McDonalds in Trouble in France

The golden arches have been having some serious problems in the land of Lafayette and Napoleon and that spells trouble for McDonalds Corporation. European sales for the company over-all rose at a much slower rate than expected in August. Much of the blame can be attributed to the weakness of the brand in France, the company’s largest European market.

McDonalds’ French Earnings not Up to Expectations

The company recently announced that their August sales had increased only 2.2 percent in Europe from the sales numbers for the same time last year. Analysts had expected to see much stronger sales figures, offering estimates in the 5 to 6% range.

A McDonalds spokesperson released a statement blaming the French branches of the restaurant, where they said sales were “slightly negative.” The blame for the change was placed on the fact they had offered less promotions in the country than they had last year.

How has McDonalds been Faring in Europe?

The hamburger chain considers Europe to be an extremely important market, given that the company generates a full 40% of their sales on the continent. Burger King does not have any branches in France at all, and Wendy’s has no branches anywhere in Europe.

The recent news from France contrasts sharply with previous months — five out of the eight months of 2010 have experienced serious growth, amounting to some 5 percent growth for same store sales.

How Does McD Explain Their European Performance?

The company said simply that they believed they had learned an important lesson from the experience – that the French, like everyone else, need to consistently encounter branding and value messages in order to entice people to come in for a Happy Meal.

The decline for French branches of the chain was made all the more shocking given that this was the first time since November, 2005 that numbers have showed up thusly.

But the Sky isn’t Falling for McDonalds…

Analysts however have cautioned that it is far too soon to draw conclusions, saying that a one month decline in sales growth does not mean that the company has reached saturation. After all, companies large and small have a bad month on occasion.

Another issue which may have contributed to the sharp sales decline for August was a French decision to significantly lower the VAT (European sales tax) for restaurant meals to 5.5% from the previous 19.6% in July of 2009. Given that the bump in sales (due to the tax cut) in August 2009 was particularly robust, analysts believe that it may be unfair to expect to see growth like that again now that the dust has long since settled from that bonanza.

 

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