food and beverages

Pressures Mount On Coca-Cola, McDonald's

Both Coca-Cola and McDonald's have reported another in a series of tough quarters.

Coca-Cola's revenue for its third quarter ended Sept. 26 declined to $11.98 billion from $12.03 billion a year ago. Its net income declined 14% to $2.1 billion — or 48 cents a share — from $2.4 billion, or 54 cents a share, a year earlier, falling short of analysts' expectations. 

Coca-Cola also said that it expects to miss its long-term earnings growth target in the current fiscal year, in part due to currency fluctuations, and that currency-neutral EPS growth is unlikely to be much different in 2015. 

Under mounting pressure from shareholders, the company announced that it is now planning to expand its productivity initiatives and refranchise its company-owned bottling territories in order to cut $3 billion in costs through 2019 — up from the $1 billion by 2016 in savings it had announced in February. 



Coca-Cola has gained some market share from its "Share-A-Coke" campaign, but its North American sales volume declined 1% in the quarter. Global volume was up 1%, but the company reported that economic conditions in the emerging markets that have bolstered growth for years are now challenging as well. 

The growth plan that Coca-Cola announced in February included increasing media spending, but the company has also vowed to increase the effectiveness and efficiency of its marketing — a commitment reaffirmed by CEO Muhtar Kent in this latest quarterly call with analysts. 

Coca-Cola did not indicate how much of the targeted $3 billion in savings will be reinvested in operations and growth-driving initiatives and how much will drop to the bottom line, but said that the company would "balance" these.

McDonald's also announced a series of strategic changes, after seeing its third-quarter profits drop 30%, to $1.07 billion, or $1.09 per share. Total revenue declined 5%, to $6.99 billion. Same-store sales not only declined by 3.3% in the U.S. — the fourth straight quarter of increasing U.S. sales declines — but also down by 3.3% globally, largely due to a scandal over use of expired meat by an Asian supplier. 

McDonald's has been up against intensified competition from QSRs and fast-casual chains positioned as offering healthier alternatives —  a challenge that may be being exacerbated by McDonald's having increased its prices by 3% in the year ended in June, pointed out Bloomberg.

In reporting the latest results, president and CEO Don Thompson said McDonald's will seek to boost U.S. sales by simplifying its national menu and letting restaurant operators increase regionalized offerings, and by quickly expanding its "Create Your Own Taste" program. That platform, which allows customers to customize their sandwiches, is currently being tested in Laguna Niguel, Calif. and will be rolled out in three other markets by the third quarter of next year, he reported. 

As reported in Marketing Daily, only a week ago, McDonald's launched a major campaign aimed at directly addressing U.S. consumers' questions about the ingredients and preparation of its food. In addition, the chain's extremely popular Monopoly game has been underway for about four weeks.  

YouGov BrandIndex reports that while overall perceptions (or "buzz" score) got a boost after the transparency campaign launched on Oct. 13, its quality and purchase consideration scores among key audiences between mid-September and mid-October were decidedly mixed.

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