Fast Food's Next Hurdles: A New Giant and Picky Eaters -- Corporate Outlook

   By Annie Gasparro 
 

The battle for burger sales should intensify this year as struggling McDonald's Corp. grapples with changing consumer tastes, cooling sales--and a more formidable competitor.

McDonald's business suffered throughout 2014. In November, for example, monthly sales at established locations in the U.S. fell 4.6%--the worst performance in more than 14 years.

Under pressure from franchisees and some shareholders, the world's largest restaurant chain by revenue announced plans in December to upgrade its ingredients and add more customized ordering to appeal to younger consumers and to pare back a bloated menu that has slowed its service. The simple-yet-customizable approach has worked well for competitors like Chipotle Mexican Grill Inc. and Five Guys Holdings LLC, which are contributing to McDonald's problems.

As McDonald's works to turn around its business, rival Burger King is digesting a major acquisition: Canadian coffee-and-doughnut chain Tim Hortons. The Burger King-Tim Hortons tie-up created a giant now called Restaurant Brands International Inc. with more than 18,000 restaurants in 100 countries, making it a fierce rival to McDonald's roughly 35,000 global locations.

Brazilian private-equity firm 3G Capital, which bought Burger King in 2010 and engineered the Tim Hortons deal, is known for its strict cost-cutting and focus on profit-margin improvements. That could lure investors from McDonald's and other struggling stocks.

An analyst at Morgan Stanley recently said the Burger King and Tim Hortons merger looks promising, while McDonald's continues to lose market share in the U.S.

On top of changes to its menu, McDonald's is also trying to enhance its credibility by marketing more on digital channels and testing mobile ordering and payment. But given McDonald's negative outlook for the end of last year, Janney Capital Markets analyst Mark Kalinowski says 2015 will be likely as bad for the burger giant.

Write to Annie Gasparro at [e-mail]

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