The globe’s largest fast food chain McDonald’s is failing in its bid to advertise and discount its way out of trouble [WAMN: 17-Sep-02] as sales continue to slide despite the blandishments of Big M’s heavily promoted $1 fryup fiesta.
In its US marketing heartland, like-for-like sales fell by 0.6% in October, well below the previously targeted figure and resulting in a 55% downgrade of the burger behemoth’s Q4 pre-tax earnings estimates - from $773 million (€764.74m; £486.97m) to $423m.
Accordingly, the company announced Monday it is to retreat from seven countries in the Middle East and Latin America (although in four, ownership will be transferred to developmental franchisees) and close poorly performing units in ten other nations.
Between 400 and 600 jobs are on the line across the world – al least half of them stateside. There have already been a number of senior exits from the marketing department and it is uncertain where else the axe will fall.
Says chairman/ceo Jack Greenberg: “These actions are the right things to do for McDonald’s shareholders, the brand and our business. We remain focused on growing our existing restaurants’ sales and we're committed to making the changes necessary to succeed in the challenging worldwide economic and competitive environments in which we operate.”
But there’s no pleasing the entrail-rakers. Opines one seer at Salomon Smith Barney: “The fact that McDonald's did not generate flat-to-positive [comparisons] in October, given the easy year-on-year comparison and the significantly boosted advertising spend, is highly disconcerting.”
He also cited lobbying from some franchisees that Big M should close up to 1,000 units, adding that such a move “might be prudent”. More significantly, he lowered his earnings forecast for Q4 and the whole year respectively to £0.32 and $1.40.
Data sourced from: AdAge.com; additional content by WARC staff