Sales go on a diet as the world's consumers stop lovin' it

Problems are mounting up under the golden arches. Photo / AP

It is not just the world's biggest burger chain; it is also a global emblem of American consumer capitalism. But these days the golden arches of McDonald's are looking tarnished. After a decade of relentless expansion, customers around the world don't seem to be lovin' it any more.

Last week McDonald's revealed that worldwide sales dropped by 3.3 per cent on last year in a set of results that went beyond Wall Street's worst nightmares and were swiftly characterised as atrocious.

Problems are piling up almost everywhere. In China, sales plunged by 23 per cent after a food scare when local media showed workers apparently caught on camera at a local supplier, Shanghai Husi Food, claiming to use out-of-date beef and chicken in products destined for McDonald's and KFC.

In Europe, sales are down by 4 per cent mostly because of turmoil in Ukraine and the sour anti-western mood in Russia that has seen US companies caught in the political crossfire. Around 200 of McDonald's 450 restaurants in Russia are being investigated by health inspectors in apparently politically motivated food-safety checks. But it is in the US, where McDonald's has around 40 per cent of its restaurants, where the crisis runs deepest. Almost 60 years since Ray Kroc opened his first restaurant in Des Plaines, Illinois, consumers are losing their appetite. McDonald's has chalked up 12 straight months of declining sales in its massive home market, with sales down 4.1 per cent in the latest quarter. Younger diners are deserting the restaurant in droves to eat out at rivals such as Chipotle Mexican Grill - which, just the day before McDonald's revealed its horrible sales figures, announced 20 per cent growth in revenues.

To add to the company's woes, McDonald's hamburgers were recently named the worst in America in a poll of more than 32,000 American diners, who said they would rather eat a burger at Five Guys, Smashburger or Fuddruckers.

Fast-growing US-only chain Chick-fil-A was deemed to be best for chicken. McDonald's is also widely perceived as less healthy than most of its rivals, especially Chipotle, which trumpets its antibiotic-free meat and "locally sourced, seasonal produce".

The depth of consumer mistrust of McDonald's was exposed by a consumer outreach exercise the company launched in the US earlier this month. "Have you ever used pink slime in your burgers?" was one question on the Our Food Your Questions website - referring to the controversial beef filler (gristle and fat) used for dog food that is sprayed down with ammonia to make it "fit" for human consumption. The meat product, banned in Europe since the BSE crisis, was dropped by McDonald's in 2012 after being exposed by chef Jamie Oliver.

But pink slime has left doubts in US consumers' minds. "Does McDonald's beef contain worms?" asked another person. ("No. Gross. End of story," replied the company). Others wanted to know whether it uses real eggs, or whether the McRib is made with the same plastic contained in yoga mats.

Yet, just as McDonald's has been losing the customers who will pay a bit more for food perceived as fresher and healthier, it has also lost its edge in fast food essentials: speedy service at low prices. Ever since it introduced US$2 items on its dollar menu, it has gained a reputation for being more expensive than its rivals, while many consumers complain that service is slower.

The "expensive" tag was unjustified, said Mary Chapman at Technomic. "Prices have indeed gone up, but they haven't gone up as quickly as the rest of the fast-service chains in the US." Prices at McDonald's have increased by 4.8 per cent since 2009, well below the "quick service" sector average (up 19.4 per cent), while the cost of "fast casual" eating, a category that includes Chipotle, is up 16.9 per cent according to Technomic's menu monitor. US consumer prices rose 11 per cent over the same period.

But critics have a point when it comes to longer queues. McDonald's has a bigger menu than some, with more complicated items - its chicken McWrap takes 60 seconds to make. "I think it is worth [waiting], but the guy behind me who wants his double cheeseburger for a dollar might not," said Chapman.

McDonald's has been here before. The company was in the doldrums in the late 1990s, beset by similar concerns about quality and service at a time when the golden arches were a lightning rod for anger about Western capitalism. The mood was exemplified by demonstrators who trashed a McDonald's restaurant in Seattle in 1999 to protest against the World Trade Organisation.

"They have a historical record of being able to come back when times get tough," said Chapman.

Executives are vowing to tackle "misperceptions" about its food in its home market. Thompson has promised more organic food. Meanwhile, despite the declining sales, the chain continues to expand globally: by the end of the year it expects to have opened 1400 new restaurants.

Kalinowski expects McDonald's market share will continue to shrink, but he too warned against writing off the company. "You can never really count McDonald's out ... We think it will be number one in terms of total sales for not just years, but decades to come."

- Observer