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McDonald's sales drop for first time since 2003

| Thursday, Nov. 8, 2012, 1:28 p.m.

NEW YORK -- McDonald's Corp. is having trouble stomaching the competition.

The world's biggest hamburger chain said Thursday that a key sales figure fell for the first time in nearly a decade in October, as it faced the double whammy of a challenging economy abroad and intensifying competition at home. The company, based in Oak Brook, Ill., says global revenue at restaurants open at least 13 months fell 1.8 percent for the month. The last time it dropped was in March 2003.

The figure is a key metric because it strips out the impact of newly opened and closed locations. It's a snapshot of money spent on food at both company-owned and franchised restaurants and does not reflect corporate revenue.

McDonald's says the figure fell 2.2 percent in both the U.S. and Europe in October. In the region encompassing Asia, the Middle East and Africa, it dropped 2.4 percent. CEO Don Thompson cited the "pervasive challenges of today's global marketplace" for the declines.

After years of outperforming its rivals, McDonald's has been hitting some road bumps recently, with longtime rivals such as Burger King and Wendy's Co. reviving their brands with improved menus and new TV ad campaigns. Taco Bell, owned by Yum Brands Inc., is also enjoying growth with the help of new offerings such as it Doritos Locos Tacos and higher-end Cantina Bell bowls and burritos.

Additionally, people are increasingly flocking to restaurants such as Chipotle Mexican Grill Inc. and Panera Bread Co., which offer better-quality food for a little more money. The broader fast-food landscape has been undergoing changes over the past several years too, with the rise of chains such as Subway and Starbucks.

On Thursday, McDonald's said it would remain focused on underscoring its value message.

In the U.S., for example, the company is refocusing on the Dollar Menu, which was introduced about a decade ago. The move comes after an attempt to shift customers to an "Extra Value Menu," which charges slightly higher prices, fell flat.

The Extra Value Menu was intended to give McDonald's greater pricing flexibility, rather than being boxed in by the $1 price. With the Dollar Menu, the company has had to swap out many items over the years as costs for ingredients have climbed. When the Dollar Menu was first introduced, for example, the flagship offering was the Big 'N Tasty, made with a quarter-pound beef patty. But earlier this year, McDonald's even took its small fries off the Dollar Menu.

In October, McDonald's said that marketing for its Dollar Menu in the U.S. was offset by "modest consumer demand" and heightened competition. Moving forward, the company said it would continue its everyday value marketing.

Andy Barish, a Jefferies analyst, noted that the disappointing results were despite a Monopoly promotion and the launch of its Cheddar Bacon Onion sandwiches. Barish also said McDonald's could face a tough fourth quarter given the challenging economic climate - even with the periodic appearance of its popular McRib sandwich scheduled for later this month.

In Europe, where McDonald's gets 40 percent of its business, McDonald's said it would offer new meal combinations at various price ranges amid ongoing economic uncertainty, and continue remodeling restaurants. The company said positive results in the United Kingdom were offset by declines across many other regions.

In Asia, the company said it plans to differentiate itself with menu offerings tailored to local tastes.

The company noted that the results were hurt by a calendar shift, with this year's October having one less Saturday and Sunday and one more Tuesday and Wednesday. Restaurants typically rake in more sales on weekends.

McDonald's shares were down 61 cents at $86.23 in premarket trading. The company, which has more than 34,000 locations worldwide, had warned last month that sales were trending negative for the month.

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