McDonald’s Corp. (MCD) has been in the limelight for the past few days for the wrong reasons. Earlier it was China and this time it is Russia. Irrespective of the countries, the impact on the company’s reputation, traffic and revenue is certainly a concern.
Reportedly, the Russian consumer protection agency has filed a lawsuit against the company in Moscow court stating that the company is selling food that contains more fat and carbohydrates than the permissible standards in Russia. Per the agency, some food items like Caesar wraps and salads had microbial contamination, which can cause food poisoning. Several other items like cheeseburger, Filet-o-Fish, and vanilla and chocolate milkshakes also have calorific values two to three times higher than allowed by national regulations.
Why the Onslaught?
Some analysts hint that the lawsuit comes in the wake of high tensions between Moscow and Washington. On Jul 16, 2014, President Obama imposed some restrictions on Russia that hit the nation’s largest oil producer Rosneft and other energy, financial and defense firms. These regulations would primarily restrict Russian giants’ access into the U.S markets.
Also, the measures would close medium and long-term dollar funding for the two largest banks – Gazprombank and Vnesheconombank – and energy companies – OAO Novatek and Rosneft. In response, Russian president, Vladimir Putin reportedly stated that the new sanctions imposed by U.S on Russia would lead to a dead end.
McDonald’s International Woes Continue
Besides being plagued by adverse impacts of a sluggish domestic economy, the company has been suffering as a result of diverse problems in its international markets.
In 2003, France had boycotted McDonald’s in order to protest against the war in Iraq. In April this year, the company had to suspend its work at its three Crimean restaurants owing to heightened tensions between Russia and the West.
Meanwhile, Shanghai Husi Food Co., a supplier of meat for McDonald’s, was found reusing meat that had fallen on the factory floor as well as mixing fresh and expired meat. This incident incurred the wrath of food regulators. The company reportedly apologized and announced a change in meat suppliers.
As a matter of fact, several other food chains like Yum! Brands, Inc. (YUM), Burger King Worldwide, Inc. (BKW) and Papa John's International Inc. (PZZA) had also bought meat from this supplier and have therefore decided to remove the products from their offerings.
Many other food scandals overseas have hit the meat and dairy industries in recent years, like the one involving the sale of chicken injected with excessive levels of antibiotic drugs.
Bottom Line
We believe that the latest setback could adversely impact McDonald’s international sales especially at a time when its comparable sales in the U.S. are suffering due to declining consumer spending in a sluggishly recovering economy. McDonald’s has a Zacks Rank #4 (Sell).
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