McDonald’s Troubles Deepen as Customers Won’t Return

By Douglas A. McIntyre Published Oct 30, 6:35AM EDT

McDonald’s Troubles Deepen as Customers Won’t Return — © McDonald's (Kodak, Tennessee) (CC BY 2.0) by JJBers

24/7 Wall St. Insights

It was another rough quarter for McDonald’s Corp. (NYSE: MCD | MCD Price Prediction).
The fast-food giant is being pressed on several fronts.
And its stock has underperformed the S&P 500 this year.
Also: Dividend legends to hold forever.

It was another very rough quarter for McDonald’s Corp. (NYSE: MCD). The $5 Meal Deal did not help it despite the attraction of four Chicken McNuggets, a small fries, and a small Coca-Cola. Neither did the Chicken Big Mac. The huge fast-food chain posted difficult numbers in the most recent quarter.

Global same-store sales fell 1.3%. Revenue rose only 3% to $6.9 billion. Earnings dipped from $1.17 a share to $1.13. Management was baffled and had nothing cogent to say. Chairperson and CEO Chris Kempczinski commented, “We will stay laser-focused on providing an unparalleled experience with simple, everyday value and affordability that our consumers can count on as they continue to be mindful about their spending.” Yet, people don’t seem to be coming back every day enough to lift sales.

First among McDonald’s problems is that even value-minded customers find it too expensive. The cost of a Big Mac across McDonald’s store system in the United States can be over $5, depending on the state or store. Happy meals can cost as much as $8. Suddenly, a visit for a $5 meal becomes one that costs $10. Recently, the Today Show ran a segment titled “Have McDonald’s Prices Gotten Too Expensive?”

Increases in the minimum wage have also pressured McDonald’s, particularly in states where that has increased above $14 an hour. The federal figure is $7.25, but fewer and fewer states are at that level.

Finally, sales have fallen in China, the world’s largest market by population, at over three times that of the United States. It will be hard for McDonald’s to achieve substantial growth when sales in China dip.

McDonald’s stock is flat this year, while the S&P 500 is 23% higher. It is easy to see why.

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About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.