In a major strategy shift the hamburger chain announced it is to concentrate on improving the performance of its existing 30,000-odd outlets. The number of new restaurants opening in 2003 will be 600, down from a peak of 2,000 in 1996.
McDonald's faces increasing competition from rival burger chains Wendy's, as well as a plethora of fried chicken and pizza chains. Customer surveys have shown growing dissatisfaction with the quality of food, service and cleanliness.
The company reported its seventh earnings decline in eight quarters in Q3, with profits of $487m compared to $545m in the previous year.
Jack M Greenberg McDonald's chairman and chief executive, said: "This year certainly proven to be even more challenging than we had anticipated."
News of the strategy shift was greeted positively by investors, with shares ending 3.5% higher yesterday in New York at $18.95.
The reduced expansion programme will save McDonald's around $500m a year, with as much as $400m of the savings to be reinvested in the refurbishment of existing franchises. It also plans to increase spending on other franchises including Pret a Manger and Donatoes pizzerias.
McDonald's launched a $1 menu in the US last month as it moved to challenge Wendy's.
The company made another break with tradition with the opening last week of a test restaurant in Nebraska. McDonald's 3'n'1 will offer a traditional menu as well as a hot and cold sandwiches platter, and a menu of ice creams, cakes and pastries. The restaurant has a waiter service and special phones on the tables for ordering.
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