McDonald’s reported another stellar quarter, with earnings that beat analysts’ estimate and a plan to open 1,300 units this year, including several in the U.K. Britain’s troubled economy is driving more consumers to lower-priced quickservice meals, and young adults welcome the news that the company expects to create thousands of jobs in 2012.
But there’s a downside to the chain’s growing global presence. The company warned that profit could wane in the coming months because of currency fluctuation, as the U.S. dollar strengthens and the euro continues to weaken amid Europe’s debt crisis. The announcement led to a 2.2% drop in the company’s share price, Bloomberg reported.
McDonald’s likely isn’t the only U.S. restaurant chain concerned about currency this year. Subway announced several months ago that it expects overseas units to outnumber domestic locations by 2020; Chipotle Mexican Grill has been on the move in Europe; and Wendy’s expects to invest proceeds from last year’s Arby’s sale in expanding the brand globally. In fact, most U.S. chains have mapped some sort of international strategy in recent years.
At this point, the companies have overcome early challenges to international commerce, often partnering with in-country franchisees and operators to help them breach cultural divides, tweaking menus to meet different tastes and dietary preferences and finding additional sources of ingredients to ease supply-chain problems. But there are some stubborn challenges that time and experience can’t overcome.
Even before 2008, U.S. chains were looking to foreign markets as business at home was leveling out, and many accelerated international plans after the domestic downturn hit. At the time, there wasn’t yet an inkling that economic upheaval in Greece would spread throughout Europe. (For great background on what went wrong, listen to This American Life’s report “Continental Breakup.”)
Flash forward to this week, when the International Monetary Fund cut its forecast for global economic growth this year amid concerns about a recession in Europe and slower growth in China and India, as Bloomberg Businessweek reported. While global expansion still makes sense long term, the next 12 months could prove much more challenging than they looked back when companies were planning overseas eateries to hedge against slowing U.S. sales. “The near-term outlook has noticeably deteriorated,” the IMF said. “The global recovery is threatened by intensifying strains in the euro area and fragilities elsewhere.”
Meanwhile, many international companies are exploring ways to hedge currency risk to prepare for the possibility of a eurozone breakup and a switch back to multiple currencies in the region, Reuters reported from the World Economic Forum in Davos, Switzerland.
Have global economic conditions changed your company’s expansion plans? Tell us in the comments.