Industry News | September 12, 2002

Analysts React to New McDonald’s Strategy

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Several restaurant analysts are reacting negatively to the plan to bolster U.S. sales announced by McDonald’s management late last week.

Analysts are expressing doubt about the announced plan for a limited $1 menu, subsidies to franchisees which experience profit margin drops due to the lower priced menu, and new training for restaurant crew members. Many are concerned that the new $1 menu may drive in traffic but drive down average ticket price and profit margins.

According to Dow Jones Business News, Goldman Sachs analyst Coralie Turnier Witter told clients in a note, "We are concerned that new initiatives to be discussed (next Tuesday, in the company's interim-quarter update) will dilute focus and reduce earnings growth near-term."

Mark Kalinowski, an analyst at Salomon Smith Barney, expressed his concerns that McDonald’s is not focusing on the more important issue of customer complaints related to poor and inaccurate service. Kalinowski cut his target price on McDonald’s shares from $26 to $23.

McDonald’s stock price fell to a 52-week low of $20.31, down 4.8% on Thursday.