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09/11/02 . by David Teather in New York . The Guardian . UK
Falling sales slow worldwide march of McDonald's
The troubles facing McDonald's deepened yesterday as the burger chain warned of a profit shortfall and announced the closure of more than 175 outlets.
The company, struggling to rediscover the formula that made it one of the world's best known brands, said the closures would be spread across 10 countries.
McDonald's will withdraw from three Middle Eastern and Latin American countries and restructure operations in another four. Headcount is being cut by about 600.
Retrenchment and falling sales will cut fourth quarter earnings by up to $425m (£269m), the company said, causing its shares to fall by as much as 15% on Wall Street.
"These actions are the right things to do for McDonald's shareholders, the brand and our business," said chairman and chief executive Jack Greenburg.
McDonald's last month said it was braking global expansion, opening 600 restaurants next year compared with a peak of 2,000 in 1996. There are more than 30,000 outlets worldwide.
The chain has reported declining earnings in seven of the past eight quarters and has embarked on a strategy of redirecting cash to improve its existing portfolio.
It is experimenting with new formats that move away from the familiar garish, corporate look. A new showcase restaurant in New York's Times Square features exposed brick walls and flat television screens showing music videos.
Investors have argued that McDonald's needs to pay more attention to quality of food and service. Sales during October continued to slide - restaurants that have been open for at least a year suffered a 1.3% decline on the same month in 2001.
Competition in the US market has intensified. McDonald's was forced to respond to the aggressive marketing of rivals Burger King and Wendy's and introduced a range of 99 cent items this year that will eat into its margins.
McDonald's declined to specify exactly which countries the latest cuts would affect. The restructuring in four nations will involve transferring ownership of restaurants to licensees who pay McDonald's royalties.
McDonald's is also focusing investment on the roll-out of other brands. It plans to open 150-175 restaurants next year under formats including the sandwich shop Pret A Manger and Chipolte Mexican Grill.
Copyright Guardian Newspapers Limited