McDonald’s Is a True Global Operating Machine
What’s interesting about McDonald’s is…you can not use Return on equity to assess profitability
McDonald’s sells 9m pounds of fries everyday
- Over 68m people eat McDonald’s everyday
- 1 of 8 Americans have worked at McDonald’s
McDonald’s all over the world
Top 3 products
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Revenue breakdown by segment
The “Big Five” international markets
McDonald’s – US – Founded 1955
Cons. Disc. sector, 150,000 employees, US$23bn revenue
Main segments/products/divisions/brands
- Big Mac (signature burger)
- French fries (popular side item)
- Happy Meal (children’s meal with toy)
Its competitive advantage
Competitive advantage lies in its strong brand recognition, global presence, and efficient operations.
How it achieved its competitive advantage
It achieved this by standardizing its menu, ensuring consistent quality and service, and implementing effective supply chain and franchising systems, allowing for cost control and rapid expansion into new markets.
Ray Kroc (1902-1984) The visionary force behind McDonald’s, that revolutionized the industry
- From humble beginnings as a struggling milkshake machine salesman, Kroc took the helm and transformed a small burger joint into a global phenomenon
- His innovative ideas, like the assembly-line system and franchising model, propelled McDonald’s to unprecedented success
- Kroc purchased McDonald’s when he was 59 years old, proving that age is no barrier to entrepreneurial triumph
McDonald’s Speedee System has had a significant impact on the fast-food industry
- Richard and Maurice McDonald in the 1940s were dissatisfied with slow and erratic service common in drive-ins, they developed a methodical approach to food preparation
- In 1948, the brothers streamlined operations and featured 15-cent hamburgers as a key element of the new system
- McDonald’s was founded on the Speedee System and has evolved into one of the world’s most iconic and influential brands
Key innovations of the Speedee System
- Simplified menu
- Streamlined menu of limited items, only burgers, shakes, and fries, for simplicity and efficiency
- Kitchen assembly line
- Assembly-line production system to optimize workflow and speed up food preparation
- Focus on quick service
- Delivery within minutes of ordering
- Meticulous standardization
- Standardized operations to ensure consistency
An incredible net profit margin of 25-30%
- According to my calculation, the average net profit margin of companies worldwide is 6%
- McDonald’s generates an incredible net profit margin of 25-30%
- This is more than 2x the already high 12-17% profit margins at Starbucks
- This makes the company one of the most profitable in the world
- Apple is up there too, generating a massive 30% net profit margin
Quarterly results
- MCD reported 2Q23 recurring EPS of US$3.13, which was +17.9% YoY and +19.7% QoQ
- The 6M23 result was 51.6% of our full-year forecast
Valuation
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