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McDonald’s sales slump not a reason for concern

Worldwide competition is increasing but golden arches still ranked No. 1

- The Washington Times - Sunday, May 12, 2013

McDonald's can't sugarcoat its thus-far disappointing sales figures in 2013.

The world's fast-food champion recently announced yet another monthly decline in sales amid growing talk in the market that diners' changing habits, shrinking profit margins and growing problems in once-promising overseas markets have tarnished the gleam of the golden arches.

To make matters worse, fast-food competition is increasing, slowly chipping away at McDonald's market share.

But things might not be as bad as they seem on paper, analysts say. Despite the poor recent numbers, McDonald's is still the class of the industry, having sold more than $27 billion in food last year, more than double what Burger King and Wendy's sell combined.

"McDonald's is comparing this year to last year, and last year was a pretty good year for them," said Darren Tristano, an analyst at Technomic, a restaurant-consulting firm. "McDonald's is coming back down a little bit closer to where some of the other restaurants in the industry have been."

For the first time in more than a decade, sales are declining at the world's largest restaurant. It started in October and has continued in three of the first four months of 2013.

For the first quarter, sales fell 1 percent in the first three months of the year, compared to a 7.3 percent rise in 2012. In January, sales fell 1.9 percent compared to the same month in the previous year. In February, sales fell 1.5 percent. Sales were then up 0.3 percent in March, but down again in April by 0.6 percent.

While U.S. sales ticked up 0.6 percent last month, European sales were down 2.4 percent. Sales also fell 2.9 percent in the combined Asia, Middle East, and Africa regions.

In the meantime, the rest of the fast-food industry continues to expand. The National Restaurant Association forecasts the fast-food industry will grow by nearly 5 percent to $188 billion this year — though analysts call this "weak growth" compared to the "pre-recession" 6 percent to 7 percent growth it had become accustomed to just several years ago.

But Mr. Tristano cautioned investors not to overreact to the news about McDonald's. Anything less than a 2 percent decline is no big deal, he said, adding it will take more than a few bad months to bring down one of the most recognizable brands in America.

"Seeing a slight decline is not a concern," Mr. Tristano said. "If you look at a long-term picture of what McDonald's has accomplished over the past five years in spite of the recession and economic situation, it doesn't necessarily look like this is something to worry about."

Mr. Tristano explained that McDonald's has done such a good job weathering the economic storm over the past few years that it is due for a down year — which is still better than an up year for most other restaurant chains, he pointed out.

"It's just a point in time where things are starting to flatten out, and they've got to look for new and innovative ways to grow their sales," he said.

The good news for fast-food lovers and investors alike is that innovation is exactly what McDonald's is focusing on.

"Around the world, we are focusing on each market's unique issues and on driving sales and guest counts by enhancing the entire customer experience through the pillars of our 'Plan to Win' and our three global growth priorities," McDonald's spokeswoman Becca Hary said in a statement.

As per industry trend, McDonald's is starting to introduce a more healthy menu. That includes an egg-white McMuffin among other items.

McDonald's also is introducing calorie counts along side their meals. The company started this process in Chicago, and Mr. Tristano expects it to be expanded to more and more restaurants throughout the chain.

"A minority of consumers are looking for healthier offerings," Mr. Tristano said. "If you're looking for healthy food choices, being able to find it at McDonald's will keep you focused on McDonald's and not looking to move away toward a Panera or a Starbucks or one of the brand's competitors."

But don't expect McDonald's to get rid of the Big Mac any time soon.

"Most consumers still use them for the less-healthy, more traditional fast-food items," Mr. Tristano said. "They don't care about the calories."

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