World / US and Canada

McDonald's faces headwinds in US and abroad: Analysts

By JACK FREIFELDER in New York (China Daily USA) Updated: 2014-09-11 09:51

McDonald's Corp announced earlier this week that it experienced across-the-board declines in its global sales for August, partly due to meat supplier scandal in China.

A Tuesday press release from McDonald's shows that global comparable sales declined 3.7 percent last month, but the most significant dip, 14.5 percent year-over-year, occurred in the Asia/Pacific, Middle East and Africa (APMEA) region. Sales in the US and Europe saw downturns of 2.8 percent and 0.7 percent, respectively.

It said a portion of the downtick in sales was due to recent meat supplier issues in China, which have "significantly impacted" results in China, Japan and other markets.

In July, two staples in the fast food industry, McDonald's and Yum Brands Inc, cut ties with Shanghai Husi Food Co Ltd, a unit of US-based food supplier OSI Group, over the sale of expired meat to some of their restaurants in China. A number of other companies have followed suit.

Darren Tristano, executive vice-president of Technomic Inc, a Chicago-based research and consulting firm covering the food service industry, told China Daily: "Some of the food safety issues [in China] are very likely to have a negative, short-term impact, but brands do have these issues - especially when operating away from their corporate headquarters."

Tristano said "after a long run of very strong sales and outperforming the industry", McDonald's has seen some struggles of late - both domestically and internationally.

"McDonald's has run into some headwinds," Tristano said. "It's been a struggle for McDonald's in the US to gain traction in a very mature burger segment. Part of that has to do with increased consumer expectations for health and wellness, and also the growing competition from competitors like Wendy's and Burger King, who have been performing better."

McDonald's said it plans to increase scrutiny of its suppliers in the Asia-Pacific region in light of the issues it has seen in the Chinese market.

The multinational sees the drops as the beginning of a tough stretch.

"During August, McDonald's global business faced several headwinds that impacted sales performance," Don Thompson, McDonald's president and CEO, said in a statement on Tuesday. "We are diligently working to effectively navigate the current market conditions to regain momentum. For the long term, we remain focused on … strategic growth priorities for our customers and business.”

Founded in California in 1940, McDonald's has more than 35,000 locations worldwide serving close to 70 million customers in more than 100 countries each day. Its headquarters are located in Oak Brook, Illinois.

A Tuesday research note from Sanford C Bernstein & Co said McDonald's missed estimates for global comparable sales in August "as weak results in the US and APMEA [region] weighed on performance".

"Trends continue to reflect the challenges that the company is experiencing, and there are no signs yet that the major themes that have characterized McDonald's results in recent quarters are likely to reverse," Sanford Bernstein said in the research note. "Without clear comparable sales drivers to act as catalysts, we remain unconvinced of a substantial reacceleration in results."

McDonald's said it expects lower revenues in the third quarter to "pressure US margin performance," and the company will offer a revised financial outlook for 2014 when it releases earnings figures for the third quarter in October.

Tristano said: "For a brand like McDonald's, there often isn't a replacement for the convenience it offers to the marketplace and the customer base. I would expect to see some negative performance and implications in the short term, but it's very likely consumers will return to their behavior."

"No restaurant is in the business of trying to hurt its customers, so what this does is reinforce the need to be extra careful with your supply chain and your process," he said. "As long as the brand takes responsibility for what they did and puts an effort out there to do their best going forward, that's the most you can expect."

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