McDonald’s same-store sales suffered their first annual fall in a dozen years in 2014, as the US economic recovery failed to bring increasingly health-conscious consumers back to its traditional menu of Big Macs and fries.
US consumers are opting for fare that is perceived as healthier, such as Chipotle burritos and Panera Bread sandwiches. But a 1 per cent drop in global same-store sales in 2014 highlighted the broad-based challenges facing the emblematic US brand, from China and Japan to Russia and Germany.
The $87bn company responded by announcing that it had slashed its restaurant opening plans, cutting back its budget for new outlets by $800m. It will still open more than 1,000 stores, but this compares to 1,300 last year.
Threatened at home by upmarket burger brands such as Shake Shack, McDonald’s said it would expand a pilot build-a-burger programme to up to 2,000 US outlets as it presses ahead with a marketing push highlighting the quality of its ingredients.
Don Thompson, chief executive, warned that results were likely to remain under pressure well into 2015. This year “will be a year of regaining momentum globally . . . however, it will take time, especially in our larger markets”, he told analysts on a call announcing fourth-quarter results that missed expectations.
Low oil prices have boosted many companies that target McDonald’s core low-income customers, who are still struggling with stagnant wages despite the US recovery. But the chain’s US same-store sales fell 1.7 per cent in the fourth quarter, and 4.2 per cent for the year, and the company acknowledged continued pricing challenges.
A food safety scandal involving a supplier in China contributed to a 4.8 per cent fall in quarterly same-store sales in the Asia-Pacific, Middle East and Africa region, while weakness in France, Germany, Russia and Ukraine knocked comparable sales in Europe by 1.1 per cent.
In October, the company said it would implement sweeping changes, streamlining an increasingly complicated menu and tailoring it more to regional tastes. McDonald’s said on Friday that it would exercise “further financial discipline” by cutting its capital expenditure budget from $3bn last year to $2bn, its lowest in five years.
Fourth-quarter earnings of $1.1bn, or $1.13 a diluted share, compared with $1.4bn, or $1.40 a share, a year earlier. Sales fell 7 per cent, from $7.09bn to $6.57bn.
Analysts had expected earnings of $1.22 a share on $6.68bn in revenues, and the group’s shares were down 1.46 per cent by the close in New York, to $89.56.
Among the few bright spots was a 0.4 per cent rise in December’s US same-store sales, but Mr Thompson said he expected January sales to fall.
The news came a day after 10 former employees sued the company and one of its franchisees for alleged racial discrimination at three restaurants in Virginia. The suit alleges that supervisors at the restaurants used racial slurs and made comments like “there are too many black people in the store”.
McDonald’s has long maintained that it is not responsible for wages or the treatment of employees at its thousands of franchised restaurants. Critics have countered that the company exercises control over every other aspect of the store — from food preparation to uniforms to customer interaction — and should be held responsible.
Last year, the National Labor Relations Board, a top regulator, ruled that the fast-food chain is a “joint employer”, meaning it may be liable for unfair labour practices at its 14,000-plus US restaurants. In December, the NLRB filed complaints in 78 cases against the company and franchisees across the country for “violating the rights of employees”.
The company has vowed to fight the complaints, which are set for hearings in March.
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