McDonald’s to restructure after “significant decline” in sales

Article by Catherine Neilan, writing for CITYAM.COM

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McDonald’s is planning a major review of its working practices and structure on the back of a “significant decline” in revenues and profit.
Revenues fell five per cent to $6.98bn (£3.8bn) for the three months to September 30, with the fast food giant blaming increased competition.  Consolidated operating income plummeted 14 per cent to $2.07bn. Net income dropped 30 per cent to $1.07bn.
Global like-for-likes fell 3.3 per cent “reflecting negative guest traffic in all major segments”, as well as the well-documented supplier issues when it emerged it was using out-of-date chicken. 
Earnings per share fell 28 per cent year-on-year, to $1.09. The closure of stores in Russia and Ukraine knocked $0.01 off, while “certain foreign tax matters” reduced earnings by $0.26 a share. Supplier issues accounted for a $0.15 per share drop.
In pre-trading, McDonald’s share price was down more than two per cent.
McDonald’s president and chief executive Don Thompson said there had been “a significant decline versus a year ago” adding that the company was “responding with the sense of urgency required to improve our performance.”
“While our ability to withstand these factors is a testament to the company’s enduring brand and strong financial foundation, by all measures our performance fell short of our expectations.”
As a result Thompson said McDonald’s was “taking decisive action to fundamentally change the way we approach our business”.
There are three main pillars of this new strategy:
Overhauling its concept to “elevate” the menu and customer experience, to bring it “in-tune with today’s consumer needs”.
* A new digital strategy that will simplify ordering and paying, such as introducing options including Apple Pay.
* Reviewing its structure and resources around the new initiatives to support “key long-term growth initiatives”.
It hopes to increase its relevance with customers and drive footfall into its stores.
McDonald’s US president Mike Andres will also restructure the team to create “a flatter, more nimble organisation that ensures key business decisions are made closer to the customer”.
Marketing will also be revamped to emphasise “food quality, brand transparency and people initiatives”.
A simplified menu will also be available.
The UK was one of McDonald’s few bright spots, with like for likes and profits up, although declines in Germany and the issues in Russia and the Ukraine meant overall Europe’s like-for-likes dropped 1.4 per cent.
Asia Pacific, Middle East and Africa (APMEA) saw sales drop 9.9 per cent, while operating income fell 55 per cent, because of problems with a supplier as well as profitability in Japan and China.
“APMEA is diligently working to restore consumer trust and confidence in McDonald’s brand and strengthen the segment’s financial results to continue driving the long-term potential of this segment,” the company said.
Thompson added: “We began 2014 mindful of the challenges we faced in driving sales and profitability.
“The internal factors and external headwinds have proven more formidable than expected and will continue into the fourth quarter, with global comparable sales for October expected to be negative. These significant challenges call for equally significant changes in the way we do business.
“In the US we are driving decision making from headquarters back into the field, where our restaurants serve the daily needs of our customers in their local communities.  In our international markets, we are taking action to restore customer trust and regain business momentum.
“We understand the depth of the challenges and we are responding with the sense of urgency required to improve our performance.”

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