Global slowdown chips away at McDonald’s boom

The world's largest hamburger chain said this week its net income fell by 4% in the second quarter as the dollar strengthened against global currencies. Same-store sales – sales at restaurants open at least 13 months – have also begun to slow as austerity measures take their toll in Europe and China's economy slows.

The news was a rare slip for McDonald's, which has consistently beaten analysts' expectations in recent years, and a worrying sign of trouble in the global economy. The news contributed to a sell-off on the Dow Jones index.

McDonald's figures came as Coca-Cola Enterprises – Coke's United States-listed European bottling business – reported a similar hit from slowing demand and a strengthening dollar and other problems linked to the bad weather in Europe and a French tax on fizzy drinks.

Same-store sales at McDonald's rose by 3.7% globally in the second quarter. The figure is the key measure for restaurant chains and the rise beat most analysts' expectations. But it was a sharp slowdown from the 7.3% increase McDonald's reported in the first quarter of 2012 and the 5.6% growth the company reported for the same quarter last year.

Net income for the second quarter was $1.3-billion, down from $1.4-billion a year earlier.


Headwinds
"McDonald's global comparable sales remained solid for the quarter while the overall results reflected the slowing global economy, persistent economic headwinds and the investments we've made to enhance restaurant operations and provide customers with the everyday value they have come to expect from McDonald's," said Don Thompson, the company's newly appointed chief executive.

"As we begin the third quarter, global comparable sales for July are expected to be positive, but less than the second quarter," he said.

Sales in the US grew by 3.6% for the quarter and in Europe sales grew by 3.8% – held up by sales in the United Kingdom and Russia.

Sales in the once fast-growing Asia-Pacific, Middle East and Africa were almost flat at 0.9% for the quarter. Solid performances in Australia and China were offset by weakness in Japan.

The results came as Coca-Cola Enterprises reported that its net income fell by 17% in the second quarter and the company warned of more woes to come.

Marketplace challenges
John Brock, chairperson and chief executive, said the company faced a "unique combination of unfavourable weather and ongoing marketplace challenges".

He said bad weather in Europe had hit sales alongside slowing demand and a tax on sugary drinks in France.

Western Europe's main Coke bottler earned $205-million in the April to June quarter, compared with $246-million a year earlier.

Volume declined by 6%, driven down by falls in sodas and non-carbonated beverages such as juices and teas. Energy drinks' volume rose by 16% and Coke Zero, a soda without calories, rose by 2.5%.

Total volume fell less slowly in the UK, down by 4.5%, than in continental Europe (including Norway and Sweden) where it fell by 7%. – © Guardian News & Media 2012

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