McDonald's sales growth cools, chilled by competition

Fri Oct 19, 2012 10:46pm EDT
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By Lisa Baertlein and Jessica Wohl

(Reuters) - McDonald's Corp (MCD.N: Quote) posted its worst quarterly restaurant sales growth performance in nine years on Friday, lifting the curtain on the fast-food industry's ruthless fight for customers in a weak economy.

The world's biggest fast-food chain is battling more than the bleak global economy that is curbing appetites for purchases of its hamburgers, salads and smoothies. Resurgent chains like Burger King Worldwide Inc BKW.N and Yum Brand Inc's (YUM.N: Quote) Taco Bell now are challenging McDonald's in the United States with revamped menus, celebrity endorsers and a renewed focus on low-priced food.

McDonald's domestic market falls just behind Europe as the company's top region for sales.

Easing food cost inflation has allowed U.S. restaurants to step up their menu price wars. "It's led to a very cutthroat restaurant environment," Morningstar analyst R.J. Hottovy said.

"You have a scenario where the overall pie is shrinking, and companies are competing aggressively to take their piece of it," Bernstein Research analyst Sara Senatore said.

When asked to explain why the third quarter's results lagged even those put up during the height of the financial crisis, McDonald's Chief Executive Officer Don Thompson attributed the results to the tougher battle for stomachs and economic challenges in each of the company's major regions.

That confluence of factors forced McDonald's to miss Wall Street's earnings estimates for the second quarter in a row. It also warned that sales at established restaurants - a closely watched gauge of restaurant performance - are down so far this month.

"When the economic crisis began in 2008, few people thought the environment would still be as uncertain and fragile as it is today," Thompson said.   Continued...

A McDonald's sign is shown at the entrance to one of the company's restaurants in Del Mar, California September 10, 2012. REUTERS/Mike Blake