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Michael McLellan

Is Fast-Food King McDonald’s in Trouble?

by Michael McLellan | Dun & Bradstreet Editor

April 22, 2015 | No Comments »

McDonalds-Sign-Clouds_FlickrCC-user-skynet_04_990pxMcDonald’s added almost 1,000 locations worldwide during 2014, with an emphasis on European and Asian markets. But now the Golden Arches is closing hundreds of its stores as sales continue to sag. The chain plans to slash costs by closing about 220 underperforming restaurants located primarily in the US and China, along with 130 restaurants in Japan. In fiscal 2014 the company’s European segment accounted for about 40% of revenue, while the US accounted for nearly a third.

It Was Good to Be King

McDonald’s dominated the fast-food dining industry for a long time, largely through its effective franchising efforts, its focus on food consistency, and its successful marketing campaigns. The company’s far-flung network of franchise operators are all controlled by agreements meant to ensure that a Big Mac purchased in Pittsburgh tastes the same as one bought in Beijing.

However, the company has struggled in recent years as it tried a wide variety of marketing and menu-change approaches to generate sales. Meanwhile, burger-centric chains such as Five Guys Burgers and Fries, Hopdoddy, In-N-Out Burger, and Shake Shack are spreading like a grease fire.

Breakfast All Day

There’s nothing worse than having your heart set on breakfast and pulling up to a drive-thru at 10:31 a.m. that says “breakfast served until 10:30 a.m.” McDonald’s has been testing all-day breakfast at about 100 locations in San Diego, and the company’s turnaround plan is likely to be focused on promoting its breakfast menu. Breakfast currently accounts for about 25% of the chain’s domestic sales. Dunkin’ Donuts, Starbucks, and Burger King/Tim Hortons are all banking on coffee and breakfast bucks as well, though.

Looking for Love in All the Wrong Places?

The corporate office has started to look for more partnerships, sponsorships, and co-branding opportunities. In 2014 McDonald’s launched mobile payment services in collaboration with Apple. In early 2015 the Golden Arches had a food truck show up and sponsored live music shows at Austin’s SXSW music industry conference alongside brands like Vans and Red Bull.

Financial Pickle

The company’s revenue dipped slightly in fiscal 2014 compared to the previous year. It reported $27.4 billion in revenue for fiscal 2014 after bringing in about $28.1 billion in fiscal 2013. Perhaps of more concern to executives and investors was the company’s decreased net income. It slipped to $4.75 billion in fiscal 2014, a drop of 15% compared to the prior period. The decrease was due to the dip in total annual revenue combined with higher operating expenses compared to 2013.

Labor costs and food supply costs continue to be challenges for the company as it tries to change its image to a more socially responsible and environmentally sustainable business. McDonald’s may not be able to increase the wages of its employees more than the $1-per-hour raise it recently ordered.

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Original photo by Flickr user skynet_04, used here under a Creative Commons license. Related video:

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