Marking its poorest performance since 2003, the world’s largest restaurant chain McDonald’s Corp reported stagnant July sales as a result of the weak economy and insufficient advertising.
Revenue at home in the US fell by 0.1%, while Europe, which accounts for 40% of the company's business, dipped 0.6% due to slow business in Germany and several Southern European markets. Although key growth areas for McDonald's, Asia Pacific and the Middle East and Africa saw a drop of 1.5%.
Meanwhile the only regions that saw increases and helped round out the overall global percentage were Latin American and Canada.
These underperforming numbers did not match analyst expectations, which were around 2.3%.
Why The Drop?
McDonald’s, which has over 33,500 locations worldwide, has been negatively impacted by budget-conscious customers who have been eating at home more and advertising promotions that did not convert to sales.
Sales may also have been affected by Ramadan, flooding in China and the fact that this July had one less Friday and Saturday than last year. It is also difficult to compare July 2012 to 2011, when the popular mango-pineapple smoothie was launched.
McDonald’s has tried to bring in customers with its value menu items, seeing success in the past, and will continue to promote the value menu in hopes of restarting sales.
The food chain giant also plans to increase media spending in France, one of its largest markets in Europe with over 1,200 stores.
Analysts say McDonald’s is not used to underperforming, and is generally unaffected by economic recession. Fund Manager Harvey Neiman told Reuters: "If we see a six-month trend like this, then we'll wonder what's going on at the helm. We're not on the alert yet."
Competitors Doing Well
Chipotle Mexican Grill and Starbucks also reported American sales have slowed, but other McDonald’s competitors, however, are faring much better.
Burger King, Taco Bell, Wendy’s and several other key fast-food brands in the US have upped or revised their menu choices and increased advertising. They are also marketing more aggressively, which has translated into sales.
Burger King, for example, has seen success from its latest campaign featuring celebrities Salma Hayek and David Beckham.
Nothing indicates McDonald’s competitors will be decreasing promotions anytime soon.
All restaurants are facing a rise in food commodities, with the US Department of Agriculture forecasting food prices will rise 4% in 2013.
Key Statistics – The Global Fast Food Market (source: MarketLine)
- In 2011, the world fast-food market grew by nearly 7% to reach $253 million in value. The same year, it grew by slightly more than 5.5% to reach a transaction volume of 243 billion.
- The fast food market is predicted to be valued at $332 billion globally in 2016 for a 31% increase over 2011.
- The fast-food market is predicted to have a volume of 310.6 billion transactions globally in 2016 for a 28% increase from 2011.
- The largest market share in the global fast-food market value is the Americas, which accounts for 44%.