McDonald's to Stress Low Prices Amid Slow Sales
NEW YORK -- McDonald's Corp. plans to be more aggressive in advertising low prices following a troubled third quarter, in which earnings fell 3.5 percent, reports the Wall Street Journal. The larger-than-expected drop is due to a sluggish economy and disappointing marketing campaign, and sales and earnings are expected to "remain pressured" over the next few quarters, according to the report.
"We face softening demand, heightened competition and rising costs in many of our markets," stated Chief Financial Officer Pete Bensen.
The fast food giant is reportedly struggling more now than it did three years ago because the economic downturn is more widespread and its competition is working harder to catch up. Additionally, customers tend to order fewer extras such as drinks, desserts, and premium items, which have higher profit margins. Consumers also go out to eat less frequently.
Chief Executive Don Thompson stated that McDonald's focus on promoting higher-priced "Extra Value Menu" instead of the "Dollar Menu" within the U.S. did not "resonate as strongly" with customers.
"We're going back to talk of the Dollar Menu," Thompson said.
McDonald's is losing momentum worldwide, and same-store sales have declined by the largest amounts since April 2003, according to Thompson. "It's been very rare that we've ever seen all of our major markets experiencing the impact of these kind of global economies at the same time," he noted.
However, the company expects sales for the whole quarter to improve, partially due to the December arrival of the popular McRib sandwich. Its goal is to gain more customer loyalty through lower prices, giving it a larger consumer base and more ability to raise prices when the economic outlook improves.
"Clearly, we'd love to be able to see more sales, and that will come in time, but right now it's about having more traffic and appealing to customers," Thompson said.
McDonald's reported a profit of $1.46 billion during Q3 2012, down from $1.51 billion during the same quarter one year earlier. Per-share profit slipped from $1.45 to $1.43 during the same time period, surprising analysts, the WSJ reported.