McDonald’s (MCD) reported earnings softer than an over-cooked french fry this week. The fast-food giant posted the largest earnings decrease in 14 years, leading stocks to drop over 3.8% Monday, making it the worst performer on the Dow. This news comes after a lackluster Q3 earnings report which cited poor sales in the US and slower-than-anticipated growth in the Chinese market. While some analysts believe that McDonald’s can recover by pursuing stronger expansion tactics in South America and Australia, where sales were up, those markets are not nearly as large as the opportunities in the Asian market. Simultaneously, competitors with a stronger focus on healthful foods and sustainable practices are gaining ground quickly. Most notably, Chipotle (CMG) saw a significant increase in sales this year leading to an aggressive expansion practice. Chipotle is clearly the dominate leader in the competitive set, although Shake Shack poses stiff competition, too. Although still largely confined to the NYC market, this burger joint increased its number of stores by an astounding 27%. The chart below outlines the depth of the competition McDonalds faces.
Community Insights on McDonald’s future:
Owler community members are bearish on the likelihood that the McDonald’s franchise can outlast the healthful food craze. While it seems a bit dramatic to presume the ~90 year old chain will be blighted from the trend, it is likely that its market share will shrink without significant product and branding reforms. The company completed a pivot once in the late ’90’s to rebrand itself as a family company. It’s rather a matter of time before the company is forced to overhaul itself to adapt to this societal trend as well.