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McDonald's (MCD)Stock (Fast Food Restaurants (QSR) Industry, Food & Beverage Industry)
 Both strategies have paid dividends- despite its size, sales have grown by a third since 2003[2]. Domestically, McDonald's continues to perform strongly despite a pullback in consumer spending and is even benefiting as consumers trade-down from more expensive eating options. At the same time, international operations are driving of profit growth. A growing global middle class, particularly in emerging markets like China, India and Latin America, is a massive opportunity for McDonald's. McDonald's aggressive efforts to expand its global presence- most notably in 2008 Beijing Summer Olympics- have produced strong comparable sales and profit growth.
[edit] Business OverviewBusiness Model McDonald's makes money by operating its own restaurants and franchising to third parties. Of the 31377 McDonald’s restaurants around the world, 20505 (65%) are operated by franchisees, 3966 (13%) are operated by affiliates, and 6906 (22%) are company-operated. In the last few years, McDonald’s has sought to enfranchise more and more restaurants. For example, in 2007, it sold its businesses in Brazil, Argentina, Mexico, Puerto Rico, Venezuela and 13 other Latin American/Caribbean countries to one franchisee[3]. Steering in this direction has resulted in greater cash flow (which increased by 12% in 2007)[4], reduced spending on operations, and less corporate exposure to rising commodities prices. [edit] Business StrategiesMcDonald’s has pursued two strategies since 2003. To keep up with rapidly changing consumer preferences, demographics and spending patterns, McDonald's has introduced new items (Premium Chicken sandwiches and the Angus Beef Burger) and campaigns to create more healthy foods (Premium Salads). The strategy reflects the philosophy that novelty, as opposed to loyalty to traditional products, is the key determinant of sales in the fast food industry. McDonald’s has also focused on increasing sales at existing restaurants instead of opening new ones[5]. To do so, McDonald's has remodeled many restaurants, kept stores open longer and increased menu options.Nevertheless, new McDonald’s restaurants are still opening around the world at a rapid rate - the company plans to open about 1,000 units in 2008, and continues to grow its new restaurants at a 1%-2% rate each year.[6] [edit] Size MattersMcDonald's size has three key advantages:
[edit] International ExpansionMcDonald’s is well-established in Europe, Asia/Pacific Islands, the Middle East, and Africa. Its growth in Europe is mainly driven by France, Germany and the United Kingdom. In Asia, the general management has indicated that there is significant potential in the China market. The corporation has adapted its menu items to local cultures, such as the Teriyaki Mac in Japan, variants of Filet-O-Fish in China, and using lamb instead of beef in India. In neighboring China, McDonald’s has been selected as the Official Restaurant of the Beijing 2008 Olympic Games - an honor that will further bolster its global reputation.
[edit] Key Trends and Forces[edit] Strong International Growth is Driving SalesMcDonald's has a sizable international presence; 60% of sales occur outside of the United States. In addition to developed markets like the U.K., Canada, South Korea and Australia, McDonald's operates in fast growing emerging markets like China, India, Russia and Eastern Europe. By tapping into a growing global middle class, the company's international operations have consistently posted strong same-store sales growth. China is a particularly promising opportunity. In FY 2007, McDonald's launched the breakfast menu, extended store hours to 24 hours in major cities, and implemented drive-thru in China in its efforts to capitalize on this huge market[12]. [edit] Changes in consumer preferences could decrease salesConsumer preferences that gravitate towards more nutritional food (see Natural & Organic Foods Consumption and Health & Wellness) decrease the appeal of eating at McDonald’s. As these consumer trends continue to shift towards the mainstream, public perception of McDonald's becomes increasingly negative. These changes may climax in lawsuits or media publications like Super Size Me, which criticizes McDonald’s products for causing obesity, and Fast Food Nation, which decries McDonald's business practices. Since McDonald's is the most recognized brand name in the fast food industry, these negative publicity events have widespread impact on its brand equity. Furthermore, because there are many alternatives to fast food (such as cheap dine-in restaurants, street vendors and convenience stores), the corporation's sales depend on its ability to maintain its brand name and attract new customers. The introduction of salads and public nutrition campaigns are examples of McDonald's efforts to adapt its business model to changing trends in the market. [edit] Commodity Costs can Impact MarginsMcDonald's earnings are sensitive to prices of commodities such as beef, corn, cheese and poultry. Since 2005, food prices have increased substantially competition has prevented McDonald's from passing costs along to customers. Thus, increasing input prices have come at the expense of margins. [edit] Sensitive to the DollarMcDonald's is also sensitive to the relative strength of the dollar. Although the company is based in the US, McDonald's does 60% of its business overseas. As foreign currencies strengthen relative to the dollar, goods sold in foreign markets are suddenly worth more dollars back in the US, boosting earnings. On the other hand a strengthening dollar reduces the value of sales from abroad. [edit] CompetitionAlthough McDonald's is the clear leader of the fast food industry in terms of revenues generated and restaurants established, it faces competition from other fast food chains, which are introducing new products themselves. Major direct competitors in the (hamburger-based) fast food industry include:
In addition to the above competitors, McDonald’s also competes with non-hamburger-based fast food restaurants (such as Panera Bread Company (PNRA), Panda Express and Qdoba), local and national dine-in restaurants (such as Red Robin’s and Shari’s), pizza parlors, coffee shops (Starbucks), street vendors, convenience stores and supermarkets. 
 McDonald's2004 Data 2005 Data 2006 Data 2007 Data 2008 Data Most Recent Data Available [edit] Market ShareThe major players in the fast-food market, which generates around $120B[29] in annual revenues, are: Domino's, Inc.[30], Burger King Corporation[31], Wendy's International, Inc.[32], Jack in the Box, Inc.[33], Yum! Brands, Inc.[34], Doctor's Associates, Inc.[35], and McDonald's Corporation[36]. As can be seen, the fast food industry is somewhat fragmented. The seven major competitors only account for 45% of total revenues.
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