Downturn bites into burger sales

This year will see 14 new outlets in the UAE and a switch to cardboard containers.

DUBAI // McDonald's sales growth in the Emirates slowed by more than two thirds last year as the number of burger-loving tourists declined. Rafic Fakih, the managing director of McDonald's Emirates, said sales at its outlets open more than a year grew by just 4 per cent last year, down from 14 per cent growth in 2008.

"We didn't see a big difference among our customers that live in the UAE, but the major decline came from [the lack of] visitors," he said. McDonald's comparable global sales grew by just 3.8 per cent last year, a slowdown from an increase of 6.9 per cent in 2008. But the slowdown was more prominent in the Middle East, the Asia-Pacific and Africa, which had same-store sales growth of 3.4 per cent last year, down from 9 per cent. Sales growth in Europe dropped to 2.6 per cent from 4 per cent, and in the US to 5.2 per cent, from 8.5 per cent.

Some analysts said that although McDonald's shrinking sales growth was severe, the company had fared better than many other fast-food retailers. Shonil Chande, a food and drink analyst at Business Monitor International, a research company in the US, said fast-food retailers benefited last year from the thrifty ways of consumers. "People were eating out less, and when eating out, they were eating out at lower cost places so you had demand for fast food holding up relatively well compared to restaurants," he said. "You would have expected that to have held up in the UAE. But obviously, the drop in population does have an impact."

Price increases on some McDonald's menu items may have contributed to the marginal sales growth, said Laurent-Patrick Gally, a retail analyst at Shuaa Capital in Dubai. "From a volume standpoint, it suffered from slowing demographics and slowing tourism, and some kind of price increase has probably compensated for this," he said. "Being able to grow the top line in 2009, amid slowing demographics, is good. However, I would have expected this figure to be a little bit higher."

McDonald's increased the price of some of its sandwiches by 6 per cent last year, said Mr Fakih. "We had some price increases at the beginning of 2009, because our prices had not changed for 14 years," he said. "We are still the least expensive fast food in the UAE." McDonald's now has 72 outlets in the Emirates, after opening 11 branches across the country last year, said Mr Fakih. It did not close any stores or lay off any staff, he added.

This year, McDonald's Emirates plans to open 14 new stores, mainly in the capital. "We're focusing more on Abu Dhabi now because during the last year, despite the economic difficulties, sales in Abu Dhabi were growing faster than the other parts of the UAE," Mr Fakih said. McDonald's Emirates has already opened another store in Abu Dhabi and one in Dubai Mall's KidZania educational theme park this year. Five more stores are planned for Abu Dhabi, one or two in Al Ain, four or five stores in Dubai and one each in Fujairah and Ajman, he said.

Mr Fakih anticipates same-store sales growth this year will exceed last year, but will not return to the heights of 2008 just yet. "We expect this year to be more than 4 per cent, but I don't think we will reach double digits this year," he said. "To regain confidence and the level of activity in the whole UAE, it will take time. It will all depend on international economic growth as well." @Email:[e-mail]