Life Eat & Drink McDonald’s future ‘uncertain’ as global profits fall

McDonald’s future ‘uncertain’ as global profits fall

McDonald's is a company with an identity crisis say analysts.
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With 36,000 restaurants around the world, McDonald’s remains the big gorilla of fast food, but underneath those Golden Arches is a company in turmoil.

Global profit was down 15 per cent in 2014 and is now lower than it was five years ago.

The share price has been equally glum, and in January the company sacked its chief executive and promoted chief brand officer Steve Easterbrook, who took over in March.

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In announcing a strategy to try to reverse McDonald’s fortunes, Mr Easterbrook was blunt in his assessment.

“Our recent performance has been poor,” he said.

“The numbers don’t lie.

“Our business model is enduring, but no business or brand has a divine right to succeed.”

McDonald’s needs to ‘become a sexy brand’: analysts

McDonald's in Shanghai and Beijing have been affected by food contamination scandals.
McDonald’s in Shanghai and Beijing have been affected by food contamination scandals. Photo: AAP

Americans are increasingly shunning their Big Macs, Quarter Pounders and fries, in favour of other fast food chains, such as Taco Bell, Pizza Hut, and Chipotle, which provides restaurant-quality food with fast food service.

Ironically, McDonald’s used to own Chipotle but sold it in 2006 in a previous rationalisation.

Business analyst and author Michael McQueen said McDonald’s was a company that had failed to move with the times in the USA.

“Any Australians who’ve been to an American McDonald’s know that it’s almost like you step back 10 or 15 years from what you see in Australia, so certainly they have a lot further go in becoming a sexy brand,” he said.

Despite still having about 22 per cent of the $US200 billion fast food market – more than double its nearest competitor – Mr McQueen said McDonald’s was a company with an identity crisis.

Australian business showing signs of profit slow-down

In Australia, there have already been signs of this happening.

The flagship George Street store in the Sydney CBD has been earmarked for closure, while poorly performing stores in the suburbs are already shutting their doors.

But, when it comes to pruning, it is the menu where experts think the shears should really come out.

In recent years, McDonald’s has added things like McCafe, wraps, up-market burgers and a number of so-called healthy options.

Red Communications retail analyst Peter Ryan thinks these have dragged McDonald’s away from its core DNA.

Sanctions have smashed business in Russia.
Sanctions have smashed business in Russia. Photo: Getty

“My concern would be that it’s too complex,” he said.

“They now have a customised option, which actually slows down counter times and that’s a problem for a quick-serve restaurant.”

McDonald’s Australia has been a relative bright spot, with sales up 2 per cent this year to $2.4 billion, according to IBISWorld figures.

Mr Ryan said he thought that has been due to the Australian business’ willingness to try new things.

Prosperous future remains uncertain

If a menu losing favour was not bad enough, MacDonald’s has had other major issues on its plate.

It has been hit by major contamination scares in China and Japan, sanctions have smashed business in Russia, and it will have to find billions of dollars to upgrade rundown stores in the US.

Against that backdrop, Mr Gargano said it was little wonder the future of McDonald’s was becoming clouded.

“We would expect McDonald’s are going to stick around,” he said.

“They are going to be a very powerful company for a long time.

“It’s just whether they are able to maintain that upward trajectory or whether we are now moving into a slow decline away from being the powerhouse that they once were.”

The challenge for McDonald’s is to restore the shine to the Golden Arches before a slow decline becomes a rapid descent.


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