Even McDonald's, Coca-Cola hit by global misery

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McDonald'sAP

Until now McDonald's and Coca-Cola had been immune to the global slowdown. But it seems that the good times are over for the fast food and drinks giants.

Junk brands tend to do well during recessions as they are something people can still afford even in tough times, so if the wheels are starting to come off the global juggernauts, does this mean things have got much worse?

In a rare blip, the world's largest hamburger chain, admitted this week that profits dropped 4% in the second quarter. Sales at McDonald's 33,000 outlets around the world have slowed sharply in recent months as the debt crisis rages unabated in Europe and even the Chinese economy is coming off the boil. Belt tightening by governments and consumers around the world means fewer people are eating out.


Same-store sales at McDonald's - sales at restaurants open at least 13 months - climbed 3.7% between April and June - sharply down from the 7.3% increase seen in the first quarter, and the 5.6% growth the company posted in the same quarter last year. The company made $1.35 billion in the second quarter, down from $1.4 billion a year ago.

'More than a European cold'
McDonald's new boss Don Thompson described sales as "solid," but admitted that "overall results reflected the slowing global economy, persistent economic headwinds and the investments we've made to enhance restaurant operations."

And sales are expected to slow further in July, despite McDonald's ramping up advertising spending to get more customers through the door.

Thompson added: "We're seeing more markets that are having consumer confidence issues. It's a little more than a European cold, if you would."

Sales in Europe - 40% of McDonald's business - grew 3.8% in the quarter but only because the UK and Russia held up well. In the US, sales were up 3.6%.

Once rapidly growing in the Asia/Pacific, Middle East and Africa region, sales have dwindled there to just 0.9% growth. Australia and China did ok, but were offset by a weak performance in Japan.

"This year is going to be a challenge for the chain," said Jack Russo, an analyst at Edward Jones. "Europe has slowed down, and the consumer remains pretty frugal."

Coca-Cola
Coca-Cola Enterprises - Coke's US-listed European bottling business - fared even worse, suffering a 17% fall in net income to $205 million between April and June, blaming the bad weather in Europe and "ongoing marketplace challenges". John Brock, the chairman and chief executive, explained that the company had been hit by weak demand and a tax on sugary drinks in France.

Volumes fell 6% overall, although the UK once again did better than the rest of Europe, with volumes only down 4.5% against a 7% decline in continental Europe.

But official GDP figures cranked up the gloom over here and confirmed Britain is stuck in recession, with a third consecutive quarter of contraction. And with Spain - the eurozone's fourth-largest economy - lurching closer to a full-blown bailout, things look like they are going to get tougher rather than better in Europe.

Both McDonald's and Coca-Cola have also been hit because the dollar has strengthened against other currencies. And both are sponsors to the London Olympics, so they can only hope for a boost from the event, which kicks off Friday night.

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