Restructuring bites into McDonald’s global sales

Restructuring has taken its toll on McDonald’s global sales as the company refranchises store networks in Asia.

The US fast food giant reported what one analyst described as a “sombre result” overnight, its fourth quarter sales falling by 1.3 per cent in the US market. However, two-thirds of its sales are achieved outside the US, where the company’s turnaround plan is further advanced.

Global same-store sales rose 2.7 per cent, but overall sales fell by 5 per cent as the company worked towards spinning off its rights in Korea, China, Malaysia and Singapore.

In the UK and Germany, McDonald’s is benefitting from technology upgrades such as self-service kiosks, which are also being installed in Hong Kong. Sales in what McDonald’s describes as its “international lead markets” rose 2.8 percent in the fourth quarter.

Neil Saunders, CEO of Conlumino, said McDonald’s ends its fiscal year on a somber note with figures that put pay to the early optimism which surrounded its turnaround program.

“McDonald’s is now lapping some tougher comparatives, especially in the US where, this time last year, it was reaping the rewards of menu reconfiguration and the introduction of the All Day Breakfast. These changes were supposed to drive a steady and sustainable uplift in spending rather than a one-off spike in sales, but it is increasingly clear that this strategy is not delivering through.”

Saunders says widening the audience in a sustainable way is the key issue for McDonald’s as it enters the new fiscal year.

“This has to be more than about menu change – including the recent introduction of multiple sizes of Big Macs which, in our opinion, does nothing to create step change or to increase real choice. Indeed, it is clear that the menu changes made so far have not completely reinvigorated the brand with younger and more discerning consumer segments, many of whom still shun the chain in favor of what they see as more premium offerings from other players.”

Saunders believes the majority of the growth is at the quality end of the market, a segment where McDonald’s – which is seen as fast, convenient and low priced – still does not squarely play in the US – although it has made strides in some Asian markets, especially Thailand, with its customisable burgers.

“In our view, McDonald’s needs to think more fundamentally and more holistically about how to play in this space. This includes looking at the state of its US restaurants – some of which leave a lot to be desired. It also means being more radical, perhaps opening a new type or brand of restaurant with a more premium proposition. What’s clear is that more fundamental change is needed to transform the US business.”

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