Recession Hurts McDonald’s Sales
December 8, 2009The supersized recession that was a boon for business last year caught up further with McDonald's Corp. in November, as high unemployment ate into sales.
While the world's largest burger chain is still faring better than its competitors, who've increasingly been pushing value menus and discounts of their own, the restaurant's fortunes likely won't improve unless the U.S. economy does.
"I think ultimately, we'll need job growth to get things turned around to get back in the positive territory," said Morningstar restaurant analyst R.J. Hottovy.
On Tuesday, McDonald's said sales at restaurants open at least a year fell 0.6 percent in the U.S. It was the second consecutive monthly decline for the measure, an important indicator of a restaurant chain's health, and a steeper fall than October's 0.1 percent.
November's overseas results were better but still mixed, helped by a softening dollar that translated foreign revenue into more dollars. Around the globe, sales in locations open at least a year rose 0.7 percent.
Because of its size and its ability to trounce competitors with its increasingly popular dollar menu, McDonald's was one of the early beneficiaries of the recession as diners traded down from pricier restaurants. In fact, last November, sales in locations open a year climbed 4.5 percent in the U.S. and 7.7 globally.
But earlier this fall, McDonald's cautioned it wasn't immune to the recession, either, and in October, the U.S. figure fell 0.1 percent.
Tuesday's results were only the fourth U.S. decrease in 6 1/2 years.
The results come as McDonald's also faces increased competition from rivals trumpeting their own deeply discounted menus. Among them: Taco Bell's value menu that begins with items for 79 cents, and Wendy's $2.99 combos. Burger King has also heavily pushed a $1 double cheeseburger that it touts as being a bigger and better value than McDonald's $1 McDouble.
"It appears that after nearly six years of consistent gains, further increases in U.S. comps will be more labored," Standard & Poor's restaurant analyst Mark Basham said in a research note.
That's because until the U.S. unemployment rate - which was 10 percent in November - recovers significantly, McDonald's customers are less likely to visit the chain - picking up coffee and a McMuffin for breakfast, or dashing in for a Big Mac for lunch with co-workers.
In Europe, sales in locations open at least a year rose 2.5 percent, thanks to stronger business in the U.K. and France. But the figures were still short of forecasts and were the second-worst figures from the continent this year, said Janney Capital Markets analyst Mark Kalinowski.
"McDonald's did not provide much in the way of explanation for the lower-than-anticipated European (figure), suggesting to us that the region may remain under a cloud of uncertainty," Kalinowski told investors in a research note.
Sales in locations open for at least a year in the Middle East, Africa and Asia/Pacific dropped 1 percent. Last year, the figure rose 13.2 percent in the region.
Meanwhile, systemwide sales - a figured based on results at company owned restaurants as well as those operated by franchise owners - climbed 10.1 percent. Adjusting for currency fluctuations, systemwide sales were up 2.3 percent.
The company, based in Oak Brook, Ill., runs more than 32,000 restaurants in more than 100 countries.
Its shares fell $1.29, or 2.1 percent, to $60.64 in midday trading Tuesday.
AP Retail Writer Michelle Chapman contributed to this report from New York.
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