McDonald’s moves off the grill and into the fryer

Jack In The Box

24/10/2024 13:00

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are her own.)
    By Jennifer Saba
       NEW YORK, Oct 23 (Reuters Breakingviews) - Foodborne
illness is the last thing McDonald’s  MCD.N  wants on the menu.
The fast-food restaurant chain has pulled Quarter Pounders from
some U.S. locations following an E. coli outbreak. Its quick
response suggests it should be able to weather the crisis, but
it can ill-afford to scare off more customers.
    The U.S. Centers for Disease Control and Prevention said on
Tuesday that one person died and 49 others in 10 states were
sickened from eating at McDonald’s. Early indications suggest
slivered onions are the cause.
    McDonald’s mobilized swiftly to try and contain the problem,
learning from missteps by restaurant rivals. Chipotle Mexican
Grill  CMG.N , for example, failed to prevent its own 2015 E.
coli incident from spiraling, and it took years before the
burrito chain’s stock price recovered. Fellow burger flipper
Jack in the Box  JACK.O , which suffered from the same bacterial
outbreak in the early 1990s, denied it was the culprit only to
become a U.S. Defense Department case study on how not to
respond.
    Although McDonald’s may be able to pin the problem on a
supplier rather than its own kitchens, the nuance may be lost on
diners. The company led by Chris Kempczinski is already dealing
with other challenges, including its high prices, the
appetite-suppressing threat from weight-loss drugs, and a
slow-moving desire for healthier foods.
    Last quarter, McDonald’s reported that worldwide sales at
sites open for at least 13 months fell 1% from a year earlier,
partly because it has been charging more. The average price of
its menu items is up 40% over the past five years, nearly double
broader national inflation of 23%. A temporary $5 meal promotion
introduced in the spring has been extended, and is helping lure
customers back. Headlines about E. coli might give them fresh
pause.
    McDonald’s shares tumbled 5% early on Wednesday. This
implies initially, based on the enterprise’s valuation of nearly
19 times EBITDA next year and its 54% margin, that investors
anticipate a 4% hit to sales, according to Breakingviews
calculations using estimates gathered by Visible Alpha.
    If the maker of the Happy Meal can limit the fallout, the
damage may be less severe. At the same time, sales were already
projected to tumble 9% in 2024, per LSEG data. The danger is
that McDonald’s already has moved off the grill and into the
fryer.

    Follow @jennifersaba on X
         
    CONTEXT NEWS 
    McDonald’s said on Oct. 22 it removed its Quarter Pounder
hamburger from menus in several states including Colorado, Utah
and Wyoming following an E. coli outbreak. The fast-food chain
said early indications suggest the illness may be linked to
onions from one of its suppliers.
    The U.S. Centers for Disease Control and Prevention said one
person died and 49 people from 10 states have gotten sick.
    McDonald’s shares were down about 5% at 1030 EDT on Oct. 23.

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 (Editing by Jeffrey Goldfarb and Pranav Kiran)
 ((For previous columns by the author, Reuters customers can
click on  SABA/ 
jennifer.saba@thomsonreuters.com))