McDonald’s lays out fix for deepening sales decline

McDonald's Retains Rank As Largest Single Restaurant Brand In The World According To 2012 Sales Report
SAN FRANCISCO, CA - MARCH 12: The McDonald's logo is posted in the window of a McDonald's restaurant on March 12, 2013 in San Francisco, California. McDonald's has retained its number one ranking in both global and domestic sales and continues to be the largest single restaurant brand in the world with company-store sales last year of $4.53 billion and franchise-store sales of $31.063 billion for a domestic total of $35.59 billion. (Photo by Justin Sullivan/Getty Images)
Photograph by Justin Sullivan — Getty Images

Another quarter, another terrible set of results from McDonald’s (MCD).

And the company thinks focusing on food quality and digital payments is the trick to shaking its longstanding doldrums.

The world’s largest restaurant chain by revenue reported on Monday that comparable sales last quarter fell 3.3% (worse than the 3% drop analysts expected, according to Consensus Matrix) and that profit fell 28%, with trouble in every single major market.

McDonald’s has been hit by a number of setbacks, ranging from Russia closing some of its restaurants, to a scandal engulfing one of its big meat suppliers in China last summer. At home, McDonald’s is dealing with aggressive competition, especially for breakfast offerings, lower income customers cutting down on eating out and menu additions that have annoyed guests by slowing service.

McDonald’s CEO Don Thompson said in a statement more bad news was coming: “The internal factors and external headwinds have proven more formidable than expected and will continue into the fourth quarter.” He added that U.S. comparable sales growth would likely be negative for the 12th straight month.

In the U.S., comparable sales for the quarter ended Sept. 30, comparable sales decreased 3.3% as fewer customers came in to eat and competitors ramped up their efforts. More alarmingly for McDonald’s, its operating profit for the region fell 10% as efforts to fix its ongoing, growing U.S. problems fell flat.

So Thompson said the company’s new U.S. president, Mike Andres, is flattening the unit’s organizational structure to make it nimbler and to let restaurants respond more quickly to local needs. He is also updating its marketing to emphasize food quality, and simplifying the menu to reduce wait times.

Comparable sales in Europe—McDonald’s biggest market—were weak, falling 1.4%, more than expected, as the ongoing crisis in Russia and Ukraine hurt sales. Over in Asia, a big hit to business in China and Japan results led comparable sales to fall 9.9%

Thompson has a big job ahead of him, so he laid out some broad principles and initiatives he hopes will fix McDonald’s globally. Those include investing in updating its image and service, along with new technology to update McDonald’s for today, make better use of tech to facilitate ordering, payment and mobile offers (it will accept Apple Pay) and in what sounds like a hint of potential job cuts, a review of the company structure to determine how much fat there is and whether money can be redeployed to its digital strategy.

“McDonald’s third quarter results reflect a significant decline versus a year ago,” Thompson, CEO since 2012, said. “By all measures our performance fell short of our expectations.”

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