Daily Management Review

McDonald's Profit Drops 13%, Yet New Items on Breakfast Menu


07/23/2015




McDonald's Profit Drops 13%, Yet New Items on Breakfast Menu
At a time when the company is bogged down by declining sale figures, McDonald’s plan to add McMuffins and pancakes to its breakfast menu.

This is seen as one of the efforts of the largest fast food chain of the world to spruce up its bottom line sale and gain competitive advantage. The company hopes to get back to the path of rising revenue generation by achieving economies of scope through the offering of more products in its prime store locations.  

The fast food chain reported a decline of 13% in its profits in the second quarter of the present fiscal primarily due to declining sale in the home country –United States, as well as in several of the overseas regions.

“We have made meaningful progress since announcing the initial steps of McDonald’s turnaround plan in early May,” said company CEO Steve Easterbrook in a statement. He however hopeful that the third quarter would be a turnaround quarter for the company and there were early signs of the same.

The slump in sales was aided by a fall in sale in the Unites States by 2% in eth second quarter. The reason, experts say, was due to the menu items and promotions that didn’t manage to get customers through the outlet doors amid heavy competition from other players in the industry.

A comparable global sale decrease of 0.7% was due to 4.5% drop in sale in Asia, the Middle East and Africa but was aided by a marginal rise of 1.2% in sale in Europe.
 
McDonalds is pinning their hopes of a global sale revival with a revival of Asian market where sale had been significantly affected due to a food safety scandal with a meat supplier a year ago. The company communiqué said that the global comparable sale is expected to rise in the third quarter of the current fiscal.

The company has made a strategic change in its turn-around efforts where it plans to reorganize the business this spring through an increased focus on franchises. The company had appointed Easterbrook in March and the company had been aggressively working on a turnaround plan since then.

Experts point out that items adding to the breakfast menu at its outlets is another strategy of the company to increase sale of its baseline. But there are also fears that McMuffins and pancakes could replace the burgers and the fries. Therefore critics suggest a path of bundling the items together and offer a combined palate to the customers. Experts fear that if this not done the bottom line of the company might be diminished pushing the company deeper into trouble.  

In the wake of decreasing global sale, the larger menu throws up another problem. a larger menu essentially requires the expertise of skillful and highly committed labor to handle multiple orders at the same time. Given the wage structure of the employees at the stores, it would not be possible for them to recruit the requisite people from the minimum wage pool. Experts suggest that McDonalds should make fresh recruitments and train them to suit the job requirements. This would also mean additional expenditure which can further erode company pockets presently experiencing sale dip.
 
Another factor is that even of the company raises wages and expends on training of new recruits, it is debatable whether the franchises would do the same without which a seamless service delivery would not be possible.

(Source: www.forbes.com) 






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