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Oct 21, 2014 8:47 AM

Customer decline hits McDonald's sales, profit

The Associated Press

NEW YORK (AP) McDonald's says its profit and sales declined as the world's biggest hamburger chain saw customer traffic fall around the world.

The company said sales fell 3.3 percent globally and in the U.S. during the third quarter. In the region encompassing Asia, where a major McDonald's supplier was shown on TV repackaging expired beef, the figure fell 9.9 percent.

"By all measures our performance fell short of our expectations," CEO Don Thompson said. The company, which has more than 35,000 locations around the world, said it expects its challenges will continue into the current quarter, with global sales to be down for October as well.

In the U.S., McDonald's Corp. is fighting to hold onto customers amid intensifying competition and shifting tastes toward food people consider more wholesome. Chipotle, which touts the quality of its ingredients, said Monday its sales rose 19.8 percent at established locations. Steve Ells, co-CEO of the Mexican food chain, said the results show people are realizing "there are better alternatives to traditional fast food" and that he expects the trend to continue.

McDonald's, meanwhile, has been working on improving its image. In addition to focusing on a simplified menu, the company said Tuesday its revamped marketing in the U.S. will stress its food quality.

Last week, for instance, McDonald's launched a social media campaign inviting customers to ask questions about its food. It began with frank questions like, "Why doesn't your food rot?" and "Is the McRib made from real pork?", showing just how bad some of the perceptions about McDonald's food can be.

In southern California, McDonald's is also testing a "Build Your Own Burger" concept that lets people pick the bun, beef patty and toppings they want by tapping a touchscreen. The test is intended to address the popularity of places that let people customize their meal.

Affordability is another issue, with Thompson noting that the people who tend to go to McDonald's are struggling more financially than customers who might go to other chains.

Over in China, an undercover TV report this summer showed one of its major suppliers repackaging expired meat. The plant stopped operations and many of McDonald's restaurants in the country were left unable to sell burgers, chicken nuggets and other items. The chain's reputation took a hit as well.

For the quarter, revenue declined to $6.99 billion, short of the $7.23 billion Wall Street expected. Net income declined to $1.07 billion, or $1.09 per share. Adjusted for one-time costs, earnings were $1.52 per share. Analysts expected $1.37 per share.

Shares of McDonald's were down 2 percent at $89.60.


Follow Candice Choi at www.twitter.com/candicechoi


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