McDonald’s suffers first sales drop in nine years

Mark Garrison Nov 8, 2012
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McDonald’s suffers first sales drop in nine years

Mark Garrison Nov 8, 2012
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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.

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