Shake-up as McDonald’s sales slide

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Published: Wednesday 22nd October 2014 by The News Editor

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McDonald’s chief executive has admitted the fast food chain has not been keeping up with the times and changes are in store for its US restaurants.

After the company posted yet another disappointing financial quarter, Don Thompson said that from January McDonald’s will “simplify” its menu so restaurants can offer options best-suited for their regions.

He also said the company planned to expand its Create Your Taste offering that lets people pick the buns and toppings they want on burgers by tapping a touchscreen. The programme is being offered in Southern California and McDonald’s has said it will roll it out nationally in Australia.

“We haven’t been changing at the same rate as our customers’ eating-out expectations,” Mr Thompson conceded.

His remarks came after McDonald’s said sales at established locations fell 3.3% globally and in the US division, marking the fourth straight quarter of declines in its home market. Profit sank 30%.

McDonald’s is continuing to struggle with myriad problems. One of its biggest challenges in the US is long-held perceptions around the freshness and quality of its ingredients and the chain has been fighting to boost sales as people turn towards foods they feel are more wholesome.

As a result, people have been gravitating to places like Chipotle, which markets its ingredients as being of superior quality.

Chipotle’s sales at established locations surged 19.8% in the third quarter. Steve Ells, Chipotle’s co-CEO, said the results showed people were realising “there are better alternatives to traditional fast food” and he expected the trend to continue.

Some analysts questioned whether the moves that McDonald’s has in store will be enough to fix its problems. Sara Senatore, a Bernstein restaurant analyst, noted that the company efforts seem focused on marketing around its food, rather than changing recipes.

McDonald’s, meanwhile, launched a social media campaign last week inviting customers to ask questions about its food. It began with frank questions like, “Why doesn’t your food rot?” and “Is the McRib made from real pork?”, showing just how bad some of the perceptions about McDonald’s food can be.

In China, an undercover TV report this summer showed one of its major suppliers repackaging expired meat. The plant stopped operations and many of McDonald’s restaurants in the country were left unable to sell burgers, chicken nuggets and other items.

The chain’s reputation took a hit as well. In the division encompassing Asia, sales at established stores sank 9.9%.

McDonald’s, which has more than 35,000 locations around the world, said it expected its challenges to continue into the current quarter, with global sales down for October as well.

For the quarter, revenue declined to 6.99 billion dollars (£4.3bn), short of the 7.23 billion (£4.5bn) Wall Street expected. Net income declined to 1.07 billion (£664m), or 1.09 dollars (67p) per share. Adjusted for one-time costs, earnings were 1.52 (94p) per share. Analysts expected 1.37 (85p) per share.

Shares of McDonald’s Corporation ended down 58 cents at 91.01 (56p) last night. They are down about 6% in 2014.

Published: Wednesday 22nd October 2014 by The News Editor

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