McDonalds

McDonalds analysis

1. Business Overview

McDonalds is the world’s leading food service organization with over $40 billion in systemwide sales. McDonalds operates over 30,000 different restaurants in over 100 countries. Mcdonalds is a fast food chain that serves both breakfast and their regular menu. The breakfast menu includes goods such as, breakfast sandwiches, hotcakes, hash browns, burritos, coffees, and more. Their lunch and dinner menu which are the same include, chicken sandwiches, beef burgers, chicken nuggets, coffees, beverages, and more. McDonalds has been serving cheap and great tasting burgers for 67 years.

Mcdonalds has many restaurants over the globe that produce revenues. Over the last 5 years, revenues have been up and down. Competition and the covid outbreak had a significant impact on the companies success. Many people were cooped up in their homes, unable to go outside for even groceries. Additionally, McDonalds had no way to serve their customers if they couldn't come to their stores.

There are 3 main ways that McDonalds make their money. The first main source of revenue comes from fees from Franchised Restaurants. $13.1 Billion or 56.3% of their revenue came from franchise fees in 2021. These fees include initial franchise fees, monthly royalty fees, and rent. The initial franchise fee is about $45,000 and the royalty fee is 4% of gross sales.

The second way is sales from Company Operated Restaurants. This generated 42.1% of their revenue or $9.78 billion.

The last and final source of McDonalds money are called, “other revenues” that add up to about $350 million. These are just fees paid by franchises to recover a portion of costs for various technology platforms,

1. Size

Mcdonalds has been the biggest shark in the industry for years. They have provided people with affordable and great tasting food for decades. With over 30,000 different restaurants around the globe and approximately 200,000 total employees working for McDonalds, almost everyone in the world is able to experience McDonalds.

In more detail, based on 2021, Mcdonald's market share is leading at 29.51% in terms of fast food chains all across the world. Mcdonalds is an industry where there is a lot of competition across all scales of business. Some main competitors include KFC, Subway, Taco Bell, Wendy’s, Burger King, and more.

The Fast food competition will always be fierce and competitive. McDonalds has not failed to come out with products to satisfy customers, and keep up with the latest trends with fast food. Some recent products that they have released include, McPlant, Spicy crispy chicken sandwich, Deluxe crispy chicken sandwich, Crispy chicken sandwich, and the spicy chicken nuggets with Mighty Hot sauce. These are great ideas to extend out to a greater variety of consumers, and also to the vegetarian consumers.

Mcdonalds has an advantage because of the loyalty of their customers. The “stickiness” they have created using their product has kept many of their customers from coming and eating at their restaurants every single day.

The top best selling items include French Fries, Big mac, and Snack wraps in order. The french fries are an iconic item from the menu and many of McDonald's customers can argue that they are the best fries in the fast food world. The Big Mac is a burger which includes everything you would want. It is many people's go-to burger, and has been important for McDonald's success. The snack wraps are also an important item that have contributed to sales. It is the third best selling item for McDonalds. They are wraps that are filled with chicken and vegetables.

1. Growth

Revenues in Billions of dollars

Year20172018201920202021Revenues$22.821$21.258$21.364$19.208$23.223

Net Income

Year20172018201920202021Income$5.4$5.924$6.025$4.731$7.55

Burgers sold per time period

SecondMinuteHourDayYear754500270,0006.4 million2.36 billion

The Average Customer spends about $8 per trip, and makes about 44 trips in a year. As we can see above, revenues from 2017-2019 saw a small fluctuating rate until 2020 where the COVID outbreak hit. The revenues went down significantly, but came back the year following. I predict that McDonald's revenues will keep on growing as more stores and more marketing occur. I also believe that COVID is a temporary effect, and will not affect the McDonald's franchise in the long term in terms of success. 2021 was a huge year for McDonalds as almost every statistic bounced back up, and showed that more people are comfortable to go out and eat out even with the COVID virus still being around.

Low probabilityMed ProbabilityLarge ProbabilityLarge PayoffMcDonalds extents out their goods to technology based products as wellBring Limited edition options to menu to attract customer “hype” and build demandBring in more stores and franchises around the world to make more incomeMedium PayoffMcDonalds will increase the prices of their foods to increase profit marginsMcDonalds will add vegetarian options to menu or healthier and a greater variety of consumersMcDonalds will collaborate with celebrities for marketing McDonalds created a game that replicated the game, “Fruit Ninja”Small payoffChange their mascot to something more likable to bring in more customers who aren't scared of clownsOffer different ice cream flavors and optionsRevamp the menu to adjust to consumer demand

The benefits of McDonalds increasing their prices will include that they will generate more revenue if the sales stay the same. Their profit margins will go up, and their net revenue will also go up. The risks may include the consumers may not purchase as many goods resulting in less sales. This will generate them less revenues which may negatively impact their profits as well.

The benefits of McDonalds adding vegetarian options to their menu include that they will be able to bring in vegetarian consumers and their food will be healthier which will provoke customers to come in more. The risks are that a lot of people may not like vegetarian options, and they may have liked the old men better. Sales can possibly go down which risks profits. The benefits of introducing technology based products in McDonalds include that many consumers will find them “better” and choose to buy it. Revenues can go up depending on sales and it becomes a big hit. However, it will obviously be a very risky option because of the competition, and it could fail horribly.

1. Margins

Operating Margins

Year20172018201920202021%41.8641.5042.4538.1344.59

As we can see above here, COVID once again has affected another crucial criteria for McDonalds. Their margins decreased almost 6% in the year 2020, but bounced back significantly in the following year. McDonalds are known for their fixed costs, and these margins are impressive. The reason McDonalds margins are so high is because 80% of McDonald’s restaurants worldwide are run by franchisees while the rest of the restaurants are run by the company itself. Since the franchisee model has very low costs, the margins will be higher in 80% of the case.

1. Cash Flow

Year20172018201920202021Amount$5.551B$6.967B$8.122B$6.265B$9.142B

The cash flow seems to be increasing every year which is a great sign. With more money going to the “bank”, it seems as if the profits are increasing and the business is growing.

1. Key Risks

Low ProbMedium ProbLarge ProbLarge lossMany stores get wiped out because of hurricanes and other natural disastersMcDonalds goes partly vegan with their menuCovid variant comes and sales drop once againMedium lossTake out Big mac out of menu because of health reasonsAnother huge virus occurs and destroys salesCompetition can reduce sales and reduce incomeSmall lossMcDonalds replaces their fries with the Mccar which is a car produced in factoriesArticles release suggesting backlash on the companyLower costs on food to match demand in consumers

1. Stock Performance

As we can see from the chart above, McDonalds has had their ups and downs, but it has grown slowly and steadily. The biggest dip was during COVID time. This is where they experienced their all time lows for revenues, Net profits, Profit Margins, Cash Flow, Growth, and more. This was a time where most companies in the fast food business took a lethal blow. Before this time, McDonalds had a slow but steady increase with a small dip in 2018 because of the earnings call. Mcdonalds was expected to do better, but had failed to meet the expectations. However, the stock price picked up after that small dip. After 2020, McDonalds has seemed to pick up the slack, and is growing at a decent rate. This is because of their loyal customers and marketing. When the pandemic started to slow down, customers went back to eat, and marketing attracted new customers as well.