China

The 12-Day Toll of McDonald's China Meat Scare: Asia Sales Sink 7 Percent


McDonald’s (MCD) gave warning earlier this week that the food-safety problems that arose in mid-July in China would have a “significant negative impact” on sales, certain to harm performance in Asia and likely to drag down global numbers for the year. Now it has become clear just how badly the China trouble has damaged the burger giant.

Same-store sales in the Asia, Middle East, and Africa region declined 7.3 percent in July from a year ago—and the food-safety issue at Shanghai Husi Food, the McDonald’s supplier in China, came to light with less than two weeks remaining in the month. The problem could very well prove even more devastating over the full month of August.

Even in places untouched by allegations of expired and unclean meat, McDonald’s sales weakened last month. Sale in the U.S. sank 3.2 percent. Europe posted a gain from a year ago, but it was only 0.5 percent. All this translated to a global drop of 2.5 percent in same-store sales for July. Don Thompson, McDonald’s chief executive, said in a statement that his company will now need to “inspire our customers’ trust and loyalty.”

McDonald’s Asia business is in the food-safety spotlight now, but the company’s entire Asia, Middle East, and Africa region has been teetering for some time as a result of weak sales in Japan. Same-store sales in the region had fallen during nine of the past 12 months. But China had been a strong market for McDonald’s in the region.

McDonald’s American woes are well known. July is the ninth consecutive month that same-store sales in the U.S. have been down or flat.

Europe has been in positive sales territory for 10 of the past 12 months, thanks to the strength of British and French restaurants. “We are seeing some softness in Russia, I think largely due to some of the geopolitical concerns and consumer confidence,” said Thompson on an earnings call last month.

The next few months will continue to be challenging. McDonald’s admitted as much in its latest quarterly report: “As a result of the China supplier issue, the company’s global comparable sales forecast for 2014 is now at risk.”

Venessa-wong-190x190
Wong is an associate editor for Bloomberg Businessweek. Follow her on Twitter @venessawwong.

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