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posted on 10 September 2015

McDonald's Feels The Pinch, But Fast Food Is Fighting Fit

from The Conversation, The Conversation

-- this post authored by Anish Nagpal, University of Melbourne and Kristijan Causovski, University of Melbourne

Fast food giant McDonald's has been under a cloud in recent years as its US customers turn to alternatives. In this "Fast food reinvented" series we explore what the sector is doing to keep customers hooked and sales rising.

McDonald's, the epitome of fast food, has been suffering a decline in global sales for the past few years. Globally, McDonald's revenues in the first half of 2015 fell by 10% to US$12.5 billion and net income dropped by 22% to US$2 billion.

In May this year, worldwide sales dropped by 0.3%, with the greatest decline of 3.2% occurring in Asia-Pacific, the Middle East and Africa, most certainly resulting from the food safety scandal in 2014.

Given the declines being seen at McDonald's, it's easy to jump to the conclusion that junk food and takeaway is "out" while healthy foods are "in". Consumers in many markets now accept fast food is unhealthy, a view consistently echoed by the scientific community. There's no shortage of evidence: fast food is rich in fats and salt, and normally accompanied by beverages high in sugar.

A recent Mintel report on attitudes towards healthy eating in the UK finds that "being overweight is the most prevalent of health concerns among Britons". So, increasingly, the healthiness of food is playing a large role in food decisions. For example, the same study found that the healthiness of food is the second-most-important consideration for food choice, with taste being number one.

A blip rather than a serious decline

The consumption of fast food and takeaway may be slowing down in some Western economies, but that's not the case globally.

Combining data from various sources, including the Australian Bureau of Statistics, Bureau of Economic Analysis, the Economic Research Service, QSR Magazine, Economist Intelligence Unit, Mintel and company results, it's possible to get a greater understanding of general trends.

In the US, spending on fast food and takeway per capita is projected to go from A$782.40 in 2015 to A$779.80 in 2018. A similar stabilising trend is forecast in the UK, with per capita spending expected to increase from $A228.40 in 2015 to $A232.40 in 2018. In Australia, spending per capita is predicted to fall from $A645.60 to $A620.40.

Retail market spend per capita on fast food and takeaway


However, this pattern is perhaps compensated by growth in Asia, South America and Eastern Europe. For example, per capita spending in China is predicted to rise from A$151.86 in 2015 to A$181.67 in 2018. In Brazil, per capita spending is estimated to increase from A$135.90 in 2015 to A$149.50 in 2018. In Russia, per capita spending on fast food and takeaway is expected to go up from A$55.61 in 2015 to A$76.96 in 2018.

Moreover, McDonald's competitors, such as Burger King, Dominos, KFC etc, have turned around their fortunes, and the future of the fast food and takeaway industry looks even brighter. Burger King reported a rise in sales of 7.9% in the US and Canada during the second quarter of 2015. Although KFC and Pizza Hut (both owned by Yum! Brands) suffered declining sales in China, both have seen sales growth in UK markets.

In New Zealand, KFC reported a 9.7% annual sales rise in April. It also plans to open 150 new restaurants in Russia after recording 48% growth in sales for the first quarter of 2015. Pizza Hut almost doubled its annual profits in 2014 and is expecting to open several new outlets in the coming years.

Next stop, developing markets

People are becoming more health conscious and are more informed about the benefits of healthy eating. Educational programs are being introduced in schools to teach children about the different food groups and inculcate healthy eating habits. Governments have also taken measures to limit the consumption of junk food, implementing tighter regulations targeted towards curbing advertising to children.

These steps are taking place in both the developed world and in countries such as India, where the growth of fast food and takeaway is projected to grow. The Delhi High Court in India has decreed that junk food - or food high in fat, sugar and salt - must be restricted in schools and within a 50-metre radius around schools. New rules and regulations are also being put in place to restrict film stars and cricket icons (the aspirational group of the Indian middle class) from advertising junk foods.

All these factors will hopefully limit the consumption of unhealthy food and trim the waistlines of citizens across their nations. But the fast food and takeaway industry is also well poised to respond to these changes. For example, McDonald's recently introduced the "Create Your Taste" campaign allowing consumers to customise their burgers.

Burger King is replacing sodas with fat-free milk, low-fat chocolate milk and apple juice in the beverage options on its children's menu. And fast food companies such as McDonald's, Burger King, Taco Bell and Dunkin Donuts are also planning to trial home-delivery options, making their product more accessible to the public.

Ultimately, suggestions of the demise of fast food are likely to be greatly exaggerated.

The ConversationAnish Nagpal, Senior Lecturer, Management and Marketing, University of Melbourne and Kristijan Causovski, Research Assistant, University of Melbourne

This article was originally published on The Conversation. Read the original article.

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