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    Potential Risks For McDonald

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    Dianne Cantiveros
    Potential risks for McDonald's include food safety issues, operational problems, or projecting an inconsistent brand image. McDonald's company-owned stores provide strategic advantages like expertise that can improve franchisee experiences and trained personnel who can collaborate with franchisees. Same-store sales growth at McDonald's has been driven by higher average checks and guest counts, though the US market presents challenges as consumers shift to new brands and healthy foods. McDonald's large real estate holdings make real estate a major part of its business model, though the company has opted not to spin off these assets.

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    Potential Risks For McDonald

    Uploaded by

    Dianne Cantiveros
    61 views1 page
    Potential risks for McDonald's include food safety issues, operational problems, or projecting an inconsistent brand image. McDonald's company-owned stores provide strategic advantages like expertise that can improve franchisee experiences and trained personnel who can collaborate with franchisees. Same-store sales growth at McDonald's has been driven by higher average checks and guest counts, though the US market presents challenges as consumers shift to new brands and healthy foods. McDonald's large real estate holdings make real estate a major part of its business model, though the company has opted not to spin off these assets.

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    Potential risks for McDonald

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    Potential risks for McDonald's include food safety issues, operational problems, or projecting an inconsistent brand image. McDonald's company-owned stores provide strategic advantages like expertise that can improve franchisee experiences and trained personnel who can collaborate with franchisees. Same-store sales growth at McDonald's has been driven by higher average checks and guest counts, though the US market presents challenges as consumers shift to new brands and healthy foods. McDonald's large real estate holdings make real estate a major part of its business model, though the company has opted not to spin off these assets.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    61 views1 page

    Potential Risks For McDonald

    Uploaded by

    Dianne Cantiveros
    Potential risks for McDonald's include food safety issues, operational problems, or projecting an inconsistent brand image. McDonald's company-owned stores provide strategic advantages like expertise that can improve franchisee experiences and trained personnel who can collaborate with franchisees. Same-store sales growth at McDonald's has been driven by higher average checks and guest counts, though the US market presents challenges as consumers shift to new brands and healthy foods. McDonald's large real estate holdings make real estate a major part of its business model, though the company has opted not to spin off these assets.

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    © All Rights Reserved
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    Download as docx, pdf, or txt
    of 1

    Potential risks for McDonald’s include food safety issues, other operational problems, or projecting a brand image

    inconsistent with the company’s values.


    Company-owned stores
    So far in this article, we’ve looked at McDonald’s (MCD) franchise structure and agreement. Overall, franchising
    is crucial to McDonald’s profitability. However, the growth of this business is coming under pressure, given market
    saturation in key developed markets—especially the US market.
    McDonald’s company-owned store revenues have been falling as it moves toward franchising. However, the
    company-owned model provides McDonald’s with some key strategic and competitive advantages.
    As McDonald’s also operates its own stores, its expertise can also improve the franchisees’ experience at these
    stores. Having its own stores also provides McDonald’s with trained personnel who can then work in collaboration with
    franchisees.
    Same-store sales
    To understand what’s driving McDonald’s earnings and free cash flows, it’s essential to understand same-store
    sales and guest counts. Same-store sales compare the sales from restaurants, or stores, that have been open for at least one
    year. This statistic helps analysts evaluate what percentage of new sales comes from organic sales growth versus opening
    new stores. The average spends per customer and total guest count drive same-store sales.
    Last year, McDonald’s same-store sales increased 2.5% in the US despite a 2.2% fall in guest count. In the
    company’s International Lead markets, its same-store sales increased by 5.8%. Higher average check per customer and
    higher guest count drove this increase. Notably, its same-store sales increased in the High Growth segment and
    Foundation markets. McDonald’s has been facing challenges in the US market as consumers shift toward newer brands
    and healthy foods.
    Is McDonald’s a REIT?
    After looking at McDonald’s franchise agreement and company-owned stores, let’s drill down into another
    pertinent aspect. Specifically, what business is McDonald’s in? Ray Kroc, who purchased McDonald’s in 1964, once
    famously told Harvard MBA students, “Ladies and gentlemen, I’m not in the hamburger business. My business is real
    estate.” So, can a company that we perceive as a fast-food chain actually be a real estate play? Let’s discuss this in
    perspective.
    McDonald’s: Look beyond franchise agreements and fries
    At the end of 2018, McDonald’s had total assets of $32.8 billion. Out of this, 70% is net property and equipment
    —totaling $23 billion. Generally, companies value real estate on a cost basis. So, the actual market value of these real
    estate properties might be much higher. Under the conventional franchise agreement, McDonald’s owns the real estate
    while the franchisee pays rent.
    In the past, some activist investors have raised the issue of unlocking value by spinning off McDonald’s real
    estate assets. However, McDonald’s did not agree with the spin-off. Management believes that spinning off the real estate
    assets would harm the company more than it would create value for investors.

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