What's going wrong at McDonald's?

The company disappointed investors in all 3 of its geographic regions in July, turning out its worst performance in 9 years.

By Kim Peterson Aug 8, 2012 4:33PM
McDonald's (MCD) has shown an impressive knack for survival over the past few years as the economy has gone south. When other rivals stumbled, McDonald's roared. It knew exactly how to manage the turmoil and come out ahead.

But something has changed. The company just had its worst performance in more than nine years. Sales fell across the board in July, and the numbers were below the expectations of analysts and even the company itself.

Post continues below.
Same-store sales -- a key indicator of performance because it measures sales at established restaurants -- came in flat. Only two weeks ago, McDonald's said it expected those sales to rise, Reuters reported. Analysts were expecting a 2.3% increase.

Shares fell 1.7% to close Wednesday at $87.53. Shares are down 11.5% this year, and one of the basic tenets of investing -- that McDonald's is a solid, dependable industry leader -- is now being questioned.

"We've grown used to seeing McDonald's weather bad economies, so this is a bit of a surprise," RBC Capital analyst Larry Miller told Reuters.

Another analyst, Sara Senatore of Bernstein, says, "McDonald's may be underperforming the industry, which is not typical for them," she said, according to The Associated Press.

Why is McDonald's suffering? Here are several reasons, according to AP and Reuters:

1. Intense competition. Just look at Burger King (BKW), which has David Beckham as a star endorser and has also begun offering fruit smoothies and salads. Then there's the breakout Doritos Locos Taco from Taco Bell, owned by Yum Brands (YUM). Wendy's (WEN) has also been improving its advertising and its lineup.

2. Last July was good. McDonald's debuted the mango pineapple smoothie a year ago, which was great for business. It's harder to compete this year.

3. Problems in Europe. This comes as no surprise, but analysts still expected the company to see a 2.4% sales increase in Europe as the troubled economy led consumers to trade down to fast food. Instead, McDonald's said its July sales in Europe fell 0.6%.

4. Flooding in China.
McDonald's also disappointed in the Asia, Middle East and Africa regions, reporting a drop of 1.5% in same-store sales. Analysts expected to see a 1.4% gain. Extreme flooding in China was partly to blame, as was a change in the timing of Ramadan and continued problems in Japan.

5. Disappointing response to McBites. McDonald's stopped promoting its chicken McBites as heavily in the U.S., and sales of the new item tumbled more than expected as a result.

6. Calendar shift. This year, there was one less Friday and Saturday in July. That makes a difference.

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Tags: MCDWENYUM
316Comments
Aug 8, 2012 4:58PM
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You wanna know what's wrong??

High prices...plain and simple.

You can get a better quality meal at an all-you-can-eat buffet for as much as you can for a "value" meal at Mickey D's. Talk about a piss-poor value.
Aug 8, 2012 6:18PM
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could it be that McDonalds food is crap?

Aug 8, 2012 6:33PM
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I stopped eating at McD's years ago because 90% of the time they forgot something in my order, pay extra for sauces, or I couldn't speak english at an establishment in my own country. There are countless better options these days.
Aug 8, 2012 5:17PM
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The burgers are bad. I suddenly realized this when I had eaten half of a quarter pounder and threw the rest away. I tried their premium burger at a much higher price. It was almost tasteless. Never again for me. I think more people are beginning to find out that there is much better tasting fast food around at about the same price. I am too old for the playscape also.
Aug 8, 2012 5:53PM
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If people took the time to make their own egg mcmuffins at home they'd never eat there again. I only go because of the happy meals for our granddaughter. Mcbite's? Seriously, they are smaller chicken nuggets.

People are right. You either get a hot burger & cold fries or hot fries & a cold burger. No thanks! I'll go to Five Guys & pay a little more for a DAMN good burger cooked fresh w/fresh fries every time!

Aug 8, 2012 5:38PM
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I don't know about McDonald's everywhere, but where I live they can't ever get an order right.  I constantly either get someone else's order or part of my order is wrong.  Plus the cheese on the cheeseburger is always cold because they take a pre-made hamburger and slap a cold slice of cheese on it.  Gross!
Aug 8, 2012 5:19PM
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I love McDonalds...but the prices went sooo high I find grocery deli chicken to go a much better deal...
Aug 8, 2012 5:37PM
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What's McDonalds ?? How about over priced and really bad food combined with terrible customer service.

 

Aug 8, 2012 5:25PM
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What's wrong with McDonalds?........It is almost impossible to get both hot fries and a hot sandwich at the same time, even when you ask for it.  The emphasis is so much on fast service that food is prepared ahead of time and usually, either the sandwich is not hot or the fries are not hot ,and sometimes both.
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   "WE'VE GOT TO INCREASE PROFITS BY A BAJILLION DOLLARS A SECOND OR IT'S THE END OF THE WORLD!!!  THE SKY IS FALLING, THE SKY IS FALLING!!!"

