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Morning Briefing for pub, restaurant and food wervice operators

Tue 21st Oct 2014 - McDonald’s to 'change fundamentally' after 3.3% lfl decline
McDonald’s to 'change fundamentally' after 3.3% lfl decline: McDonald's has reported global like-for-likes down 3.3% across its 34,000 restaurants in its third quarter to September 30, 2014. The company’s European division saw like-for-likes fall 1.4%, with the UK the one bright spot showing positive like-for-like sales. The company has now promised to simplify menus and respond to the “depth of its challenges” with a “sense of urgency” and fundamentally change the way it does business. Chief executive Don Thompson said: "McDonald's third quarter results reflect a significant decline versus a year ago, with our business and financial performance pressured by a variety of factors, from a higher effective tax rate, to unusual events in the operating environments in [Asia, Africa and the Pacific] and Europe, to under-performance in the US, our largest geographic segment. While our ability to withstand these factors is a testament to the company's enduring brand and strong financial foundation, by all measures our performance fell short of our expectations. We recognize that we must demonstrate to our customers and the entire McDonald's system that we understand the problems we face and are taking decisive action to fundamentally change the way we approach our business." The company is implementing a new global approach designed to increase its relevance with customers and drive guest traffic. It said: “This is focused on three specific areas: McDonald's Experience of the Future, a comprehensive restaurant execution concept that elevates the menu and customer experience elements that are hallmarks of the McDonald's brand, and capitalises on investments in reimaging, service and technology enhancements to improve the look, feel and convenience of the McDonald's experience in ways that are in-tune with today's consumer needs; Digital Strategy, a global strategy built around simplifying the customer journey across ordering, payment and mobile offers, beginning with the implementation of exciting and relevant new options, such as Apple Pay; Resourcing for Growth, a diligent review of the organisation's structure and use of resources in order to redirect spending toward those initiatives, such as the digital strategy and the McDonald's Experience of the Future, that will support the company's key long-term growth initiatives.” Global comparable sales decreased 3.3%, reflecting falling customer numbers in all major segments and the impact of supplier issues in certain markets in Asia. In the US, third quarter comparable sales decreased 3.3%, driven by falling customer numbers amid sustained competitive activity, McDonald's said. Operating income for the quarter fell 10% as initiatives to address the difficulties the company was facing did not translate into improved financial results. However, it said, under the leadership of the division's recently elected president, Mike Andres, McDonald's US "is moving quickly to implement new initiatives designed to deliver a  flatter, more nimble organisation that ensures key business decisions are made closer to the customer, by people with local market expertise; a revamped marketing approach that links national messaging around our food quality, brand transparency and people initiatives, complemented by local ad campaigns that are responsive to individual market preferences, and a simplified menu that showcases the company's core products and features locally relevant menu options, available in new, customisable ways.” In Europe, third-quarter comparable sales fell 1.4% and operating income dropped 2%. The company said: “While consumer confidence and other issues related to the operating environment in Russia and Ukraine and ongoing weakness in Germany negatively impacted the segment's quarterly results, the UK delivered positive comparable sales and operating income performance. Looking ahead, McDonald's Europe will work to build guest traffic by pursuing targeted opportunities that leverage everyday value, classic core favourites, blended-ice beverages and key daypart initiatives." In Asia, the Pacific, Africa and the Middle East, third quarter comparable sales fell 9.9% and operating income dropped 55% (56% in constant currencies), primarily because of the impact of supplier scandals on sales and profitability in China, Japan and certain other markets. The division "is diligently working to restore consumer trust and confidence in McDonald's brand and strengthen the segment's financial results to continue driving the long-term potential of this segment.” Thompson added: "We began 2014 mindful of the challenges we faced in driving sales and profitability. The internal factors and external headwinds have proven more formidable than expected and will continue into the fourth quarter, with global comparable sales for October expected to be negative. These significant challenges call for equally significant changes in the way we do business. In the US, we are driving decision making from headquarters back into the field, where our restaurants serve the daily needs of our customers in their local communities. In our international markets, we are taking action to restore customer trust and regain business momentum. We understand the depth of the challenges and we are responding with the sense of urgency required to improve our performance."

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