NEW YORK: McDonald’s has warned that industry-wide customer traffic in key markets would likely remain flat as long as inflation remained elevated, sending its shares down as much as 6.5% even as it unveiled an US$8.5bil franchisee support plan and a slate of long-term growth initiatives.
The warning reinforced investor concerns that McDonald’s turnaround could take longer than expected, even as it rolls out its “NEXT” strategy to reignite growth after several quarters of slowing sales and intensifying competition from value-focused rivals.
“Look at Starbucks, these changes don’t happen overnight,” said Jake Dollarhide, a McDonald’s investor as chief executive officer of Longbow Asset Management, referring to the turnaround effort at Starbucks that took close to a year for investments to translate into boosted sales.
Last month, McDonald’s missed estimates for second quarter US sales growth, citing execution missteps that hindered efforts to win back lower-income consumers who had cut back on dining out.
Its shares, which are now down about 22% so far this year, dropped to a near four-year low of US$234.03 on Wednesday.
Newly appointed US business head Skye Anderson acknowledged those shortcomings on Wednesday, saying McDonald’s had fallen short on “consistent execution” and needed to improve restaurant operations.
The chain on Wednesday outlined an US$8.5bil, decade-long support package for franchisees, who bear hefty costs under the “NEXT” plan, and set new targets for restaurant productivity and operating margins in the low to mid-50% range by 2030.
“We expect industry traffic growth in our wholly-owned markets will be flat while inflation remains elevated,” chief executive officer Chris Kempczinski said during an investor meeting. “The winners will be the companies that create more demand and deliver it more efficiently.”
Announced in June, McDonald’s “NEXT” strategy focuses on improving food quality, hospitality, value and innovation, with executives on Wednesday providing the first detailed roadmap. — Reuters
