McDonald’s Jolted by Huge Sales Drop

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Last Updated: December 8, 2014

Just five weeks ago, I wrote an article titled, “Healthy Competitors Grab Market Share from McDonald’s.” The piece suggested that McDonald’s will likely be in a world of hurt if they don’t quickly innovate more healthful, plant-based menu items. I wrote:

From a business perspective, it undoubtedly once made sense for McDonald’s to err on the side of staying conservative and resisting radical menu change. But now, as an excellent Los Angeles Times article makes clear, it’s now undeniable that McDonald’s has dragged its feet for too long and that a growing army of healthier chains is eating the Golden Arches’ lunch.

Today, NPR reported some horrifying news for McDonald’s investors. Sales at the company’s restaurants are in free-fall.

The fast-food chain reported that same-store sales in the U.S. tumbled 4.6 percent in November compared to a year ago, as the company continues to struggle to find solid footing.

4.6 percent may not sound like a lot, but for a company like McDonald’s it threatens imminent catastrophe. Why? Because the company has more than 14,000 restaurants in the United States alone.

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Basic statistics will tell you that not all McDonald’s restaurants do equally well. Some are doubtless wildly profitable, some are reliably profitable, and some are right on the margins of whether it makes sense to stay in business. Assuming this 4.6 sales drop isn’t quickly reversed, for a marginal restaurant this sort of drop in monthly sales could spell doom.

Now even as a worst-case scenario, there’s no way that McDonald’s will implode and end up with Arby’s-level irrelevance. Even if the company does nothing, they’ll have thousands and thousands of solidly profitable restaurants for the foreseeable future. But unless sales turn around, and they turn around quickly, expect to see hundreds if not thousands of McDonald’s restaurants calling it quits within the next few years.

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As I wrote last time, the only way out of this mess for McDonald’s is to use its massive resources to innovate, and to make its food palatable to the ever-more-discerning consumer. Otherwise, the chain could go the way of Howard Johnson’s—a once ubiquitous American restaurant chain that lost its way, and has dwindled over the past few decades to absolute irrelevance.

The restaurant industry is among the most conservative, risk-averse industries on the planet. It’s abundantly clear that McDonald’s is too cautious to innovate unless they’re facing a crisis that threatens its long-term survival. Today, that moment arrived.

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