Fallen arches: McDonald’s sales slump blamed on food costs, smarter customers

Duncan C.

If you missed the news about McDonald’s recent sales slump, that’s probably because the company planned it that way. Using the oldest corporate trick in the book, McDonald’s announced its disappointing news on a Friday afternoon, hoping it would get ignored as the weekend started. But the timing of the announcement only underscores how bad the news really was. For the first time since 2003, the company’s global sales rose less than 2 percent, and its net income dropped almost 4 percent.

CEO Don Thompson blamed the economy for the fast food giant’s lackluster performance, pointing to “the external environment including declining consumer sentiment, high commodity and labor costs and heightened competitive activity.” Translation? Between the rising price of food (thank you, climate change), growing consumer awareness of McDonald’s bad business practices, and competition from the likes of Taco Bell, McDonald’s was having trouble maintaining its normally high rate of growth. Thompson said the company would respond by promoting its Dollar Menu and bringing back the shockingly unhealthy McRib in December, as a way to show the “value” of eating at McDonald’s. But Thompson is either missing the point or playing dumb.

A brief review of the company’s 10-K, the annual, SEC-required company report card, filed in February of this year, reveals a number of “risk factors” identified by the company, including concerns over “adverse perceptions” of “nutritional content … how we source the commodities we use … [and] product safety issues,” as well as the “impact of social media,” “the risks and cost of our labeling and other disclosure practices,” and “the impact of nutritional, health and other scientific inquiries and conclusions.” The company knows, then, that the public is growing less tolerant of CAFOs, unhealthy food, and large-scale corporate deception about its practices. But despite recognition of these systemic issues, judging by Friday’s announcement and several of the company’s recent PR projects — e.g. enlisting mommy bloggers and releasing pseudo farm-to-table YouTube videos — McDonald’s still seems to believe it has a “public perception” problem and not a reason to make substantial changes to its practices. Yet in a country where more and more people are making the choice to buy responsibly sourced, organic products despite their higher prices (organics sales rose 9.4 percent in 2011), Thompson’s equation of “value” with cheapness might just fall short.

As the single biggest purchaser of beef, chicken, pork, potatoes, apples, and tomatoes in this country, McDonald’s plays an unparalleled role in the food industry. When the company required its pork suppliers to phase out gestation crates in February, for example, it essentially required all pork suppliers to do so, because not being able to sell to McDonald’s will kill a large-scale pork operation in this country. As the company watches its sales drop, it could seize the opportunity to do more than just unroll another marketing campaign.

It has happened before. In addition to the move away from gestation crates, in the late 1980s, public pressure forced McDonald’s restaurants in the U.S. to stop serving burgers in Styrofoam packaging. And after the Supreme Court upheld Obamacare, the restaurant chain complied with the law before it went into effect by posting calorie counts for its menus all over the country.

If McDonald’s wants to change public perception and increase sales, why not stick to this pattern of catering to public demands, and start with better ingredients and more transparency? The company might be surprised by how far that gets it.