What a difference a year can make.
McDonald’s is without a doubt one of the globe’s most recognised fast-food chain of restaurants and the affordability of their products, also makes them one of the most consumed fast-food products in the world today. Recently we expressed concern at the slip in the McDonald’s brand value and the disconnect between their commitment to quality, service, cleanliness and value, and the consumer perspective. Twelve months later we review some of the changes that they have implemented and the impact new CEO, Steve Easterbrook has had on the business and the share value.
In recent years however, McDonald’s has seen some turbulent times, according to the Brandz Report, McDonald’s Brand value declined and they lost over $9.4 billion in brand value. In the Annual Report, the CEO, Steve Easterbrook admitted that although system wide sales grew by 1%, global sales decreased 1% and operating income declined 8%.
With various global in-store challenges to stay relevant in the market, McDonald’s had a long way to go to rebuild trust with its customers.
There was a need to reset the business and look to a new and improved strategy. Understanding the importance to change with the times, McDonald’s have refreshed the look of their stores to a modern burger restaurant, making them more convenient and contemporary. Service delivery has been a huge point of contention and thus, they have looked to simplify their menu, installing self-order kiosks allowing patrons to “create your taste” in the form of a customized burger, activating mobile order and pay and even table delivery in their stores. There has been a large move to digitize their service offering.
Easterbrook has also looked at minimising the fat within the corporate side of the business by cutting out management layers, increasing accountability and decreasing costs. He has also driven the franchising of stores ensuring that there is a greater ratio of franchised stores to the company owned stores. Warren Buffet talks about the importance of innovation in an organisation and the ability to keep up with the times. McDonald’s has had to address the need for the production of better quality foods and see this as a priority moving forward. The other advantage that McDonald’s has over it’s global fast-food competitors is that the franchisees have been able to localise certain meals, thus appealing to the local target market.
Despite the drop in brand value, McDonald’s share prices have risen nearly 30% while the S&P 500 has fallen almost 3%.
Source: Google Finance
Although some of us may never buy any McDonald’s products, there are about 68 million people who visit one of McDonald’s 36 000 restaurants – per day. Buying McDonald’s shares means buying into a globally robust machine with proven brand and ability to continue to expand.
McDonald’s has increased its dividend payments every year since the first payment made in 1976 and have, since 2008, paid dividends on a quarterly basis to their shareholders. McDonald’s Board of Directors declared a quarterly cash dividend of $0.89 per share of common stock payable to its shareholders. McDonald’s has proved that as an organisation it is able to deliver returns to its shareholders in both good and bad economic times.
If you are looking for consistency and shelter from risky economic situations, investing in McDonald’s shares is the right option for you. Contact AXIAM to discuss the best portfolio for your wealth plan.