Monday, April 27, 2015

McDonald’s getting crushed by healthier fast food companies like Chipotle

(PA Watson)  In what can only be chalked up to karma, McDonald’s and its artery-clogging menu are taking a nasty hit in sales, with overall global sales reported to be down 2.6 percent from a year ago for comparable outlets. Sales in the Asia-Pacific and Middle East region fell by 8.3 percent, which played a significant role in the overall decrease.
Total revenue sank 11 percent to reach $5.96 billion in the quarter to March 31, and net income plunged 32.6 percent to $812 million. With 36,000 outlets in more than 100 countries, McDonald’s has been feeling the pressure from its decreasing customer traffic. They attribute the drop to a range of difficulties including changing consumer tastes and flexible rivals with healthier menus.
President and CEO Steve Easterbrook said the company is working to resolve the challenges, including closing underperforming restaurants and simplifying menus.
“McDonald’s management team is keenly focused on acting more quickly to better address today’s consumer needs, expectations and the competitive marketplace,” he said in a statement. “We are developing a turnaround plan to improve our performance and deliver enduring profitable growth. We look forward to sharing the initial details of this plan on May 4, 2015.”
As part of their follow-the-leader approach, Easterbrook has announced that with the chain now selling more chicken than burgers, it will stop serving chicken raised on antibiotics that are important to human health as worries grow over resistance to crucial drugs. They also announced they would increase wages for 90,000 employees in company-owned restaurants in the U.S. and offer them paid time off.
Once could view both of these changes as a marketing ploy rather than genuine concern for customers’ and employees’ well-being given the fact that these issues are being addressed in the aftermath of plummeting sales dating back to October 2014. It seems that the company’s corporate responsibility is directly tied to their pocketbook rather than their leadership and concern for those who fuel their empire.

McDonald’s losing ground to Chipotle

The irony in this latest development is that McDonald’s is falling behind its competitors, including one that they previously had a stake in. Chipotle, which McDonald’s had up to 90 percent ownership of in 2005 and then divested in 2006, is on fire. While McDonald’s was announcing a 30 percent plunge in third-quarter income and declining revenue in 2014, Chipotle reported a 31 percent increase in revenue and a 57 percent rise in net income in the same period.
Chairman, Founder, and co-CEO of Chipotle, Steve Ells, cited “the way we source, prepare, and serve our food” as a major contributor to their increasing popularity. In 2003, they made a statement that they were taking tangible steps to become GMO-free and were moving towards serving 100 percent grass-fed beef worldwide, which certainly puts some teeth behind that statement. Although supply shortages of this type of beef in the U.S. could put a crimp in the sustainability of their offerings, it does represent a move in the right direction.

Meanwhile, McDonald’s intends to officially announce antibiotic-free chicken in the future and is using Canada to introduce its verified sustainable beef venture some time in 2015. This means that they plan to blend the conventional stuff into the sustainably-sourced beef and gradually increase the percentage over time. As it continues to slowly introduce offerings that are being gobbled up by healthier fast food chains like Chipotle, McDonald’s might continue to be a victim of decreasing sales as the behemoth struggles to keep pace and stay relevant.
Only time will tell how well McDonald’s handles the current situation, but as they continue to slowly figure it out, expect other fast food chains to smell blood (grass-fed, of course) and move quickly in order to put a choke hold on the champ.

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