McDonald's Sales In US Continue To Fall

The global fast food giant McDonald's has had a tough time over the past year, with sales at existing stores failing to exceed growth of 1% year-on-year (y-o-y) since the second quarter of 2013. Same-store sales growth regularly exceeded 5% over 2010-2012 as McDonald's managed to perform particularly well in Western Europe and North America at a time when Europe posed enormous challenges for many food and drink companies, including in the food services sector.

Ironically given the structure of the ongoing global economic recovery, which in developed world terms is being driven more by the US than Western Europe, Europe was the best performing region for McDonald's in Q1 2014, with same-store sales increasing by 1.4% y-o-y, compared with just 0.5% for the group. Europe accounts for around 40% of total sales. McDonald's Q1 2014 earnings were down 5%, with the US mainly culpable as same-store sales dropped by 1.7% y-o-y, which represents the worst quarterly showing since McDonald's US slowdown began around Q4 2012. A particularly harsh winter was clearly a major factor here as it has been for so many consumer companies.

Breakfast Competition Growing

US A Problematic Market
McDonald's Same-Store Sales (% change y-o-y) By Region

McDonald's Sales In US Continue To Fall

The global fast food giant McDonald's has had a tough time over the past year, with sales at existing stores failing to exceed growth of 1% year-on-year (y-o-y) since the second quarter of 2013. Same-store sales growth regularly exceeded 5% over 2010-2012 as McDonald's managed to perform particularly well in Western Europe and North America at a time when Europe posed enormous challenges for many food and drink companies, including in the food services sector.

Ironically given the structure of the ongoing global economic recovery, which in developed world terms is being driven more by the US than Western Europe, Europe was the best performing region for McDonald's in Q1 2014, with same-store sales increasing by 1.4% y-o-y, compared with just 0.5% for the group. Europe accounts for around 40% of total sales. McDonald's Q1 2014 earnings were down 5%, with the US mainly culpable as same-store sales dropped by 1.7% y-o-y, which represents the worst quarterly showing since McDonald's US slowdown began around Q4 2012. A particularly harsh winter was clearly a major factor here as it has been for so many consumer companies.

US A Problematic Market
McDonald's Same-Store Sales (% change y-o-y) By Region

Breakfast Competition Growing

Much of McDonald's growth in the US over the past few years has come from its coffee and breakfast products. It has inevitably become harder to grow its core business of hamburgers and fries, an area of the US business that we believe will continue to underperform. The core business is mature and arguably most at risk from the ever growing prominence of fast-casual eating, where chains like Chipotle and Panera Bread have done so well. The breakfast fast-food market is a particular bright spot in the US fast-food industry. Dunkin' Donuts has grown quickly, while Canada-based Tim Hortons' US operations also look promising. We believe that the increasingly busy lifestyles of much of the population will continue to fuel growth in this area.

The major outperformers in the US, however, have been companies such as Chipotle and Panera Bread. Consumers perceive these chains to not only offer healthier options than traditional fast-food restaurants, but also better-quality products. Indeed, customers are willing to pay a premium for such a service. In what we see as one of the defining features of the food industry in the past few years across the developed world, polarisation is taking place. US customers who have faced economic hardship continue to go to cheaper eateries such as Taco Bell, while Panera Bread and Chipotle appeal to a wealthier demographic.

McDonald's has arguably been left in the middle ground. The company has introduced both more expensive and cheaper products, offering limited-edition hamburgers, for example, while also increasing its dollar-menu offerings. However, competition within the US market is intense, and we believe the best growth opportunities lie in the breakfast market, and outside of the US.

Tough Start To 2014 But H2 Pickup Expected
US Real Private Final Consumption Growth (% change y-o-y)
×

Enter your details to read the full article

By submitting this form you are acknowledging that you have read and understood our Privacy Policy.

×

REQUEST A DEMO

By submitting this form you are acknowledging that you have read and understood our Privacy Policy.

Thank you for your interest

A member of the team will be in touch shortly to arrange a convenient time for your free demonstration and trial. If your enquiry is urgent, please email our Client Services team here.