McDonald’s Growth Decelerates; Q3 Profits Down 11%

24 October 2002

Flagging sales have forced the planet’s largest fast food chain to remove its foot from the accelerator, according to a statement acompanying its Q3 results on Tuesday.

McDonald’s posted income of $486m (€497.29m; £313.99m) for the three months to the end of September, down 11% year-on-year from $545m. This is the seventh consecutive quarter the burger barony has reported a drop in earnings – and follows a profits warning in September.

Accordingly, McDonald’s has decided to scale back the planned number of new outlets [mainly franchised] next year to just six hundred – less than half this year’s scheduled 1,300 startups and a mere 30% of its record 1996 upsurge.

The largest revenue decline was in the USA where sales at outlets in existence for more than one year averaged a 2.8% falloff in sales. In Europe the decline was slower at 1.3%.

Reported chairman/ceo Jack M Greenberg: “During 2003 we will continue to concentrate McDonald’s restaurant openings in markets with solid returns and will significantly reduce the amount of capital we invest in Asia/Pacific, Middle East/Africa and Latin America, where returns have been pressured in recent years by weak economies.

“At the same time, we plan to significantly reduce traditional McDonald’s restaurant openings in the US and somewhat in Europe; and to increase investments in existing US restaurants to boost comparable sales.”

Added Greenberg: “It is likely there will be some job losses. We hope that it won't be significant, but we don’t know yet.” Investor reaction to news of cutbacks was enthusiastic, in keeping with the current choreographed bear climate, and McDonald's shares - which have lost more than 25% of their value over the past twelve months - leapt ten percent to $19.50.

Interestingly, despite the growing power of the eco-lobby, Greenberg made no reference to the possibility that worldwide concern and adverse publicity over McDonald’s ecological and ethical record – justified or not – might have contributed to the global fall in its sales. Not once do the words ecology or ethics (or their derivatives) appear in his 5523-word statement.

Data sourced from: BBC Online Business News (UK) and McDonald’; additional content by WARC staff