February 17, 2015--Have It Our Way

Two major food companies last week released financial statements about earnings for the fourth quarter of 2014. Kellogg and McDonalds.

Both failed to meet expectations, with McDonalds reporting a significant and on-going decline in "customer visits," earnings, and profits. Speculation about both--for the most part confirmed by the companies as they scramble to turn things around--is that they are losing customers because people are seeking healthier food. And there are healthier fast-food alternatives to Mickey D's at places such as Chipolte, Chick-fil-A, and, if you must have a burger, Shake Shack.

McDonalds saw customer visits during the quarter decline by 1.7% and, more ominous, earnings decline by 21%. The third quarter was even worse with visits down 3.3%.

In response, they are launching an ad campaign, featuring a new slogan--"I'm Lovin' It." And employees are being made to wear new, lighter-feeling uniforms. Reportedly, they hate both. Especially the "lovin'" part.

Recognizing that much of this decline is the result of Americans becoming health conscious, McDonalds is experimenting with "custom burgers" (in other words, "Have it your way")  and eliminating some items, including quarter-pounders with cheese. A cholesterol nightmare.

For my money, they could get rid of the quarter-pounder altogether. The burger itself may start out weighing a quarter of a pound, but during the cooking, after all the fat runs out, it looks more like the sliver of a burger one gets at White Castle. If you want something resembling a burger that weights a quarter pound, head for Shake Shack. Though, as a guilty treat, McDonalds still does make some mean fries.

Meanwhile, over at Kellogg, the world's largest supplier of cereal, the picture isn't much brighter. There sales too have been plummeting. Fourth-quarter earnings were down an astonishing $293 million. Even after adjusting for currency fluctuations and accounting maneuvers, the company self-reports great concern. Like McDonalds, they too are scrambling to make modifications in their product lines. And for some of the same reasons.

CEO John Bryant cited weakness in sales of even Kellogg's "healthy" cereals, including  in the Special K line. He observed that consumers are shifting away from products that claim to be "diet" foods and are opting more and more for what executives in the industry call "functional foods." Those with fewer, simpler ingredients that do not include genetically-modified grains. So Kellogg accordingly is moving quickly to modify its breakfast cereals, Kashi brand, and snack foods.

As counter evidence that Americans are adjusting their diets for reasons other than health, Coca Cola continues to lose market share with bottled water, energy drinks, and coffee becoming beverages of choice for younger consumers. (The average age of Coke drinkers is 56.) It is obviously good to be moving away from drinks that are loaded with corn syrup, but becoming addicted to caffeine is not the ideal alternative.