation after relevant media claims and we have by now also directly received some written claims from customers who are upset that McDonald’s has raised prices despite [the fact] that last year it publicly joined a state campaign uniting firms that promised not to increase prices due to Estonia’s switch to euro,” Hanna Turetski, spokeswoman for Estonia’s Consumer Protection Board, said.

Last summer, Estonia’s Finance Ministry created a campaign that attracted 525 firms that publicly vowed not to use the Jan. 1 switch from the kroon to the euro to camouflage price hikes. A MacDonald’s spokesman contacted by AFP denied any wrong-doing, arguing the price hikes reflect the rising cost of food products.
“Any changes in pricing were in no way a result of the implementation of the euro,” McDonald’s country manager, Tomasz Nawrocki, said. “During the second half of 2010 a number of prices pertaining to raw materials increased - these increases were related to shifts in global food prices,” he said in a statement.

“This obviously meant an added cost strain to the business, and in January 2011, as part of a regular pricing review, prices of some menu items have been updated to be better aligned with raw material costs,” he said.
According to Turetski, the consumer protection office has since the beginning of the year launched eight probes into companies suspected of misleading customers with promises not to increase prices in conjunction with the euro switch. So far two have been dropped, she said.

Under Estonian legislation, the consumer protection board is authorized to sanction firms that have mislead customers with either a warning or fine of up to 3,200 euros.
McDonald’s Corp. has said it plans to raise prices this year to help offset an expected rise in its grocery bill for the ten commodities that account for around 75 percent of its food preparation costs, reports Reuters. Food prices are rising around the globe and the comments from the world’s biggest restaurant chain overshadowed weaker-than-expected December sales at established European and U.S. restaurants, as poor weather hurt demand, and a reported fourth-quarter profit that was in line with expectations.

McDonald’s expects its costs to rise 2 percent to 2.5 percent this year in the U.S. and 3.5 percent to 4.5 percent in Europe.
Chief Financial Officer Pete Bensen said McDonald’s would “raise prices where it makes sense” to offset some, but not all, of the cost increases. Diners around the world remain cautious with their spending on food away from home and McDonald’s will be very careful not to turn customers off with higher prices, Bensen added.

When asked why costs are going up more in Europe, analysts noted commodity prices fell more in the United States last year than in Europe, a fragmented purchasing market where foreign exchange fluctuations play a big role. “The U.S. is a more efficient, more homogenous market” for sourcing commodities, said RBC Capital Markets analyst Larry Miller.
A slowly improving global economy, menu price increases and new restaurant openings should increase sales. Austerity measures in Europe – McDonald’s biggest market for sales - remain a concern.

McDonald’s said global sales at restaurants open at least 13 months rose 3.7 percent overall in December. They gained 2.6 percent in the United States, slid 0.5 percent in Europe and rose 8.9 percent for Asia-Pacific, Middle East and Africa.
Wall Street expected December same-restaurant sales to be 3.9 percent higher in the United States, up 3.4 percent in Europe and gain 5.7 percent in APMEA, according to Janney Capital Markets analyst Mark Kalinowski. For January, the company expects global same-restaurant sales to increase four percent to five percent.

Europe accounts for around 40 percent of McDonald’s revenue. McDonald’s operates ten restaurants in Estonia and has been on the market for over 15 years.