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Wednesday, December 18, 2002

A Future Without McDonalds, The Food Your Father Ate

In yet another illustration of the fact that everything that lives was born to die, McDonalds turned-in its first loss in history yesterday. McDonald's Corp. informed the world of its first-ever quarterly loss after a package of cutting jobs and closing outlets failed to bring the numbers back into line, while sales at the world's largest restaurant deteriorated in the saturated U.S. fast-food market. The hamburger maker's shares fell 8 percent to close at $15.99 on the New York Stock Exchange, down $1.39. In fact yesterday the stock was the most actively traded issue on the NYSE, touching at one stage $15.59, its lowest level in nearly eight years. The background to all this is a change in the U.S. fast-food market which has become increasingly competitive as McDonald's hamburger rivals Burger King Corp. and Wendy's International struggle to maintain market share while consumer tastes change and other fast-food options - such as sandwich chain Panera Bread - emerge. All this goes to show that in a world of dynamic competition, nothing lasts forever. With other big name outfits like Disney also hit this year, it is clear that something of a cultural sea change is taking place. How long should we give Levi's and Coca Cola?

McDonald's, based in Oak Brook, Illinois, has been testing other concepts, including pizza and Mexican-food chains, while Wendy's has relied on its Canadian doughnut chain to help drive growth. Yum has been pushing aggressively into overseas markets such as China. So far in the fourth quarter, McDonald's sales at stores open at least 13 months are down 1.6 percent before the effects of foreign exchange, the company said in an updated earnings outlook. Same-store sales in the United States, McDonald's largest market, fell 1.3 percent in October and November and 1.5 percent through the first 11 months of the year, a sign that the company's new discounting strategy is not meeting expectations, analysts said. "It's clear that the discounting program is not working," said Bear Stearns analyst Joe Buckley, referring to the "Dollar Menu" McDonald's recently launched to drive up sales. "To improve service is very important for them, I think that's kind of the short-term key." Incoming CEO Jim Cantalupo, former vice chairman and president, is in the process of "aggressively reviewing" all aspects of the restaurant company's operations with an eye on improving financial performance.
Source: Reuters News

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