December 17, 2012

Consumer confidence to remain fragile in 2013

"Despite ongoing improvement, the U.S. economy has only 
recovered about half of the jobs lost during the Great Recession, 
and consumer confidence is expected to remain fragile in 2013."

NRA Rstaurant Industry Forecast::
.

December 11, 2012

McDonald’s CFO Must Defend Margins From Bargains


The Wall Street Journal profiles McDonald's Chief Financial Officer. An analyst is 
quoted, "Bensen “has to be the voice of reason,” said Andy Barish, managing director 
of equity research for Jefferies & Co. “There needs to be a little bit of balance 
and discipline” when it comes to pricing."

This makes it sound like the CFO sets menu prices. While he's not supposed to be doing 

that he probably does have RMS on speed dial.

The CFO Report - WSJ:

.

December 10, 2012


Global - only partially reflects the Fiscal Hill caused by USA weather - Source: Yahoo Finance
.

December 8, 2012

Obamacare and Food Inflation

A McDonald's Operator asks - "How are Operators planning to pass
along costs  to customers when the Affordable Healthcare Act kicks in?"

In my humble opinion - in the short term - they can't. 

Quick Service Restaurant menu prices are already at the upper limits and
speaking as your customer, we're just not going to take it anymore. 
Future increases are going to seriously damage guest counts. It's fine to 
ponder factors like Food Away From Home but because of  the AHA  and
possible food shortages Operators are headed into the great unknown.

Shareholders have enjoyed the fruits of food inflation in recent years and
it appears that managements of QSR companies do not want franchisees 
or investors to see any challenges ahead.

In particular, at McDonald's, the corporate folks are counting on a food
inflation windfall to continue to indulge shareholders and to pay for MRPs.

So McDonald's customers will be asked to pay $5.00 or $6.00 for a Big Mac
to cover increased food costs, healthcare costs, and to help the Operator
pay for remodeling their landlord's building? That's just not going to work.

I'm suggesting McDonald's Operators do several things:

* Don't count on food inflation when making plans for the future. Your
customers will outsmart you and they'll certainly outsmart Oak Brook.

* Back off on borrowing money. Even though interest rates are favorable 
you're in rough seas, there's a killer wave of unknown magnitude on the 
horizon, and Operators are willingly taking on water?

* Do not let management use Operator "leadership" as a tool to rush you 
into taking on debt.

* Take another look at our comments on the Dollar Menu.

In a recent letter to fellow Operators a member of an RLC wrote, 
"Our finances are under pressure and will most likely continue to stay
that way." The letter went on to encourage Operators to hurry and sign 
up for more MRPs! 

An obvious Oak Brook form letter but is this the kind of schizophrenic 
financial advice one gets for their McDonald's franchise fees?

The challenges of 2013 and 2014 could not have been imagined five years
ago and sticking to a corporate agenda developed a decade ago may do a 
lot harm.
.



Advice for Franchisors: Treat Franchisees Well

Advice for Franchisors: Treat Franchisees Well | Entrepreneur.com:
.

December 1, 2012

Opinion on McDonald's from Crains Chicago Business

"But how many customers lured by ads for a $1 cheese-burger will shell out four
times that for an Angus burger? Lower prices won't help McDonald's franchisees
already struggling to preserve profits as food costs rise. This is the inherent tension
in the company's relationship with franchisees: McDonald's takes its money off the
top as a percentage of restaurant sales, while franchisees pocket what's left over
after paying all the expenses of running the restaurants."

McDonald's is losing sales as Burger King and Wendy's rebound - Crain's Chicago Business:
.

November 30, 2012

Bloomberg on McDonald's

Finally, some analysts who understand the Dollar Menu!

Kelter said he’s “skeptical” that hyping the Dollar Menu will turn around same-
store sales. "You’re training your consumer to want to spend less and you’re 
compounding some margin pressures,” he said. 

.

November 26, 2012

Analyst Downgrades McDonald's Citing Competition

McDonald's USA is up against some tough numbers from last winter and there's little
Jeff Stratton can do about it. We won't know if his leadership is making a difference
until the summer of 2013.

Yahoo Finance REPORTS:
.

November 19, 2012

Should There be a McDonald's Dollar Menu in 2013?



                                            Our Editorial Comments are HERE

.

