For more than a couple years, McDonald’s Corporation (NYSE:MCD) looked like it was having a tough time transitioning from its burgers and fries model to something that was more modern and diverse.
It launched various initiatives and new products, but didn’t seem to understand that the change that was needed had to be more fundamental. No new sandwich launch or pricing deal was going to stop the slide in sales, simply because a new generation of consumers is looking in different places for fast, casual food.
The company also experienced lower same-store sales — the lifeblood of retail businesses — because it was considered a junk food purveyor with limited healthy options, during a time when consumers were increasingly looking for healthier fast food retailers.
MCD CEO Devised a Plan
But, in 2105, that changed as MCD’s CEO Steve Easterbrook devised a new plan for MCD to regain its leadership position in the increasingly competitive space.
Remember, MCD remains the world’s largest fast food company, with more than 37,000 stores in nearly 120 countries. And, even more surprising, is the fact that MCD gets more than half of its revenue from those stores outside the U.S.
In other nations, a trip to McDonalds isn’t the quick fix that it is in the U.S. In many places, it’s actually a special family event, something that’s planned, rather than a last-minute decision. So, management had to figure out how to serve both markets, at home and abroad.
What they devised was a three-pronged approach.
First, McDonald’s set a goal to spin off 4,000 company-owned stores to franchisees by the end of 2018. This would get MCD out of the operations aspect of the business. Currently, the company operates approximately 15% of restaurants and it’s shooting to get that number down around 5%.
On this front, the plan is already working and management’s goal seems well within reach.
Second, the company has been putting forth a comprehensive effort to remake its menus, keeping popular items while still introducing newer, healthier items as well. One recent example is buying higher-quality, fresh beef for its Quarter Pounder burgers and offering different sizes for the iconic Big Mac.
The classic Big Mac has 563 calories, which is about 25%-30% of an individual’s average recommended daily calories. Adjusting the sizes allows consumers to make better choices. For kids’ meals, MCD now offers healthier options than just fries and sodas. Plus, the company’s popular breakfast menu is now available 24 hours per day.
Third, McDonald’s is embracing technology to broaden its reach and make ordering more efficient. For example, it has partnered with Uber to expand delivery in certain markets and it has developed smartphone apps so customers can place food orders in advance, making pick up a breeze, while also moderating high-volume traffic.
Bottom Line for McDonald’s Stock
Best of all, these initiatives are working for MCD stock. Same-store sales continue to increase. Free cash flow continues to rise and both investors and franchisees appear encouraged that McDonald’s stock is continuing to turn the corner.
What’s more, MCD stock delivers an industry-leading 2.4% dividend yield, which management has boosted every year for the past four decades. It seems clear at this point that this iconic restaurant company still has its roots and wings.
Richard Band’s Profitable Investing advisory service helps retirement savers outperform the market without losing a minute of sleep along the way. His straightforward style and low-risk value approach has won seven Best Financial Advisory awards from the Newsletter and Electronic Publishers Foundation.