McDonald's burgers losing their allure

Last updated 15:41 09/11/2012

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McDonald's has reported its first monthly drop in global sales in almost a decade as diners turn their backs on the golden arches in favour of its price-conscious competitors.

The fast-food giant reported a 1.8 per cent slump in sales during October, the first monthly decline since March 2003, sending its shares to a year low and presenting big challenges to its new CEO.

McDonald's is likely to answer the challenge with stepped-up promotions in response to resurgent rivals such as Burger King, Wendy's and Taco Bell, analysts said.

Those chains have re-done their menus and beefed up "value" offerings to compete with McDonald's popular Dollar Menu.

ECONOMY TO BLAME

McDonald's is in many ways a victim of its own success said analysts, who for now are giving a pass to new CEO Don Thompson. Thompson took the helm at the world's biggest hamburger chain on July 1.

McDonald's for years has set the bar for growth by outpacing rivals and turning in strong sales despite modest consumer spending around the world.

The seller of Big Macs and Chicken McNuggets last month signalled an October sales decline because of the weak global economy, which has spurred intense competition in response to diners' diminishing appetite for spending money on restaurant food.

"This has nothing to do with Don being in charge. It's just a matter of bad timing and bad luck. They'll get through it," Edward Jones analyst Jack Russo said.

He predicted that McDonald's would respond with more promotions this month, but he also said superstorm Sandy, which hit the US Northeast at the end of October, was likely to weigh on November sales.

GLOBAL WEAKNESS

October sales at McDonald's restaurants fell 2.2 per cent in both the United States and Europe, but dropped 2.4 per cent in the Asia-Pacific region, Middle East and Africa.

With more than 34,000 locations around the world, McDonald's has far more purchasing and advertising muscle than many rivals, analysts said.

Still, it will be difficult for McDonald's to post higher same-restaurant sales for November and December because last year's results were so strong, analysts said.

McDonald's shares touched a 52-week low of US$85.64 on Thursday. They were down 1.2 per cent at US$85.79 in Friday trading on the New York Stock Exchange.

October sales at McDonald's restaurants open at least 13 months fell 2.2 per cent in both the United States and Europe, and dropped 2.4 per cent in the Asia/Pacific, Middle East and Africa (APMEA) region.

While the sales declines were expected, they were steeper than Wall Street estimated in the United States and Europe.

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McDonald's US market share losses "seem to have accelerated in recent months," Jefferies & Co analyst Andy Barish said in a note to clients.

MACCAS NOT ALONE

Many US restaurant companies, including investor favorite Chipotle Mexican Grill and McDonald's, have reported cooling demand as diners get more frugal.

Just a few weeks ago, McDonald's posted its worst quarterly restaurant sales growth performance in nine years.

Those results come as Wendy's, the second-largest US hamburger chain, leaps weak year-ago results with help from a turnaround effort that includes re-doing both its menu and restaurants.

On Thursday, that chain reported a 2.7 per cent increase in third-quarter sales at established company-operated restaurants in the United States.

Wendy's stock jumped 5.8 per cent to US$4.51.

- Reuters

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