„I’m lovin’ it”
– McDonald’s marketing campaign (2003)
arvy’s teaser: McDonald’s, the global fast-food giant, is not just flipping burgers. It is a real estate empire and a data-driven franchiser. But can the golden arches continue to shine amidst the changing zeitgeist?
The Big Mac Index.
It is a price index that has been published by The Economist since 1986.
The idea is to measure the purchasing power of a country, the strength of a currency and the cost of the same goods in different countries. It “seeks to make exchange-rate theory a bit more digestible.” The index compares the relative prices of buying the Big Mac, a hamburger, around the world. What began as a half-hearted illustration of purchasing power is now a highly regarded and globally recognized tool for evaluating currencies.
Unsurprisingly, Switzerland is usually at the top of the list due to its strong currency, high cost of living, economic stability and high wages (chart 1).
The company responsible for the Big Mac Index?
One with 41,822 restaurants in 118 countries.
McDonald’s.
Chart 1: The Big Mac Index, worldwide price in $ of a big Mac by country
Source: The economist & Statista, tommydouziech, January 2024
McDonald Brothers & The Founder Movie
It all began in 1940 in San Bernardino, California.
Richard and Maurice McDonald, known as the McDonald brothers, developed the Speedee Service System to prepare their meals, a method that became the standard in the fast-food industry.
In 1954, Ray Kroc, an unsuccessful milkshake machine salesman, enters the story.
After selling eight of them to the two, he lauds the McDonald brothers’ achievement at a dinner where they explain the origins and success of the restaurant after years of hard work.
This is where the seeds of McDonald’s ultimate success were planted.
Kroc quickly urges the brothers to expand franchising. A rollercoaster ride then begins that mirrors the plot of the movie “The Founder” starring Micheal Keaton as Ray Kroc (chart 2). It is the true story of his founding of the fast-food restaurant chain McDonald’s, where he eventually ousted the original founders of the company to take control with devious ruthlessness.
Fun fact: After buying the company for $2.7 million ($28 million in today’s dollars), he kept the name on the grounds that his own name was not “American” enough, but McDonald’s represented American values.
This movie is an instructive example of the dangers of greed and the importance of staying true to your vision. Since every one of us has been inside a McDonald’s, I highly recommend following the journey of Ray Kroc, the visionary who turned McDonald’s into a global empire.
Watch it, believe you me.
Watch it.
Chart 2: The Founder – Risk Taker. Rule Breaker. Game Changer.
Source: IMD b
The “MCD” Framework
First, I need to clear up a small misunderstanding.
McDonald’s does not earn most of its money from flipping burgers.
I touched on this in the previous section. It is mainly a franchise company. More specifically, McDonald’s is a real estate company, as it owns around 70% of the restaurant buildings and 45% of the associated land, which it leases to its franchisees.
The income comes from the rents, royalties and fees paid by the franchisees as well as from sales in the restaurants operated by the company (chart 3). The latter only account for around 5 % of McDonald’s restaurants.
McDonald’s’ strategy emphasizes its competitive strengths through an “MCD” framework: relevant Marketing, Core Menu Development, and the four Ds: Digital, Drive-thru, Delivery, and Development.
Consider the framework.
Marketing? Hell yes! “I’m lovin’ it”, Ronald McDonald or the golden arches that you crave from afar on the highway. No worries, it is me too, guilty as charged.
Core menu? It includes an astounding 17 (!) $1 billion brands, from newer products like the McCrispy chicken to longtime favorites like the Big Mac.
The four Ds? If you are in a hurry, you can now order and pay for your food quickly and digitally at an ordering machine, drive-thru or you order online via Uber Eats.
The result of all this?
McDonald’s has tons of data on consumer behavior and locations and plans to increase its store count to 50,000 by 2027 by reinvesting its strong cash flow with high returns of 28% into its own business.
These are attributes of a fantastic business model.
But flipping burgers also has its risks.
Chart 3: McDonald’s Business Model
Source: McDonalds, Annual report 2022
Zeitgeist
Since the advent of fast food in the 1950s, the number of restaurants and food options in this segment has increased significantly.
The result has been fast and “cheap” food, but also an increase in obesity and studies that are not favorable to these operators. Remember the 2004 movie “Super Size Me” to give you another eye-opening documentary for a rainy weekend.
This is one of the main risks for McDonalds, a changing zeitgeist with a consumer putting pressure on revenues as they shift away from ultra processed foods. Other affected companies facing the same problem are already struggling. Further risks include the increase in the cost of producing their food, squeezing profit margins and forcing the burger chain to raise prices that annoy consumers.
But for now, the “Good Chart” is right, and as far as hamburgers are concerned, I am in the camp of the stoics: make conscious decisions. If you treat yourself every now and then, it does more good for the soul than harm to the body.
All in all, I think we have a “Good Story” that looks as appetizing as what I am probably craving today.
A Big Mac with some delicious fries.
Nah, just kidding.
Or maybe not…
Chart 4: McDonald’s over the last ten years
Source: TradingView
Mit deinen Freunden teilen. Deine Unterstützung hilft uns unendlich.
Newsletter Disclosures
