Analyst: Tough year ahead for new McDonald's CEO


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Thus far, owner-operators in France have voted to increase their marketing spending and Spain has initiated some new value programs, Bernstein noted.

Stemming a slowdown in APMEA

Similarly to Europe, the APMEA division faces a period of slow growth due to softness in two crucial markets: Japan and China.

Japan in particular will be a drag on APMEA’s fortunes in the near future, as lowered consumer confidence and restrictions on energy usage resulting from the March 2011 earthquake and tsunami will continue to pressure consumer spending. Same-store sales fell 3.6 percent in April and 11 percent in May, Bernstein noted.

However, he added, McDonald’s guest counts and profit margins remain resilient, even if the necessary discounting and value focus are causing declines to the average check. Like other markets, Japan will keep the focus on consistent, everyday value, even as it opens an expected 120 new restaurants in 2012.

Chinese consumers also are spending less due to concerns about slower economic growth. That dynamic, combined with difficult double-digit comparisons from a year earlier, has led to same-store sales growth falling on a sequential basis every month of 2012, with May’s number coming in slightly negative.

“Importantly,” Bernstein wrote, “management believes that consumer strength has flattened rather than falling into a deep decline.”

McDonald’s 1,500 restaurants in China will meet the demand for value in the near term with a summer promotion focused on beverages, including a teatime promotion and an offering with special glassware commemorating the Olympics.

“Longer-term, management believes the business in China remains very strong and remains committed to pursuing steady development rather than reacting to cyclical economic conditions,” Bernstein wrote.

McDonald’s China will open between 225 and 250 restaurants in 2012 and will look to accelerate that pace through franchising over time. Opportunities there include bolstering breakfast, which accounts for only 10 percent of sales; building more drive-thrus, which account for about 40 percent of future openings; rolling out the McCafe program to more than the current 500 stores; and expanding delivery.

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