McDonald’s yesterday significantly increased the number of restaurants it plans to close, as the ailing fast food chain posted its first ever quarterly loss as a public company.
The company said it would close 719 underperforming restaurants, mainly in the US and Japan. The number was increased from last month’s planned closure of 175 outlets. The cost of closing the restaurants tilted the company into a fourth-quarter loss of $344-million.
McDonald’s is facing a brutal market. Sales are falling and intense competition in the United States has led the big three chains into margin munching price cuts. McDonald’s, Burger King and Wendy’s have reduced their prices to either $1 or 99 cents on a range of their most popular items.
But McDonald’s has also encountered criticism over poor food quality, sloppy service and shabby restaurants. Profits at the company have been in decline for the past two years. Jim Cantelupo, who took over as chief executive of the business this month, said the company needed to take a more cautious view of growth after years of relentless expansion. ”Considering the size and nature of our business, a 10-15% earnings growth target is not realistic,” he said.
Cantelupo, a former McDonald’s executive, was brought out of retirement to replace Jack Greenberg, who resigned, admitting it was time to ”pass the baton”. Cantelupo said the decision to shut the additional restaurants had come after a further review.
Sales during 2002 at restaurants that have been open for at least a year fell 2,1%, accelerating the 1,3% decline in 2001. It is pulling out of three Latin American countries entirely. ”Our first priority is to fix our existing business,” Cantelupo said.
In the coming year, the business plans to open about 850 McDonald’s restaurants, 380 smaller ”satellite” outlets and 150 under different brands including the sandwich chain Pret a Manger.
McDonald’s was given at least some good news on Wednesday when a lawsuit claiming it was responsible for the obesity of a pair of New Yorkers was thrown out of court. But the case did little for the McDonald’s public relations machine. The judge described Chicken McNuggets as a ”McFrankenstein creation”. – Guardian Unlimited Â