No quick fix as Big Mac goes cold

FOUNDER Ray Kroc would be turning in his grave. Burger giant McDonald's has not experienced such a crisis of confidence in its 37 years as a public company. Shareholders have departed in droves in the three weeks since the company recorded a fourth-quarter loss, its first three-month deficit.

In Japan, it failed to make money in 2002 for the first time since 1973. Last week, it stunned investors by unveiling a 2.4% sales fall in January. McDonald's shares fell to an eight-year low.

So is there anything Ronald McDonald can do to get his smile back? According to the Wall Street gurus, the answer is a resounding no. Thirteen New York analysts out of 18 rate McDonald's a hold or sell, making it one of the most bearishly rated of the 30 companies in the Dow. In short, there is a growing belief that there is no quick fix for the king of grab-and-go meals.

The company that once generated double-digit profit growth from rapid expansion is now a mature business in a fiercely competitive market. Instead of opening restaurants, It is pulling out of three countries, shutting down unprofitable US restaurants and closing several London outlets. In America, McDonald's is in a perpetual war for market share and faces competition from a range of rival 'quick, casual' dining chains.

In Europe, sales plunged 3.8% in January. The weak economies in major markets France and Germany are hurting sales but anti-American sentiment may also be playing a role, said Goldman Sachs analyst Coralie Tornier Witter.

New chief executive James Cantalupo is sending corporate 'spies' into restaurants to evaluate quality, value and service, and introducing health-conscious menu items. The moves haven't yet pulled McDonald's out of the fryer - its market capitalisation is now less than $20bn (£12.5bn), about half its 2002 global sales.

Fast-food newcomers eat into share

ITS new McPremier steak may have just 454 calories, against 493 in a Big Mac, but fat-fearing Brits are still shying away from McDonald's. The fast-food market grew 3.2% last year but the expansion came from 'healthy' sandwich and chicken bars. No surprise, then, that Ronald McDonald gobbled up a 33% stake in Pret A Manger.

Competition from these alternatives, and frantic price-cutting by Burger King - not without its own troubles - have almost wiped the smile off the ginger clown's face.

The company has scaled back its expansion programme in Britain to its slowest pace in a decade. Only 44 new outlets will open here in 2003 compared with an average 100 openings a year during its 1990s heyday.