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McDonald’s CEO outlines changes as sales slide

  • ASSOCIATED PRESS
    McDonald's says a key sales figure fell 2.5 percent in July 2014, dragged down by persistent weakness in the U.S. and the impact of a food safety scandal in China.
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NEW YORK >> After posting yet another disappointing quarter at McDonald’s, CEO Don Thompson said Tuesday the company hasn’t been keeping up with the times and that changes are in store for its U.S. restaurants.

Thompson said that starting in January McDonald’s will "simplify" its menu to make room for restaurants to offer options that are best-suited for their regions. To offer greater customization, he also said the company planned to expand its "Create Your Taste" offering that lets people pick the buns and toppings they want on burgers by tapping a touchscreen. The program is currently being offered in Southern California.

"We haven’t been changing at the same rate as our customers’ eating-out expectations," Thompson conceded during a conference call outlining the changes.

The remarks came after McDonald’s said sales at established locations fell 3.3 percent globally and in its flagship U.S. market in the third quarter, marking the fourth straight quarter of declines for the world’s biggest hamburger chain. Profit sank 30 percent.

The changes come as McDonald’s continues to struggle with myriad problems. One of its biggest challenges in the U.S. is long-held perceptions around the freshness and quality of its ingredients. The chain has been fighting to boost sales as people gravitate toward foods they feel are more wholesome. As a result, people have been gravitating to new competitors, such as so-called fast casual restaurants such as Chipotle.

In fact, Chipotle’s third-quarter sales at established locations surged 19.8 percent. Steve Ells, Chipotle’s co-CEO, said the results show people are realizing "there are better alternatives to traditional fast food" and that he expects the trend to continue.

Some analysts questioned whether the moves that McDonald’s has in store will be enough to fix its problems. Sara Senatore, a Bernstein restaurant analyst, noted that the company efforts seem focused on marketing around its food, rather than changing recipes.

McDonald’s, meanwhile, launched a social media campaign last week inviting customers to ask questions about its food. It began with frank questions like, "Why doesn’t your food rot?" and "Is the McRib made from real pork?," showing just how bad some of the perceptions about McDonald’s food can be.

Over in China, an undercover TV report this summer showed one of its major suppliers repackaging expired meat. The plant stopped operations and many of McDonald’s restaurants in the country were left unable to sell burgers, chicken nuggets and other items. The chain’s reputation took a hit as well.

In the division encompassing Asia, sales at established stores sank 9.9 percent.

McDonald’s, which has more than 35,000 locations around the world, said it expects its challenges will continue into the current quarter, with global sales down for October as well.

For the quarter, revenue declined to $6.99 billion, short of the $7.23 billion Wall Street expected. Net income declined to $1.07 billion, or $1.09 per share. Adjusted for one-time costs, earnings were $1.52 per share. Analysts expected $1.37 per share.

Shares of McDonald’s Corp. were down 59 cents at $91 in midday trading.

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