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Emma Zoe
McDonald's just posted the worst sales decline in a decade. The brand faces
competition from fast-casual chains like Chipotle, Burger King and Panera Bread.
Results also show that young people, millennias and children, are rejecting the
brand for healthier, fresher food. But McDonald's isn't going down without a fight.
Financial Performance
McDonald's global sales at stores open at least 13 months declined 3.7% in August
2014.
That the worst same-store sales decline that the fast-food giant has reported since
March 2003, when global sales also fell 3.7%. It also marks the fourth straight
month of comparable sales declines in the U.S., which accounts for about 32% of
McDonald's revenue.
Same-store sales in the U.S. were down 2.8%, and in the Asia/Pacific, Middle
East, and Africa region they dropped 14.5%.
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Full year results included:
Global comparable sales decrease of 1.0%, reflecting negative guest traffic
in all major segments
Consolidated revenues decrease of 2% (flat in constant currencies)
Consolidated operating income decrease of 9% (8% in constant
currencies), primarily due to the impact of the previously disclosed
supplier issue in APMEA (Asia/Pacific, Middle East and Africa) and
weak operating performance in the U.S.
Effective tax rate of 35.5%, primarily due to an increase in reserves related
to certain foreign tax matters
Diluted earnings per share of $4.82, a decrease of 13% (11% in
constant currencies). The following items, which total $0.54 per
share, negatively impacted diluted earnings per share by 10% (10%
in constant currencies) for the year:
$0.31 per share due to an increase in reserves related to certain foreign
tax matters
$0.23 per share due to the estimated impact of the supplier issue
resulting from lost sales and profitability in APMEA
Excluding the impact of these items, earnings per share for the year
would have been down 3% (1% in constant currencies) compared to
the prior year
Returned $6.4 billion to shareholders through dividends and share
repurchases, in connection with our $18-$20 billion, 3-year cash return
target for the years 2014-2016
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broad-based challenges, including sustained competitive activity. In
addition, results were impacted by higher selling, general and
administrative and other expenses associated with positioning the business
for the future.
Europes fourth quarter comparable sales declined 1.1% and operating income
decreased 14% (down 6% in constant currencies). While consumer confidence
issues, particularly in Russia and Ukraine, and weakness in France and
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Germany negatively impacted the segments quarterly results, the U.K.
delivered positive comparable sales and operating income results.
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The Chipotle Strategy
McDonald's just expanded a test for burgers that are 100% customizable. The
brand hopes the strategy, which is currently in four restaurants in San Diego,
California, could help attract a younger crowd and revive lagging sales. Many
analysts believe that the customization will soon become widespread at
McDonald's and allow it to better compete with fast-casual competitors like
Chipotle.
Chipotle is largely successful because the ingredients for its burritos, bowls,
tacos, and salads are entirely selected by customers, who increasingly crave
tailored options and high-quality ingredients.
Here are some drastic changes to the McDonald brand is making to improve
business.
McDonald's CEO Don Thompson has said the company is going to start
paring down on items. The chain's offerings have expanded by 70% since
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2007, which has contributed to an overwhelmed staff and longer wait times.
Some of the recent menu items to go are the Chicken Selects and Angus Third
Pounders.
Improving customer service.
In addition to trimming the menu, McDonald's is working on speeding up
drive-thru wait times. The company is redesigning kitchens to be more
efficient for workers and testing a mobile ordering app that allows customers
to place orders from their phones and pick up in restaurants. Thompson said
that the company was sending corporate representatives in for a "service
reset." This could include adding more workers and assigning new tasks to
existing ones. The company is retraining workers to improve customer service.
Revamping marketing.
Thompson is aware that many view McDonald's as unhealthy junk food. This
problem has been exacerbated by a food factory scandal in China. To improve
public perception of the company, McDonald's is doing a global audit of the
marketing department. Thompson said he planned to make new internal hires.
"We are also strengthening our creative messages by placing greater emphasis
on the quality of our food and again re- establishing the emotional connection
that our customers associate with the McDonalds experience," Thompson
said.
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Managing Director of McDonalds Spain, will be appointed Vice President,
Business Development & Integration Europe. The move, effective 1 October
2014, will see Abril join McDonalds European Management Team.
Patricias responsibilities will include developing design concepts for new and
existing restaurants and leading the strategic planning of new restaurants on a
pan-European basis. She will also help to implement digital solutions in
McDonalds restaurants, building on her successful leadership in Spain over
the last ten years.
In the role, Patricia will bring together McDonalds Development function
within the European team and will work closely with other functions such as
Finance, Brand & Strategy, Digital and Operations. Doug Goare, President,
McDonalds Europe said:
New CEO
28th January 2015 CNBC reported - Amid a tumultuous past year for
McDonald's, the world's biggest restaurant chain's CEO Don Thompson is
retiring after two years on the job, effective March 1 2015. The fast food is
also getting a new CFO. The restaurant's Senior Executive Vice President and
Chief Brand Officer Steve Easterbrook will replace Thompson, who is a 25-
year veteran of the company, the company announced on Wednesday.
On Friday, the company delivered its latest update on its continuing U.S.
turnaround, ongoing problems in Asia and the currency headwinds it faces.
Following the CEO departure news, the company's stock ticked up 3 percent.
As McDonald's continues its turnaround effort, Bill Smead, CEO and chief
investment officer of Smead Capital Management, said he'd like to see the
company take more risks and focus more on what customers want. The firm is
a long-term shareholder in the company with about 180,000 shares.
"Trying to please everybody is one of the issues that they're dealing with," he
said in a phone interview. He also added he thinks the current low interest
environment and McDonald's high dividend yield has kept McDonald's stock
higher than it typically would be. McDonald's stock is nearly flat during
Thompson's tenure as CEO, compared to a 33 percent surge in the Dow and a
47 percent jump in the S&P 500.
In fiscal year 2014, global comparable sales growth, a key restaurant industry
metric, dropped 1 percent, and its U.S. unit delivered a 2.1 percent decrease in
comps. In fiscal year 2013, global comparable sales growth, a key restaurant
industry metric, rose just 0.2 percent.
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