Pandemic takes a toll on McDonald’s, records significant drop in sales

By Rahul Vaimal, Associate Editor
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According to the company statement, the restaurant shut down necessitated by the COVID-19 pandemic has led to a significant drop in American fast-food chain McDonald’s global same-store sales and missed profit estimates. During the period, the American company was forced to restrict its operations to drive-thru and delivery only.

Same-store sales is a business term that refers to the difference in revenue generated by a retail chain’s existing outlets over a certain period, compared to an identical period in the past, usually in the previous year.

The Chicago burger chain’s shares fell by more than 2.5%.

In the second quarter, global sales of the same-store fell 23.9%, pulled down by major foreign markets like the United Kingdom, France and Latin America.

According to IBES data from Refinitiv, analysts had expected a 23.24% decrease.

In the U.S., where the company operates more than a third of its restaurants, the same-restaurant sales dropped 8.7% but were better than the predicted 9.97% decline, as most locations were able to remain open with a drive-thru and delivery options.

Executives stuck to a cautious tone at a conference call with investors but have acknowledged that the U.S. July sales have increased, and the full month is likely to end in positive numbers.

Chris Kempczinski, Chief Executive said, “The second quarter represents the trough in our output as McDonald’s has learned to adapt our operations to this new climate.”

Restaurants across the world were hit hard as they struggled to deal with the customer preferences and shifting dynamics surrounding the health crisis, causing them to simplify menus and increasingly turn to online and mobile pickup, drive-thru orders and delivery.

A hope for gradual growth emerged when lockdown restrictions were eased which led to better sales.

Approximately 96% of McDonald’s restaurants currently operate with drive-thru, delivery or lower seating capacity.

In the second half of the year, the corporation is planning an advertising push, having “amassed a substantial marketing war chest,” Kempczinski said. In the second quarter, the burger chain had cut U.S. marketing spending by 70% to “conserve cash,” but would reinvest the money now.

All of this would support key menu products and digital ordering, although there are proposals for some menu developments. The organization also expects to receive the bulk of the rent it had deferred from franchisors during the second half of the year.

McDonald’s also sees increasing prospects in Europe, where some independent restaurant units are having some bigger problems that might provide them with some more opportunities.