New Product and Discounting News at McDonald's

New Quarter Pounders, Egg White McMuffin, and Value Meals as Loss Leaders

"Five Under $5"
  • Big Mac, medium fries, medium soft drink
  • Quarter Pounder with Cheese, medium fries, medium soft drink
  • Filet-O-Fish, medium fries, medium soft drink
  • 10-Piece Chicken McNuggets, medium fries, medium soft drink
  • Two Cheeseburgers, medium fries, medium soft drink


November 15, 2012

McDonald's Ousts US President After Sales Drop

If Oak Brook is going to throw the USA President under the bus every time sales
are soft then Jeff Stratton will be in the job about 90 days because the comps this 
winter are very tough!

McDonald's ousts US president after sales drop - Yahoo! Finance:
.

Goodnight Ladies

With the demise of Karen King and Jan Fields, for the 
first time in many years, the operational side of the McDonald's management team is an all male club.

Tweet of the Day


Memo to Jeff Stratton pres of 's USA: be realistic with people about how
difficult sales trends will be for the next 5 months
.

November 13, 2012

Despite Sales Stress McDonald's to Continue Remodels

"Some investors complain that McDonald's and its franchisees are spending too much
money to make their restaurants looks spiffy at a time when cash is hard to come by. 
But McDonald's said remodeled restaurants in the U.S. are seeing a 6% to 7% sales 
lift above their local markets after a year."

Don Thompson addresses investor conference HERE
.

November 12, 2012

Just When You Thought You Were Safe From the Politics

Oops! Conservative publication appears
to find Attorney General Eric Holder's 
brother employing undocumented 
workers.

Carolina Journal reports HERE

November 7, 2012

Giving Away Food Always Causes Problems

A special deal on French fries at McDonald's in Japan has sparked a teen consumer 
craze fueled by social media. 


French Fry Deal Sparks Potato Parties




Carrols New Burger Kings Needed Some Work

Any McDonald's franchisee who has taken over a McOpCo store will be
able to relate to the problems Burger King's largest franchisee is having
with former company stores.

Carrols New Burger Kings Needed Some Work
.

November 6, 2012

Why Restaurants' Discounts Aren't Working

NPD expert: “Weaning customers off deals is going to be very difficult,” Riggs said. 
“And they’re going to have high food inflation hitting after the first of the year. How
they add value and drive traffic (in that environment) is going to be a real challenge.” 

From Restaurant Finance Monitor

Why Restaurants' Discounts Aren't Working:
.

October 30, 2012

John Kujawa E-mail on McDonald's Bankruptcies

He's right there are not many bankruptcies in McDonald's but that's more about the 
way the franchise agreement is written than anything to do with financial solvency.

We don't give legal advice here but we have talked to more than a few McDonald's 
Operators who made the decision to file for bankruptcy. We can report that nearly 
every one of those Operators (former Operators) found it to be a huge mistake.

Based on these discussions we can make a few basic recommendations. If you or any 
McDonald's Operator you know is considering this as a strategy:

* Read and re-read your franchise agreement.

* Reread your franchise disclosures.

* Obtain multiple legal opinions from multiple sources.

* Explore ALL other options with your advisers.

* Do not expect to have any control or influence over the court or the process.

* Do not expect to embarrass McDonald's Corporation.
.

Payday for McDonald's CEO & Pres USA


On October 23, 2012 Don Thompson exercised (bought) 42,300 shares of McDonald's at $35.25 - $39.5 per share for an approximate price of $1,581,0002. He immediately sold those shares at $87.56 per share or a total value of $3,703.788.00

A few days earlier McDonald's VP Jan Fields exercised 
her option on 26,400 shares at $35.25 per share and 
immediately sold a total of 50,090 shares for a value of 
$4,439,977.

October 28, 2012

Crain's on the Dollar Menu

Crain's Chicago Business is running an article pointing out the problem with food 
inflation and maintaining the $1.00 price point. At this time the link is for subscribers 
but we'll post one when available. Meanwhile enjoy a couple of quotes from the article:


"The more you focus on value, the more difficult it is to raise prices on premium 
products, " Mr. Spieser says. (Mitch Spieser is an analyst at Buckingham Research)

"Franchisees overwhelmingly support the Dollar Menu, which they helped create", 
says Heather Oldani, McDonald's senior director of U.S. communications.
.
 346| -  -

October 27, 2012

Is the Dollar Menu the Answer to Tough McDonald's Comps?



There's been a lot of discussion in the press about Oak Brook's plan to re-emphasize the Dollar Menu and "Value". We've expected a lot of discounting to overcome the warm weather comps from the winter of 2011/2012 and have joked with analysts about seeing the Big Mac on the Dollar Menu. But, listening to Don Thompson's comments and reading analyst's notes, maybe that's not all that funny.

