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McDonald's first monthly sales drop in a decade

9:45 AM, Nov 9, 2012   |    comments
(Photo: Richard Drew, AP)
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Ronald McDonald almost forgot what it's like to have indigestion - until now.

After roaring through years of the economic downturn while most other fast-food chains faltered, McDonald's on Thursday reported a 1.8% global comparable sales drop for the month of October, marking the first time a monthly decline has hit the company since March 2003 - when George Bush was president. The decline was felt not just in the U.S. and Europe, where sales fell 2.2%, but also in Asia, the Middle East and Africa.

For McDonald's, the new reality of the tough global economic environment is hitting home just months after new CEO Don Thompson took the helm. Beyond the economic challenges worldwide, McDonald's also faces increased competition domestically from Wendy's, Burger King and others.

At the same time, the entire fast-food segment is slowly but steadily losing market share to the slightly more upscale fast-casual segment composed of chains such as Panera and Chipotle.

"McDonald's faces a general global consumer slowdown," says Steve West, analyst at ITG Research. "I've never seen this much weakness so widespread for them."

Beyond value, new products also are critical, he says. And McDonald's is "lagging significantly here right now," he says. This at a time Burger King, Taco Bell and even Domino's "have stepped up their games," he says. "McDonald's hasn't done anything of note since McCafe."

October's sales results reflect the "pervasive" challenges of the global marketplace, says Thompson. "I am confident that our strategies and the adjustments we are making in response to the current business headwinds will build sales momentum and drive sustained, profitable growth."

That won't be simple.

This decline took place during a month when the chain widely stressed value promotions globally and during a month it rolled out its annual Monopoly promotion.

McDonald's stock closed at $85.13, down $1.73 or 2%.

Next month in the U.S. market, it will roll out one of its most popular promotional menu items: McRib. That, inevitably, entices new customers. But will it be enough to help turn things around?

Sterne Agee analyst Lynne Collier says, while she's "disappointed" with the recent sales trends, "We continue to believe that McDonald's is the best-positioned global competitor in quick-service restaurants."

USA Today

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