Dynamic markets and MacDonalds

American rivals take bite out of McDonald’s meaty menu

James Dean, US Business Editor

October 23 2019, 12:01am, The Times

• United States
• Economics
• Food and drink

The chain faces increasing competition from its US rivals, which have introduced vegan options and value menusGENE J PUSKAR/AP

Competition from rivals in the United States and the absence of a meat-free burger on its menu have given McDonald’s and its investors an unexpected bout of indigestion. The world’s biggest fast-food restaurant chain missed profit forecasts for the first time in two years yesterday, with third-quarter, like-for-like sales also falling short of Wall Street’s predictions.

That, in turn, sent its shares down 5.1 per cent, or $10.62, to close at $199.23 in New York last night. 

McDonald’s was founded in California in 1940 and opened its first site in the UK in 1974. Run by Steve Easterbrook, 52, a Briton who formerly was in charge of the group’s UK and Ireland business, it is investing in digital ordering technology in an attempt to boost customer numbers.

However, the chain faces an ever-strengthening challenge from its fast-food rivals in the US, which have introduced value menus and vegan burgers made by companies such as Beyond Meat. McDonald’s has yet to add a meat-free option, but is testing one in Canada.

In America, where McDonald’s makes more than a third of its revenue, like-for-like sales rose by 4.8 per cent in the third quarter compared with a year ago, behind the consensus forecast of 5.2 per cent growth. Andrew Charles, an analyst at Cowen, said: “Our gut tells us that McDonald’s was outcompeted by Wendy’s and Burger King.”

International sales were a bright spot, increasing by 8.1 per cent. This meant that global like-for-like sales rose by 5.9 per cent, ahead of Wall Street’s forecast of 5.4 per cent growth. It was the 17th consecutive quarter of global sales growth.

Paul Pomroy, 46, chief executive of McDonald’s UK and Ireland, said that sales in Britain and Ireland had grown during the period, and added: “We are entering the festive period with momentum behind us.”

In the UK and Ireland, the company has been testing McDonald’s To Go, a takeaway-only store with a limited menu that targets workers, the results of which were “encouraging”. It is also expanding McDelivery, which is available in 950 restaurants. Mr Pomroy said that 40 new high street and drive-through restaurants would be opened in Britain and Ireland by next year.

Company-wide third-quarter profit fell to $1.61 billion from $1.64 billion a year ago, while revenue rose to $5.43 billion from $5.37 billion. Profit per share was $2.11, lower than had been expected by industry analysts, who had forecast a figure of $2.21 and revenue of $5.49 billion.

McDonald’s said that a stronger operating performance had been offset by lower-than-expected gains on sales of restaurant businesses, mainly in the United States, several small restructuring charges and a foreign exchange drag.

Mr Easterbrook said that the performance had been “strong”, with “broad-based momentum”.