McDonald’s, Coke feel pinch from Canadians’ health kick

A Coke and McDonald's Quarter Pounder sandwich doesn't pack as much appeal as it once did. Joe Raedle/Getty Images

A Big Mac and Coke no longer pack the same appeal as the classic combo once did, partly because a more health-conscious consumer now perceives the pairing to help pack on the pounds.

McDonald’s reported on Tuesday North American fast-food sales are in decline while Coca-Cola said pop sales are similarly fizzling as customers shy away from heavier menu items like burgers and fries and opt for beverages that contain less sugar.

“It’s the same trend that’s affecting soda and fast foods,” Will McKitterick, a food retail analyst at IBIS World Inc. said. “Coca-Cola and McDonald’s are somewhat in the same boat.”

In Canada, carbonated beverages are the fastest falling category by sales in food retail, with per-capita consumption of pop falling by 3.5 per cent annually over the past five years, according to IBIS World research (see chart).

Annual soft drink consumption hit nearly 105 litres per Canadian at the mid-point of the last decade. But increasingly unfavourable perceptions about diets high in sugar or artificial sweeteners found in diet products has led to a marked shift in consumer tastes.

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Total Canadian soft drink consumption has fallen to 70 litres per capita this year, or 191ml a day per Canadian, which amounts to just over half a normal size can of Coke.

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The diminished appetite for higher calorie menu items has carried over to traditional fast food, as well. In the U.S., McDonald’s reported on Tuesday a sales decline of 4.1 per cent in the July-September quarter – an even steeper fall than the 3.3 per cent decline in global sales.

In Canada, sales haven’t dipped into negative territory, according to research from NPD Group.

“McDonald’s is doing a little bit better here than they are in the U.S.,” Robert Carter, an industry analyst at the market researcher said.

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Flat traffic in Canada

But Canadian traffic into McDonald’s restaurants isn’t growing, according to NPD, while the domestic chain of 1,400 locations is grappling with the same trends denting sales south of the border, Carter said.

“Consumers are continuing to shift away” from items considered less healthy and toward “products that are perceived to be skewing toward health and wellness overall.”

New menu items at McDonald’s and other chains aimed at satisfying that desire for healthier eating leave room for improvement, experts say.

The problems for Coke meanwhile are even more urgent – earnings from North America plunged in the latest quarter. In Canada, the biggest growth area, or at least where the most consumption is taking place, has shifted to breakfast, or typically a time when pop isn’t a popular choice.

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Coke said Tuesday it’s planning aggressive cost cuts, tripling its target set only in February.

NPD’s estimates for pop consumption declines in Canada are even higher than IBIS World’s, with pop consumption down 8 per cent in 2013 compared to 2012, Carter said.

“Carbonated soft drinks are the fastest declining item in the Canadian restaurant market,” he said.

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