McDonald's US sales fall for third straight month as eating habits shift

McDonald's says a key sales figure fell 2.5 percent in July, dragged down by persistent weakness in the U.S. and the impact of a food safety scandal in China.

The world's biggest hamburger chain says the global decline included a 3.2 percent drop in the U.S. and a 7.3 percent drop in the unit encompassing Asia, the Middle East and Africa. Its China division took a major hit in late July when a TV report showed workers at one of its suppliers repacking expired meat. Many McDonald's restaurants in the country were left without beef and chicken supplies as a result.

Even as McDonald's restaurants get back to serving the full menu, sales are likely to continue suffering given the sensitivities around food safety in China. Yum Brands, which owns KFC and Pizza Hut, says it did not rely as heavily on the supplier in question. But it has nevertheless been ensnared in the scandal as well and has seen its sales drop significantly.

McDonald's Corp., which has more than 35,000 locations around the world, has warned that the scandal put its global sales forecast for the year "at risk." The company had previously said it expects sales to be relatively flat.

Back in the U.S., McDonald's has been unable to boost sales amid heightening competition and shifting eating habits. Chains like Chipotle, for instance, are gaining favor by touting more wholesome ingredients and the ability to customize food. McDonald's CEO Don Thompson has also noted that the lower-income customers that tend to go to McDonald's are struggling more financially, making it more difficult to get them to spend money on eating out.

Thompson has also said the company complicated its menu and slowed down service by introducing too many items too quickly. He said the company is working on getting the basics rights — such as improving service.

The one bright spot in July was Europe, where sales at established locations edged up 0.5 percent.

McDonald's shares slipped 65 cents to $92.66 premarket trading Friday.

The Monitor reported last month on McDonald's launch of a tofu nuggets snack and its continuing woes in Asia: 

McDonald’s Japan is following an old, lesser-known saying: When life gives you bad meat, make tofu nuggets.

The Japanese division of the world’s largest burger chain introduced a new nugget snack this week: Tofu Shinjo Nuggets, made up of tofu and vegetables in Shinjo, a dumpling-like food made up of fish paste and starch. The tofu nuggets will hit Japanese locations Wednesday.

“The new nuggets do not include any chicken,” but are made from ingredients that include onions, soybeans, carrots and minced fish, a spokeswoman at McDonald’s Japan told the Wall Street Journal. "Because it isn’t meat, it tastes a bit different. It’s a bit softer. Calorie-wise, it is a bit lower than chicken as well.”

Four pieces will cost 249 yen, or about $2.44 US.

The tofu nugget launch could be a welcome bit of good news for McDonald’s in Asia. The company has been rocked over the past few weeks by revelations that one of its main meat suppliers in China was selling expired meat with falsified labels (the company, Shanghai Husi Food Co Ltd, also supplied products to Starbucks, Burger King, KFC, and Papa John’s). 

The news prompted a widespread recall, and Chinese health officials arrested five Shanghai Husi Food Co. employees and shut down nearly 600 restaurants in response.

McDonald’s Japan CEO Sarah Casanova announced Tuesday that the division would be discontinuing its relationship with the meat company. Earlier, McDonald’s Japan halted sales of products containing China-produced chicken, including Chicken McNuggets and the Chicken Filet-O sandwich, and announced that it would begin sourcing its chicken products from Thailand instead of China.

“I would like to extend my sincere apology to our valued customers,” Ms. Casanova said at a Tuesday news conference.

McDonald’s Japan also withdrew its earnings guidance (or forecast) for the year Tuesday, saying that it was unclear just how much dealing with the fallout from the meat scare would impact revenues. The withdrawal capped off two straight years of falling sales for McDonald’s Japan. For the first six months of the year, the division reported a 50 percent drop in operating profit to 3.5 billion yen and a 59 percent drop in net profit, to 1.85 billion yen.

However fortuitous, the company says the timing of the Tofu Shinjo Nugget release is purely coincidental. Still, it could be a bright spot for McDonald’s beleaguered Asia operations. Other fast food chains, including Subway, have found success with a more vegetable-centric product focus in Japan. Tofu nuggets won’t hit the US anytime soon, but vegetarians in a hurry still have Burger King’s veggie burger to tide them over.