After all, the Dollar Menu was launched in 2002 with the Big N' Tasty as the headliner.
.

Chipotle Seen Becoming McDonald’s With Drive Thrus

It's fascinating to watch Chipotle tear at their successful business model attempting to satisfy Wall Street's 
appetite for year over year growth. 

The price of going public.

Chipotle Seen Becoming McDonald’s With Drive Throughs - Businessweek:
.

October 20, 2012

October 15, 2012

Drought Leads Restaurants to Raise Prices

"And this summer, a Big Mac cost $4.33 on average in the U.S., up from $4.20 in 
January and $4.07 a year earlier, according to the popular Big Mac index compiled 
by the Economist. Those increases will continue, but at a faster pace."

Really? when one can buy four or five $1.00 sandwiches for the price 
of a Big Mac?

The L.A. Times Reports
.

October 11, 2012

Wendy's Logo Updated




Wendy's pigtails get first touch-up since 1983

Poultry in Motion?

“As beef prices have risen and will continue to do so, many chain restaurants’ menu R&D efforts have shifted to chicken… as a way to offer innovation around a protein that is less expensive than burgers or other forms of beef,” Hayden says. Yes, the escalating cost of livestock feed will make chicken prices go up, too, but the increase won’t be as steep.

Big Bird: Why Fast Food Companies Are Suddenly In Love With Chicken | Moneyland | TIME.com:
.

September 27, 2012

Durable Goods and McDonald's Sales


It was at least twenty years ago that our Co-Op saw a presentation from Oak Brook
"experts" who observed that over the years McDonald's benefited from an increase
in durable goods orders in the United States. Hedgeye Research just released a report
charting durable goods since 1997.

The HEDGEYE report is HERE


(Clicking on the chart brings up a larger and easier to read version)

Durable goods were generally positive in the late 1990s but McDonald's missed out on
that trend because of the cannibalization of the Convenience Strategy and the impact
of slow service times resulting from "Made For You". The increases beginning in 2003
are reported to be because of the "Plan to Win" but it looks like durable goods might also
have contributed to this success. Durable goods took a huge dip in  2009 and that was the
softest year out of the last ten for same store sales at McDonald's USA. I've made the case
that sales were poor in 2009 because McDonald's Operators wasted their advertising $$$
on espresso based drinks. But, there were strong economic headwinds.

While sales at McDonald's USA don't track perfectly with durable goods it's an interesting
metric to watch.
.

September 25, 2012

Technomic on Better Burger Restaurants

Better Burger Restaurants - A Growing Trend:
.

IFA Leads Coalition to Defeat Michigan Bill

The entire purpose of the International Franchise 
Association is to defeat any Federal or State legislation 
that might give legal rights to franchisees. 

Of course, McDonald's Corp. is a major player in the IFA.

From the IFA's Blog

Are Franchisees Entrepreneurs?

Franchisees Are Entrepreneurs (Let The Debate Begin) - Forbes:

80 Mill Hours Needed for Obamacare Tax Rules

80 million hours needed for Obamacare tax rules | Times 247:

Tax Penalty to Hit Nearly 6M Uninsured People

Tax penalty to hit nearly 6M uninsured people, under ObamaCare | Fox News:


Fast Food Restaurants Serve Quick Breakfast Options


Fast Food Restaurants Serve Quick Breakfast Options - QSR magazine:


McDonald's Fights Slowdown With Value Initiatives

McDonald's fights slowdown in Europe, U.S. with value initiatives | Nation's Restaurant News:


McDonald’s Fattens Dividend By 10% to $0.77


McDonald’s Fattens Dividend By 10% to $0.77 - Income Investing - Barrons.com:
.

September 13, 2012

Jan Talks PFEs

Leaks about McDonald's marketing plans usually come from the various ad agencies.
This time it's Jan Fields on national TV divulging OPNAD's promotional food events.

CNBC video is here >>>  Jan Fields Unplugged
.

Howard Penney at Hedgeye Tweets...




September 12, 2012

Bigger is Not Better

It's long been my position that one of the reasons McDonald's dominates
the QSR industry is that McDonald's Operators in the USA have a
relatively small number of restaurants in a defined geographic location.

The article below features a Burger King franchisee who owns 400 Burger
Kings spread between Dallas and Orlando, 50 Arby's and Popeye's in Texas
He also owns most of the CiCi's in Houston and 33 Golden Corrals.

How can a such a franchisee compete with a bunch of six store McDonald's
Operators in his markets?

Good for him that he owns hundreds of restaurants but this is the reason
visits to Burger Kings are usually a disappointment.

