NEWS

McDonald's sales slide, Coke flat as consumer tastes shift

10/21/2014 12:18 EDT | Updated 12/21/2014 05:59 EST
Some of the biggest companies serving consumers are showing signs of stress this week, with McDonald’s showing a 3.3 per cent drop in customer traffic worldwide and worldwide sales by Coca-Cola flat.

A more discriminating and health-conscious consumer is eating into profits at both companies, and the strategies they’ve taken to change their product offerings have not caught on as hoped.

In the case of McDonald’s, a significant misstep in China also hurt its prospects throughout Asia.

Sales there are down 9.9 per cent after a McDonald’s supplier based in China was shown on TV repackaging expired beef.

Reputation hurt in China

McDonald’s previously had a reputation for quality control, consistency and safe food in China, a country that has an uneven record on food safety. It seemed modern and Western in a place where 25 years ago dining rooms were concrete bunkers where customers commonly rinsed their dishes with tea to sanitize them before being served.

McDonald’s apologized and stopped buying from the offending factory, which resulted in shortages of beef and chicken throughout its Asian operations. Its reputation is still suffering.

Revenue declined to $6.99 billion US, short of the $7.23 billion Wall Street expected. Net income declined to $1.07 billion, or $1.09 per share, also missing expectations.

In North America, McDonald’s, like Coca-Cola, is fighting to hold on to customers amid shifting tastes in food and heightened health-consciousness.

To defend the image of its food, McDonald's launched a social media campaign last week in the U.S. inviting customers to ask questions about the ingredients it uses. Among the first questions McDonald's was forced to address were "Why doesn't your food rot?" and "Do you use real chicken in your Chicken McNuggets?"

Customers are shunning burgers, but new McDonald's menu items have not caught on in the same way. The chain, with 14,000 U.S. restaurants, is losing out to rivals such as Chipotle, which emphasizes the freshness of its ingredients.

Soda pop sales down

Carbonated beverages are in decline, with sales at Coca-Cola down one per cent from a year ago in North America and flat worldwide. Consumers have been cutting back on soft drinks for a decade, concerned about sugar intake. Artificial sweeteners are also seen as suspect.

Coca-Cola has been marketing smaller serving sizes in an effort to boost profit and has introduced a stevia-sweetened lower-calorie drink. It also has a line of juices, vitamin waters and sports drinks, but the profit from those sectors hasn’t matched what it traditionally made from soda pop.

Coca-Cola Co.'s third-quarter net income fell 14 per cent to $2.11 billion, down from $2.45 billion a year ago. Revenue was $11.98 billion in the period, which missed analyst's forecasts of $12.14 billion.

Coca-Cola’s rival Pepsi is having the same trouble with flat soda sales.

For McDonald’s there is also a pricing problem, because it appeals to budget-minded consumers. Its popular Dollar Menu was revamped last year to be called Dollar and more, as rising beef and cheese prices forced it to swap out items such as the Big N’ Tasty.

Stagnant wages among low-income workers have hurt its prospects. This is similar to discount retailer Wal-Mart, which last week issued a profit warning on its fourth quarter, saying it expects holiday sales for Wal-Mart and Sam’s Club to be flat.

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