#stocks #dividendaristocrats #markets #McDonald’s #NYSE:MCD
McDonald’s is adding to its profits despite falling markets. In its Q3 report, the company reported sales growth of 10%, with all segments in positive territory at the moment.
Moreover, the speed of the giant’s stock recovery since its IPO has far outstripped the leading stock’s underlying performance.
What is the secret of McDonald’s success?
Firstly, the company has managed to become an innovator in its business, it was the innovation that enabled the owners to buy and keep for themselves the most popular public places in every city and country, no matter where the traveler falls, he will always be somewhere near the most popular snackbar in the world.
Secondly, over the years, the company has managed to stay afloat, surviving crises with dignity, and recovering very quickly from downturns. This is thanks to the competent management of the company’s brand, which has created a positive image and firmly lodged it in the minds of customers around the world.
A unique style, recognisable notes in the melodies of commercials around the world and a major brand character, Ronald McDonald, evoke not just positive, but even nostalgic emotions in adults. Behind it all is the painstaking work of hundreds of marketers, which has built lasting consumer trust over the years of the fast-food restaurant’s existence.
Thirdly, it is obvious that the company does everything to get closer to customer desires. All innovations and current trends, McDonald’s not only follows them, but also tries to exceed the expectations of consumers in every possible way.
These factors: advantageous locations, one of the most successful brand managers as well as continuous improvement gave McDonald’s the power to be a leading brand for more than a decade.
How did it all begin?
The MacDonald brothers, Dick and Mack, owned a small and modestly profitable restaurant in the 1940s. With the worsening economic situation in the country the brothers had to somehow optimize the processes in the restaurant and gradually turned it into a self-service restaurant with a minimum of waiters. Further changes were made to food preparation, which became more like an assembly line producing the same type of food. These measures, as well as the reduction in the menu, resulted in significant savings on both the number of staff and ingredients. The cost of production went down and the number of customers grew. This helped not only to survive the hard times, but also to increase their capital and become a popular and favorite restaurant in California. McDonald’s revenues in those days were about 350,000 a year.
In the fifties, entrepreneur Ray Kroc came into the life of the restaurant, a man who took the business to the next level. It was he who came up with the idea of selling franchises. In 1955, McDonalds System Inc. came into existence, which sold restaurant franchises. The right to use the McDonald’s brand cost $950 at the time. The first year of sales did not meet expectations; businessmen were not ready to invest in the fast food business. However, the great success of certain businessmen, such as journalist Sanford Agatha, who could afford a decent mansion after a couple of years, motivated many, and business picked up.
In the early 1960s, the brothers decided to sell the business to Ray Kroc. The price of the deal was $2.7 million. Kroc didn’t have that kind of money and after searching for solutions, he settled on an offer from economist Harry Sonnenborn. He came up with the idea of not only selling business franchises, but also acquiring land set aside for restaurants. If Sonnenborn had not thought of it, the entrepreneurs might not have gotten the credit, and we would not know McDonald’s as we know it now.
So the McDonald brothers severed all ties with their business, leaving it with just their name, and Ray Kroc became the owner of all rights to the McDonald’s brand. In the early 1960s, the company increased the rate of advertising, earning a great recognition. In 1962, the company logo first appeared two golden arches making together the letter “M”, a year later the restaurant chain sold its billionth hamburger and clown Ronald McDonald appeared as the main character of the brand.
A public listing on the New York Stock Exchange took place in 1965. The stock was able to enter the Dow Jones Industrial Average 20 years later.
Since 1970 the chain had restaurants in every state and since 1975 customers were served directly in cars, which was one of the most successful innovations, because later more than half of the profit was generated by this form of service.
From 1979 onwards, the Happy Meal toy food set for children went on sale. Around the same time, the “burger wars” between McDonald’s and competitors Burger King and Wendy’s began, consisting of aggressive marketing against competitors. With little success here, management decided to expand overseas, opening its first restaurant in Canada and later in European countries. In 1997, the number of restaurants was more than 23,000, more than half of them in the United States.
In 2017, CITIC Corporation in China and the US fund Carlyle Group acquired 80% of the McDonald’s chain in China and Hong Kong for $2.08bn.
Our days. Innovation
McDonald’s is no longer associated with junk food, the restaurant’s menu has expanded to include healthy breakfasts and drinks, quality coffee, salads and variations of the main menu.
In 2019, the company acquired Dynamic Yield, an Israeli IT start-up that specializes in artificial intelligence. The idea is that the technology helps you make quicker choices based on location and weather conditions and the choices of other diners.
The deal was worth around $300 million, according to unconfirmed sources, which would make it the biggest deal in the company’s history.
The second deal is the acquisition of Silicon Valley-based Apprente. It is a technology that recognises voice, identifies customers and analyzes their choices to understand customers and their needs even better.
Bottom Line
McDonald’s has, over the decades, proven its resilience to external storms and its incredible ability to adapt to changing market conditions, and moreover, to be a trailblazer of innovation.
The company is on the list of dividend aristocrats that tend to outperform the S&P 500 index during bear markets, while they are often less volatile than other companies in the market. This is all thanks to strong balance sheets and excellent corporate fiscal management. Which has allowed them to increase their dividend for 25 consecutive years.
Latest News