McDonald's suffers first sales drop in nine years

McDonald's same-store sales fell in October due to lower global demand, increasing competition and gains by “higher end” fast food chains.

New numbers show global same-store sales at McDonald’s slumped nearly 2 percent in October, the first such decline for the chain in nearly a decade. Part of what’s happening is unsurprising. The economic slowdown in Europe and Asia has consumers spending less. America’s economy is improving, but many in the U.S. are still eating out less. Beyond the expected macroeconomic factors, McDonald’s faces a new landscape.

“In fast food, it’s just become more competitive,” says Bonnie Riggs, restaurant industry analyst at NPD Group.

McDonald’s is still king, so it’s hyperbole to say competitors are eating its lunch. But they are taking some serious bites out of its breakfast, a time of day that’s critical to the fast food giant.

“It accounts for roughly a third of the overall business,” says Morningstar senior restaurant analyst R. J. Hottovy. “Recognizing the opportunity that the breakfast hours represent, you’ve seen a number of competitors get into that space.”

New or revitalized breakfast menus from fast food stalwarts like Subway and Wendy’s aren’t the only competition McDonald’s faces. Mexican-esque chains like Taco Bell have done well lately, with their endless creativity in devising unusual new ways to enrobe beef, chicken and beans.

Customers still flock to McDonald’s for cheap food. But the chain needs to sell more expensive dishes too. Lately, McDonald’s has been losing business to slightly higher-grade joints, restaurants the industry categorizes as “fast casual.”

“Chains like Five Guys, Panera Bread, Qdoba, they’re starting to encroach on McDonald’s’ space,” says Joe Pawlak, an executive vice president with the food consultancy Technomic. “Many consumers today are actually willing to pay a little bit more for what they perceive to be a better meal.”

McDonald’s isn’t giving up on that business. It’s fighting for it, with new offerings like the Cheddar Bacon Onion sandwich. The ingredients are loaded with premium adjectives: the bacon is hickory-smoked, onions caramelized. There’s even a loungy, vibraphone-heavy theme song for the burger on the McDonald’s website. The fast food chain hopes its marketing push is enough to entice diners to move beyond the value menu and pay the new sandwich’s suggested retail price of $4.39.

Mark Garrison: Part of what’s wrong is obvious: the slowdown in Europe and Asia has consumers spending less. But that and the still recovering American economy are only part of the story.

Bonnie Riggs: In fast food, it’s just become more competitive.

That’s Bonnie Riggs, restaurant analyst at NPD Group. McDonald’s is still king, so it’s hyperbole to say competitors are eating its lunch. But they are taking some serious bites out of its breakfast. R. J. Hottovy, senior restaurant analyst at Morningstar, says that time of day is critical to McDonald’s.

R. J. Hottovy: It accounts for roughly a third of the overall business, and recognizing the opportunity that the breakfast hours represent, you’ve seen a number of competitors get into that space.

Customers still flock to McDonald’s for cheap food. But the chain needs to sell more expensive dishes too. Joe Pawlak is with the food consultancy Technomic. He says McDonald’s is losing business to slightly higher-grade joints, what the industry calls fast casual.

Joe Pawlak: Chains like Five Guys, Panera Bread, Qdoba, they’re starting to encroach on McDonald’s’ space, as many consumers today are actually willing to pay a little bit more for what they perceive to be a better meal.

McDonald’s isn’t giving up on that business. It’s fighting for it, with vibraphones.

(Music)

That’s the loungy soundtrack for the new Cheddar Bacon Onion sandwich. Every ingredient has a premium adjective attached. The bacon is hickory-smoked, onions caramelized, and cheddar, well it’s just white.

McDonald’s hopes you’ll pay 4 and a half bucks for it. In New York, I'm Mark Garrison, for Marketplace.

About the author

Mark Garrison is a reporter and substitute host for Marketplace, based in New York.

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