McDonald’s Corporation (NYSE:MCD) and others of the fast-food ilk certainly get a potato sack full of jibes directed their way from various special interest groups – but who cares? They’re good at what they do. If some people don’t like their food – they don’t have to go there.That being said, it’s time everyone faces it – McDonald’s is here to stay. Therefore, here are a few reasons why McDonald’s will be hot off the grill for investors for years to come.
A focus on market share
The article conveyed the thinking of McDonald’s CFO, Mr. Pete Bensen, who said, “In this environment, with cost pressures like commodities and labor rates going up, yet you have a soft economy and a declining-to-flat [informal-eating-out market], that market share becomes so critical to business. We’re willing to sacrifice a little margin to gain market share.”
For investors, it’s vital to note that McDonald’s Corporation (NYSE:MCD) is focused on gaining new customers – and keeping its regular ones. It knows margins are important; however, you need a continuous stream of customers who are going to buy those properly priced items that contribute to profits.
McDividends
Since its first dividend payment in 1976, the company has increased its dividend at least once annually. This past May, McDonald’s declared a quarterly cash dividend of $0.77 per share. Dividend loving investors should consider this commitment to regular dividend payments and increases.
Continuous product innovation and monitoring of consumers’ tastes
McDonald’s Corporation (NYSE:MCD) is one of the best at staying attuned to changing consumer tastes – and this isn’t just addressing desires for healthier menu options. I mean, McDonald’s is testing chicken wings as a possible across the board menu item. They understand that their customers still like to indulge in comfort foods of the greasier variety and they’re ready, willing, and very able to accommodate them.
Nevertheless, the company knows many of their customers do want those healthier choices as well. The Company has their wraps and salad items and an Egg White Delight McMuffin this spring. Their Happy Meals will now offer apple slices in them; “Children, let’s all go to McDonald’s for some Red Delicious and Granny Smith!” However, you have to do what you have to do.
McDonald’s Corporation (NYSE:MCD) has reduced sodium somewhat across its core menu items. All of its chicken menu items have had sodium reduced. Furthermore, in early 2013, it was the first American restaurant chain to adopt the Marine Stewardship Council’s (MSC) blue ecolabel on fish packaging in its restaurants across the country. The MSC promotes responsible sourcing practices. Its fishery certification program and seafood ecolabel recognize and reward sustainable fishing.
Investors should consider a company that addresses the needs of many in its target market. McDonald’s is trying to keep everyone happy, from sports-watching chicken wing eaters, to parents, to dieters, to those promoting a healthier eco-system. Ronald must be giddy with all of this… as are an ample amount of investors.
Fighting back: Questions answered
McDonald’s Corporation (NYSE:MCD), while not looking for a fight, won’t back down from unwarranted claims against it. The top banks here in Canada should take a page from McDonald’s book as continued ‘bank bashing’ produces many unwarranted claims. I guess there were Chicken McNugget missiles directed at the company and this was some of their response:
“Chicken McNuggets are made with 100% USDA Grade A Chicken. A fractional amount of a legal preservative and a miniscule drop of an additive in vegetable oil is added to simply prevent foaming on the surface that naturally occurs in cooking. It’s that simple. Customers can be reassured that these are common and fully-approved ingredients that are completely safe and have been used for decades.”
Investors should consider that there’s something to be said for companies that say it like it is – companies who are not wilting vines and stand behind their products and services when the heat in the kitchen gets a little too hot. In the long run, this is a strong foundation that would protect the company’s core product offerings.
What are others up to?
Bloomberg recently reported on Burger King Worldwide Inc (NYSE:BKW) and its South African initiative (June 14, 2013 – Janice Kew). The company is working to grow market share in South Africa by expanding and going head-to-head with McDonald’s and KFC. According to the Bloomberg report, Burger King Worldwide Inc (NYSE:BKW), “has partnered with Johannesburg-based Grand Parade Investments Ltd. to set up Burger King South Africa.”
Burger King opened its first restaurant in Cape Town in May, and is looking to open outlets in other countries in Africa. Investors may want to consider fast-food chains with focused growth plans looking to get a bigger piece of the fast-food burger. Overseas expansion is another corner on the char-broiled grill to go after when the domestic market’s becoming over-saturated.
Burger King Worldwide Inc (NYSE:BKW) is also engaged in home delivery. It’s expanding its “BK® Delivers” program. Petru Pusta, Director, Retail Innovation, Burger King Worldwide, noted recently, “BK® Delivers is already performing well in New York, Miami, Houston, Los Angeles, Chicago, San FranciscoBay Area and greater Washington, D.C. As its popularity has grown, we have seen an increasing demand for the program in other markets.
Up next for the Company is Phoenix and Denver.
Yum! Brands, Inc. (NYSE:YUM) (Taco Bell, Pizza Hut, KFC) is being aggressive in the Chinese market. The company’s initiatives include further expansion in the country.
However, as The Wall Street Journal recently reported, everything’s not exactly yummy there right now for the company. A June 11, 2013, article by Annie Gasparro noted that “same-store sales in China fell an estimated 19% in May, as KFC continues to suffer from the lingering impact of a bird flu scare and quality issues with some of its chicken suppliers.“
For Yum! Brands, Inc. (NYSE:YUM) that’s a double whammy. It’s something investors need to consider with investments in food companies. There’s always the threat of consumer-backlash when they feel uncertain about the food they want to purchase. Constant monitoring of suppliers and continued vigilance as pertains to food safety must be part of the DNA of fast-food restaurant chains.
Additionally, Yum! is entering the Mongolian market. They’re doing what Burger King’s doing – being more aggressive internationally. The company’s intention is to open, within the next five years, 15 outlets in the nation. It recently opened its first in this initiative. Again, investors should consider well-thought out expansion initiatives of companies in emerging markets. It’s often an avenue for fast revenue growth.
The takeaway for investors in all this is that the fast-food chains typically read prevailing winds in their sector very well. The above three ride out economic downturns because they consistently modify their programs to adjust to changing consumer tastes and the opportunities presented to them in global markets. This, more often than not, provides stable, consistent returns for shareholders.
Michael Ugulini has a long position in McDonald’s Corporation (NYSE:MCD). The Motley Fool recommends Burger King Worldwide and McDonald’s. The Motley Fool owns shares of McDonald’s. Michael is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Why These Stocks Will Be Hot for Investors for Years to Come originally appeared on Fool.com and is written by Michael Ugulini.
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