The world’s number one fast food chain has announced disappointing Q3 results. McDonald’s was hit by the mad cow crisis in Europe and by the general economic slowdown. But in a more problematic long-term trend, it is being hit by Western consumers’ increasingly health-conscious tastes.
McDonald’s needs to put yet more effort into developing non-core brands, including coffee chain Pret A Manger and the McCafe concept. McDonald’s on Thursday announced a drop in Q3 earnings of 1%, a fourth consecutive quarterly decline. For the nine months to September 30, earnings were $1.36 billion on revenue of $11.10 billion. For the same period in 2000, earnings were $1.53 billion on revenue of $10.65 billion. These results were accompanied by a downward revision of Q4 earnings forecasts.
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McDonald’s believes it is through the worst of the European mad cow crisis. Although German and UK sales, as well as those in Latin America have been below expectations so far in October, sales in France and Australia have been more encouraging. Meanwhile, while McDonald’s has withstood the impact of the September 11 attacks in common with other lower end restaurant operators, the general slowdown in the global economy will continue to impact into Q4.
Nonetheless, the company is still struggling in the face of an increasingly health-conscious consumer base. To counter this it has sought to reduce reliance on the core brand in recent years, and diversify its operations. This remains the key to long-term future growth in mature Western markets.
This is not to say that McDonald’s is neglecting the core brand. It still expects to open 1,500 stores in 2001, while closing some underperforming outlets in developing markets. It expects to open around 300 stores in the US and 500 in Europe.
Nonetheless, McDonald’s has an ever-increasing list of alternative foodservice interests. Despite looking to offload the UK arm of Aroma, the coffee bar chain, it is believed to be retaining Aroma’s as yet fledgling non-UK operations, currently limited to Switzerland and Argentina, giving it a brand with which to enter less developed coffee bar markets.
At the same time Pret A Manger, the UK sandwich bar chain in which McDonald’s has one-third stake, is expanding international operations, with high hopes for its expansion into both the US and Hong Kong. The development of the McCafe concept both in the US and globally offers an expanding revenue stream.
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