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McDonald’s Sales Hit By China Scandal, US Weakness

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(AP) – McDonald’s says a global sales figure fell 2.5 percent in July, dragged down by persistent weakness in the U.S. and a food safety scandal in China.

The world’s biggest hamburger chain said Friday that the 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.

The results reflect what is likely to be just the beginnings of the fallout from a Chinese food scandal late last month. A TV report at the time showed workers at one of McDonald’s longtime suppliers, Aurora-based OSI Group, repacking expired meat. McDonald’s stopped using supplies from the plant in Shanghai, which left many of its restaurants unable to serve Big Macs, Chicken McNuggets and other items.

The company has been working with other OSI plants to restore supplies to the affected restaurants. Still, 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 OSI and quickly cut ties with the company. But it has nevertheless seen its sales battered as well.

Oak Brook-based McDonald’s Corp., which has more than 35,000 locations around the world, warned in a regulatory filing earlier this week that the scandal puts its global sales forecast for 2014 “at risk.” It had previously said it expects sales to be “relatively flat.”

Back in the U.S., McDonald’s has failed to boost sales since October amid intensifying competition and shifting eating habits. The decline in July also came despite its sponsorship of the World Cup.

Part of the problem is that chains like Chipotle are gaining favor by touting more wholesome ingredients and the ability to customize food. McDonald’s is trying to adapt on multiple fronts, including a “Build-Your-Own-Burger” test in Southern California and a new Bacon Clubhouse burger that is positioned as more of a premium offering at $5 or $6.

McDonald’s CEO Don Thompson has also noted that the company’s lower-income customers are struggling more financially, making it difficult to convince them to eat out.

Thompson has also said McDonald’s 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 41 cents to $92.90 in premarket trading Friday about 15 minutes before the market open.

(TM and © Copyright 2014 The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed.)

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