McDonald's (MCD) warned on Monday that the food safety scandal in China will hurt sales in the region. In a regulatory filing Monday, the company said there's been "significant negative impact" in China, Japan and other markets affected by the food scandal. These regions account for about 10% of McDonald's revenue. The world's largest burger chain operates more than 2,000 restaurants in China. McDonald's doesn't publicly break out separate China sales figures.
This comes two weeks after McDonald's Shanghai-based distributor, Shanghai Husi Food, was accused of using expired meat. McDonald's cut ties with the supplier, a unit of U.S. based OSI Group, and had pulled beef, pork and chicken items from its menus in China. The fast-food giant said it would resume its full menu in some Chinese cities later this week
The food safety scare is a serious blow to McDonald’s reputation in China. ”The customer isn’t going to blame the supplier, they’re going to blame McDonald’s because that’s who they gave their money to. So will they be able to win back the faith of those consumers in China? Which is a big deal for McDonald’s,” said Yahoo Finance Editor-in-Chief Aaron Task.
However, it’s not only Chinese consumers that McDonald’s has to win back. McDonald’s reported second-quarter same-store sales fell 1.5% in the U.S., when it reported its quarterly earnings a couple of weeks ago. Task said with so many options for consumers right now, “There isn’t, at this moment, anything compelling to drive additional consumers to McDonald’s.”
McDonald’s CEO Don Thompson said it will take steps to repair the company’s business fundamentals, such as streamlining its menu, evaluating its menu prices and improve its marketing.
McDonald’s challenges over the past few weeks go beyond weak sales in the U.S. and the food scandal in China. The National Labor Relations Board said last week that the fast-food chain could be held liable as a joint employer with franchises in lawsuits involving labor violations.
- Consumer Discretionary