You have to give the team at McDonald’s a lot of credit. Over the past decade, they have found a way to substantially grow sales at existing restaurants. This is a huge accomplishment.
The stock has certainly responded. Shares traded at about $30 in 2005 and closed yesterday at over $98.
The formula for growth wasn’t complicated, at least in theory: Embrace the core customer, improve the dining experience, capitalize on a struggling economy by addressing value and identify new meal occasions. This last strategy was particularly important; it is difficult to build volume during the lunch peak. So McDonald’s built volume in shoulder times such as mid-morning and afternoon.
Apparently McDonald’s is low looking at building the late-night segment. The company is considering offering the breakfast menu for an extended period in a bid to bring in people at 2 AM and 4 AM.
This makes sense to me; it is another meal occasion and an opportunity increase volume during another off-peak period.
But it also is a little concerning. The 3 AM meal occasion can’t be that big; most people are asleep at that hour. So if McDonald’s is studying that slot, there must not be easier, bigger ideas on the table.
Which means McDonald’s is looking at three strategic options.
First, the company could embrace slower growth. There isn’t anything wrong with delivering stable profits. Of course, growth investors are not likely to be thrilled with this approach, nor will franchisees.
Second, McDonald’s could focus on bigger growth platforms. These will be a challenge; with bigger opportunities come bigger risks. The new ideas might not work or might impact sales of existing items.
Third, McDonald’s could add a second brand. After pushing McDonald’s as far as possible, the only clear path to growth might be a new brand. This would probably be an acquisition, since starting from scratch would likely be too slow to have an impact on the overall company outlook.
Will McDonald’s buy Panera? Chipotle?
There are interesting times ahead for the Golden Arches.
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This week I am teaching a corporate program in Denmark. While Europe is officially in a dreadful economic slump, spirits are good in Copenhagen; the people I’ve met are generally optimistic about how things are going and the city is investing in a new metro system.
On Friday I received the L.G. Lavengood Professor of the Year Award. This is Kellogg’s top teaching award. I was delighted to receive it.
Enjoying a chilly day in Copenhangen—