McDonald's left hungry by rivals, economy in July
NEW YORK (AP) — The Golden Arches are starting to lose some of their shine.
McDonald's Corp. says a key revenue figure came in flat in July, its worst showing in more than nine years, as diners pulled back amid a rough economy. After years of outperforming rivals with a string of popular new items, the snag also suggests competition is intensifying for the world's biggest hamburger chain.
The last time the global sales figure dipped for McDonald's was in April of 2003. The figure had grown every month since then, even through the recession.
"McDonald's may be underperforming the industry, which is not typical for them," said Sara Senatore, a Bernstein analyst. She noted that Taco Bell is showing strength as a result of its popular new Doritos-flavored tacos, with revenue at restaurants open at least a year registering double-digit growth in the second quarter.
Burger King Worldwide Inc. and Wendy's Co. are also revamping their menus and stepping up their marketing campaigns.
In the U.S., McDonald's said its promotions failed to drive growth in July, and revenue at restaurants open at least 13 months dipped 0.1 percent. The Oak Brook, Ill.-based company also says it faced a tough comparison from a year ago, when it launched the mango pineapple smoothie.
The figure dipped 0.6 percent in Europe because of weakness in Germany and several Southern European markets. It fell 1.5 percent in the Asia Pacific, Middle East and Africa region — a key growth area for McDonald's.
Sales in Latin America and Canada, which are not reported separately, helped pull overall results even with last year.
Overall, analysts polled by Thomson Reuters had expected growth of 2.8 percent in July.
Revenue in restaurants open at least 13 months is a key measure of a restaurant chain's performance because it strips out the impact of recently opened or closed stores. The figures are a snapshot of money spent on food at both company-owned and franchised restaurants. They do not reflect corporate revenue.
In economically hard-hit regions, McDonald's has been working to emphasize the value of its meals to entice penny-pinching consumers to eat out more often. In Europe, which accounts for 40 percent of the company's business, the company said last month that guest traffic was down in several regions during the second quarter.
McDonald's, which has more than 33,500 locations around the world, is often seen as a bellwether for the industry. Its stock price has nearly quadrupled over the past decade and surpassed the $100 mark late last year. But shares have since declined and closed down almost 2 percent at $87.53 Wednesday.
The company has exceeded expectations over the years by emphasizing value and evolving its menu to keep up with changing tastes. Some of its most successful new offerings — such as snack wraps and specialty coffees — have high profit margins, yet give customers a way to treat themselves for just a few bucks.
"This chain has gone through a complete metamorphosis since the early part of the 2000s," said Jack Russo, an analyst with Edward Jones. Now McDonald's may struggle to continue delivering the same level of growth, he said.
"Instead of leading the pack as they have for so long, they're running with the pack," he said.
Still, Russo noted that disappointing results for one month don't necessarily spell doom for McDonald's. He noted that there was also one less Friday and Saturday in July, which likely affected sales, and the timing of Ramadan this year could have hurt sales in the Asia Pacific, Middle East and Africa region. And McDonald's sheer size still gives it a considerable marketing edge over competitors going forward.
Growth might not be as fast in the future but still should be "respectable," Russo said. "There's something to be said for consistency."
CEO Don Thompson, who took the helm in July, said in a statement Wednesday that he's confident the company will build sales over the long term.
McDonald's said it plans to restart growth in the U.S. by continuing to offer variety and new menu items. In Europe, it said it will boost customer traffic by featuring everyday value items. In Asia, the company has been working to offer locally relevant menu options and "convenience enhancements," such as delivery.
But there are no signs competitors will pull back on their efforts or that the economic climate will improve. Last month, McDonald's said its net income fell 4 percent in the second quarter as unfavorable currency exchange rates and high costs ate into profits.
Revenue at restaurants open at least a year rose 3.7 percent in that quarter, which was the slowest growth since the fourth quarter of 2009.