Fast-food chains hit by falling US sales

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McDonaldsProtest1 Reuters. Slower sales growth has many industry watchers forecasting the once unthinkable: the peaking of burger joint growth in the US.

Chicago - For most of its history, the fast food business in the US has been characterised by rapid and dependable growth.

From founder Ray Kroc’s first restaurant in Des Plaines, Illinois, in 1955, McDonald’s became a chain of more than 700 stores in the US within 10 years.

By 1983 there were 6 000, and for the next two decades the company opened about 360 US outlets every year on average.

Smaller rivals Burger King and Wendy’s had impressive early growth stories of their own.

In recent years, though, the companies that made Big Macs and Whoppers into icons of American pop culture have seen robust domestic expansion disappear from their menus.

Sales at restaurants open for at least 13 months slipped 0.2 percent last year in the US at McDonald’s and 0.9 percent at Burger King for the US and Canada.

Even including newly opened locations, which experience rapid growth rates in their early months, sales at the major fast-food chains grew only 1.1 percent last year, compared with 4 percent in 2012, according to Euromonitor International.

Slower sales growth has many industry watchers forecasting the once unthinkable: the peaking of burger joint growth in the US.

“Traditional fast food – McDonald’s, Sonic, Wendy’s, KFC, Taco Bell – are fairly well saturated in this country, with not a lot more room left for growth,” says Peter Saleh, a senior research analyst at brokerage Telsey Advisory Group.

The big chains already may be reacting to the shift in a surprising way: by selling more of their company-owned US outlets to franchisees.

Last year, Wendy’s said it was selling more than 400.

Yum! Brands, which owns KFC and Taco Bell, got rid of 214 restaurants last year and 468 in 2012.

McDonald’s has offloaded 200 stores this year, including an undisclosed number in the US.

Burger King owns less than 1 percent of its US locations.

Some Wall Street analysts encourage such “refranchising” because it transfers the cost of running restaurants onto franchisees, which in turn helps the parent company’s bottom line.

Others say the big chains, which are increasingly global, are simply insulating themselves from a US business that has topped out as fleet-footed competitors appeal to a new generation of diners who prefer healthier meals that they can build and customise themselves.

The fast-food chains are looking to their international businesses for growth, as the middle classes in China, Brazil and other emerging markets embrace American-style fast foods.

Last year McDonald’s booked about two-thirds of its revenue outside the US. – Bloomberg



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