Guillermo Perales is profiled HERE


September 11, 2012

McDonald's Sales Bounce Back on Value Deals

"McDonald's has been intensifying its "messaging around value," noted Andy Barish, a 
Jefferies analyst. For example, he noted that the company ran promotions for its breakfast
Dollar Menu in mid-August."

The Associated Press: McDonald's sales bounce back on value deals:
.

September 7, 2012

Wendy's Breakfast Faltering Again?

Analyst - Wendy's attempt to sell breakfast may be at risk
.

Caution - Sales Bump Ahead


This chart from a recent Hedgeye note on McDonald's illustrates the hill that McDonald's
and other chains have to climb this winter. The blue is the past 12 months and the red is
an average of the past two years. Of course the highest increase was in February partially
created by a 29 day month. (For a larger picture click here) >>> Hedgeye Chart

.

September 6, 2012

Streamlined Fast Food Menus Attract Customers

Readers of QSR Magazine will be familiar with the monthly column written by former
McDonald's marketing guy Roy Bergold. This month he discusses menu proliferation.

"Expanded menus really mess up your QSC and Value."

Streamlined Fast Food Menus Attract Customers - QSR magazine:
.

August 30, 2012

New McDonald's Locations

We've posted an opinion piece concerning the development of new McDonald's
stores in the United States. At the top of our homepage, in the black bar below the
pretty picture, click on "Was McDonald's USA Saturated 15 Years Ago?"
.

'The Economy Stole My Retirement'

'The Economy Stole My Retirement' - WSJ.com:
.

August 27, 2012

Beef Herd Tumbles to 40-Year Low

"The slide in output may not stop until 2016 or 2017, Rachel J. Johnson, a USDA livestock economist, wrote in an Aug. 16 report. Once the herd starts to expand, it takes more than two years to boost supplies, according to Ron Plain, a livestock economist at the University of Missouri. Calves have a nine- month gestation period and take about 20 months to reach slaughter weight, he said."

Beef herd tumbles to 40-Year low on feed cost surge - chicagotribune.com:
.

August 24, 2012

Analysis of Don Thompson

"McDonald's is increasingly positioning itself as the Wal-Mart of fast food, using its unmatched power in raw material procurement and passing on the scale advantage to customers by outpricing its competitors. This might work against McDonald's to an extent, as customers learn to see the company as very low-tier and move to better restaurants when the times get better."

Seeking Alpha Speculates HERE
.

McDonald's Sales Vs. Other Brands - NRN


August 23, 2012

The Franchisee Lawsuit Makes A Comeback

From Restaurant Finance Monitor
.

For Steak Lovers

This article is about high-end steaks but contains a lot of good information about
the cattle market.

"Droughts often mean higher prices for prime meat a season or more later. Smaller herds
yield fewer calves, which take 14 to 18 months to reach slaughtering weight. The high
cattle prices that are expected to follow will make it hard for ranchers who walk away
now to return to cattle"

Bloomberg reports HERE


August 18, 2012

Restaurant Traffic Flat Through 2013?





Restaurant traffic loses momentum, will be flat through 2013 - latimes.com:



Burger King Sells 121 Units to Franchisee

There are two reasons Burger King will not be a long term treat to McDonald's
or even Wendy's.

1) The franchisees keep getting larger and larger, operating hundreds of restaurants
spread over multiple states.

2) Burger King's investors are cutting the corporate side down to a husk.

In five years we will no longer be talking about Burger King as a major QSR player.

Burger King sells 121 units to franchisee | QSRweb.com:
.

August 12, 2012

If We Could Talk to the Analysts, Just Imagine It!

I've come across a few friends who have not noticed one of our sub-pages titled
"The Real Franchise Stakeholders". Just click on that title in the black bar at the
top of this page. Let me know what you think!
.

August 7, 2012

McDonald's Monster Margins

"As you can see, the Big Mac maker's 20% net margin is more than three times the 
same figure for the restaurant industry and almost twice that of the average company 
on the Dow Jones Industrial Average"

McDonald's Monster Margins - DailyFinance:
.

Mitt Romney + His Dad + McDonald’s

This article spells Ray Kroc's name wrong but it's a good story

From the Washington Wire
.

August 6, 2012

Tyson Cuts Forecasts After Drought Increases Feed Costs

“While we ultimately expect to pass along rising input costs, these costs, coupled with continued soft demand, are likely to pressure earnings in 2013.”

