Why McDonald’s same-store sales declined across all segments

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McDonald’s global operations

In our Chipotle Mexican Grill (or CMG) series, we learned that Millennials are the new demographic focus for restaurants in the U.S. This group has different eating habits. The eating habits are different than what McDonald’s (MCD) serves.

During the earnings call, management stated that McDonald’s “hasn’t changed at the same rate as its customers’ eating out expectations” in its priority markets. This includes the U.S., Japan, Germany, and Australia. Its current strategy for the U.S. performed poorly—as we can see in the chart below.

MCD 3Q Same-Store Sales Trends 2014-10-29

Europe-Russia, Ukraine, and Germany

The company closed down some of its restaurants in Europe-Russia and Ukraine during the quarter. According to the company, political instability impacted the earnings per share (or EPS) during the quarter. EPS was impacted by as much as $0.01 per share.

Negative economic and political events affect all the restaurant stocks in the Consumer Discretionary Select Sector SPDR Fund (XLY)—like Yum! Brands (YUM), Darden Restaurants (DRI), and Starbucks (SBUX).

Management stated that Germany’s same-store sales in the third quarter were negative. This is continuing its past trend.

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To mitigate negative same-store sales in Germany, the company plans to offer an affordable menu. The menu provides customers with higher value. It offers single, double, and triple burgers. The company also plans to promote its snack and premium items, along with its core items, to increase the average check.

Japan and Australia

The company stated that Australia had the highest same-store sales during the quarter—since August 2012. The Loose Change Menu is similar to the Dollar Menu in the U.S. It helped improve McDonald’s performance in Australia. McCafe beverages also helped its performance.

For Japan’s sluggish same-store sales, the company hopes to increase the average check by adding any size drinks to its 100 Yen Menu. It also plans to add new combos—or bundles. Japan’s market was also impacted by the meat supplier issue in China.

In the next part of the series, we’ll discuss unit growth. It’s another key driver for sales in a restaurant business.

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