 

   Cryin' out loud...ALL Fortune 500 companies panic like this.  It's economic hypochondria.  Chill out.

 

   The love of money is the root of all evil.

Aug 8, 2012 6:16PM
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I can understand why Macdonalds is not doing well... they have raised the  prices  higher and higher,,and the food  has become smaller and smaller... I always like going there but not  any more   everything is  so much smaller but the prices have been  made higher.

 

I miss the  way that  it was so  nice to go there but not now....hopefully things will get better...

Aug 8, 2012 6:58PM
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Overstaffed with incompetent employees who don't care about the customer.  Prices have gone up, but quantity and quality have gone down.  Hamburgers are tasteless  I understand why people have stopped going to McDonald's..
Aug 8, 2012 5:06PM
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There is nothing wrong with McD's.Its the economy.Put people back to work at a living wage, part time service jobs don't help much.Everything costs more while the pols. claim there is no inflation. I know my dollar buys less every month but my income is less every mo.to the point iI can't even buy a small order of fries.
Aug 8, 2012 6:43PM
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I was at a McDonalds today, I ordered a #3 combo meal, which is a quarter pounder with cheese, and a diet coke, since I was in the drive thru, I did not check when it was given to me, and drove off. When I opened the bag I found two plain quarter pound hamburgers, not what I ordered.It will be a long time until I go back.
Aug 8, 2012 5:55PM
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7. People have finally realized that their burgers are cold, the buns stale, and the pickles aren't from this solar system.

8. Their customers are dying of heart disease

9. Major investment in replacing the doors to be wide enough to accommodate their existing customers

10. Their main ingredient....salt....must have gone up exponentially in price

 

People still eat there? I just thought it was a place to stop and pee when on an out of town road trip.

Aug 8, 2012 6:16PM
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how about how ALL of their ads are directed at blacks? i feel like i need to wear baggy clothes and a doo rag if i want to eat a bigmac

 

Aug 8, 2012 5:44PM
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People are sick of pink-slime burgers...

 

And I HATE the autoplay videos on this page. I dont want a video playing unless I click it.

Aug 8, 2012 7:10PM
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THE QUALITY OF THE FOOD HAS GONE WAY DOWN. MCDONALDS USED TO HAVE THE BEST FRENCH FRIES OF ALL THE FAST FOOD PLACES.  NOW I WOULD RATE THEM ABOUT 10TH OR LOWER.  IN THIS ECONOMY PEOPLE ARE LOOKING FOR CHEAPER PRICES AND MCDONALDS HAS ALMOST NO DOLLAR ITEMS LEFT ON THEIR DOLLAR MENU.  I KNOW THEY ARE TRYING TO KEEP THEIR PROFITS UP BUT HOW MUCH DO YOU SAVE BY NOT GIVING NAPKINS OUT WITH A CUSTOMERS ORDER.  IN MY OPINION MCDONALDS HAS BEEN GOING DOWNHILL FOR A LONG TIME.
Aug 8, 2012 6:37PM
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The most recent and reoccurring problems at McDonalds' stores, is CUSTOMER SERVICE. It's just not like it used to be; the fast efficient  service, that we became accustom to, has almost disappeared. It has taken just about ten years, for this decline in what made Mcdonalds' (the favorite of the world), bottom line erode to this level. What made Mcdonald profitable, is not the selling of burgers, but FAST EFFICIENT SERVICE! What took three - five minutes from the time a order is taken, to the time it was paid for, and received has become a duration that just fizzles a customer's patient. When I enter a Mcdonald store, I don't want to feel like, I have wait; like, I'm in a local Sub Shop. Mcdonald's workers, have also become notorious for getting customers orders wrong. It used to be, at the point of sale, that not only was the service great, the order received , was right! NOT SO SURE, ANY MORE!
Aug 8, 2012 5:48PM
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For the most part their food is GROSS.  I got a burger there a while back and the texture was so off I nearly gagged.  I get HORRIBLE service (wrong food, wrong change, no napkins, burnt coffee, no straw etc.) everytime I have gone to the  McDonald's here in Auburn, ME on Minot Ave.  It is so bad that I never go there for anything except breakfast and even then I am given sandwiches with old eggs and stingy bacon, they burn their coffee or just plain don't know how to make it and the hashbrowns are soaked in grease and soft.  The biscuits are a good inch or two smaller, in fact everything is smaller and the price goes up and up.  I will never get a salad there again since the last time I ate one the salsa and beans were slimy and the lettuce was mostly iceberg lettuce which I hate and is not the main type of lettuce shown in their advertising.
I agree with the people posting here - you can do better/cheaper fast food at home. 
We have a Tim Horton's down the street and I go there instead - more reasonable, more environmentally friendly and they don't hire dumb kids who are only there for a paycheck and act like you are an inconvenience to them.

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