McDonald’s sales growth continues, but US numbers cause concern

Fast-food chain McDonald’s has logged its 13th consecutive month of positive same-store sales during the third quarter.

The company has reported earnings of US$1.64 billion, on revenue of $5.37 billion. Sales were down on the same period last year as McDonald’s sells off company-owned restaurants to franchisees

“In addition to achieving 13 consecutive quarters of positive global comparable sales, we have made substantial progress modernising restaurants around the world, enhancing hospitality and elevating the experience for the millions of customers we serve every day,” said Steve Easterbrook, McDonald’s president and CEO, in a statement.

“We remain confident that our strategy will drive long-term, profitable growth.”

But Neil Saunders, MD of GlobalData Retail, described the results as merely “reasonable”. “Overall comparable sales growth is solid, with both the US and international divisions contributing to the uplifts.”

He warned there is evidence of a slowdown in the growth rate, especially in the US.

“This is partly understandable given that McDonald’s is coming up against some tougher prior year comparatives. However, it is also problematic in as much as it comes at a time when McDonald’s is investing more in the business and is introducing more complexity to its operations. Ideally, sales growth needs to be somewhat higher to support these initiatives.”

Profit concerns

A 1 per cent fall in global operating profit was largely caused by restructuring costs, but Saunders was concerned by a 7 per cent drop in operating profit in the core US market.

“As much as the restructuring charges and the various changes McDonald’s is making are necessary, this is still a disappointing outcome. The imbalance between costs and sales is also one of the reasons why some franchisees are unhappy. McDonald’s is going through a period of change and part of this involves updating stores, the offer, and operations in order to allow the company to perform in a more competitive marketplace. Unfortunately for franchisees, the financial and operational burden of some of this change falls on them. This is a price that they are willing to pay so long as they see results in the form of better sales and profits. However, now these benefits are coming through more slowly, many are starting to question the strategy.”

Saunders said store efficiency has been improved by the installation of touch-screen ordering in stores and allowing consumers to order on their mobiles, which reduced store operating costs.

“Arguably, this needs to be rolled out further and faster. And in the case of mobile ordering, consumers need to be given more incentives to use the facility as many still shun the technology and order direct from stores. Longer term, more automation in the kitchen is also necessary – something that will be particularly beneficial now McDonald’s menu options are more complex.”

Saunders also said that McDonald’s needs to get better at its menu innovation, an area where he believes rivals like Burger King still have an edge at putting out interesting and attention-grabbing seasonal selections.

“The bottom line is that McDonald’s has made some good strategic decisions and the company is much more future-proof that it was a few years back. However, it now needs a clearer vision on both product and marketing.”

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