Tyson Cuts Forecasts After Drought Increases Feed Costs - Businessweek:

=====================================================================

August 4, 2012

Small Firms See Pain in Health Care Law

"franchisees are looking at ways to avoid the requirement by cutting workers'
schedules so they work fewer than 30 hours a week—the law's definition of a
part-time worker —since only full-time workers are counted toward the insurance
coverage requirement."

"A question for franchisees is whether the federal government will count their
employees based on the combined number at all their outlets or treat each outlet as
a separate business."

WSJ Reports HERE
.

August 3, 2012

Combo Meals Down By A Billion


For several years, speaking as a customer, I've been commenting that McDonald's
food has gotten too expensive relative to the avalible value offerings. I know
there have been changes to the Dollar Menu but then offers like the $1.00 drink
come along. This summer I've enjoyed my $1.00 ice tea and an item or two off the
Dollar Menu. My average check is always $3.00 or less.

Time magazine is reporting on data from the NPD Group that says sales of larger
combo meals have decreased 12% over the past five years.

NPD restaurant industry analyst Bonnie Riggs says, “The number-one reason
they said they stopped is that the dollar menu is a better deal.” Customers who
used to buy combo meals but don’t anymore discovered that “you can ‘bundle’
from the value menu and it is a cheaper price.”

The point? As long as I can build a meal for $3.00 or $4.00 there's no way I'm
paying  $6.00 or $7.00. The McDouble is an excellent sandwich and the McChicken
is a nice change of pace. I don't think I've had a Big Mac yet this year and I know
I haven't had a QPC - but on many occasions I've eaten two McDoubles.

Again, as a customer, I'll show up in many McDonald's restaurant's customer counts
but not at the bottom of the P&L.

Time reports HERE

July 28, 2012

Honesty is the Best Policy

This week saw further fallout from the strong winter 2011/2012 sales at McDonald's
USA. On Monday morning Oak Brook announced earnings for the second quarter
and revealed sales in the USA were up 3.9% for the 2nd Quarter and up 2.9% for
the month of June causing Nation's Restaurant News to report:

With same-store sales slowing sequentially from an 8.9-percent increase in the 
first quarter of 2012 to a 3.6-percent gain in the second quarter, McDonald’s 
would need to hit value harder in its domestic marketing, Thompson said.

But for the past several years sales increases in the USA of 3% or 4% have kept
investors quite happy and the share price hit historical highs.  Because of Oak
Brook's lack of candor about how much the warm winter helped sales new
expectations have been set among investors and the media.

A word search of the earnings call transcript shows the word "Value" is used
over 60 times in a one hour discussion!

To be sure there were other issues with corporate earnings but this lack of under -
standing will become an even bigger problem during the winter of 2012/2013 when 
McDonald's USA will be up against those great numbers from last winter.

And yet McDonald's management refuses to warn investors that it's going to be
a cold winter no matter the reading on the thermometer.
.

Obamacare = Food Inflation?

We've previously mentioned the involvement of a former member of the McDonald's
top management team in the original drafting of the Affordable Care Act. This week
the Wall Street Journal covered the topic once more HERE

It's ironic that a former McDonald's executive and bushels of campaign contributions
from McDonald's corporate employees created something that might do major damage
to the McDonald's system over the next few years.

Speaking of that damage - during the investor conference call McDonald's CFO told
analysts he expected that health care might cost the average restaurant $10,000 to
$30,000 per year. However, the projections given to McDonald's franchisees in the 
field are three or four times those levels. Another case of telling investors what they 
want to hear.

And the CFO made another statement in reference to health care, "we have years like
last year where commodity cost increases were even greater than that. So while this 
is a significant item and it’s gaining a lot of attention as the P&L item we've managed 
through items of this magnitude in the past and I’m hopeful we can do that in future."

No, this time it's different. Premium and core menu prices are already too high at
McDonald's. It's doubtful McDonald's Operators can raise prices much further when
commodities increase, let alone raise prices again to cover health care.

But investors like to be told about food inflation in their franchised investments.
.

July 23, 2012

You Can See McDonald's Future From Here

For many years I've encouraged McDonald's franchisees to pay
attention to the quarterly conference calls between McDonald's
executives and Wall Street analysts. I don't think too many
took my advice.

But, today's call is significant because of the drought, foods costs
and competitive pressures. This call contains revealing comments
from management and some really interesting questions from the
analysts.

If McDonald's Operators want a look into the next 18 months you
really should read the transcript of today's call. Or, you can listen
to the playback on the investor section of the McDonald's website.

Seeking Alpha transcript is HERE
.

CNBC - MCD to Go On Offensive on Value

This is an interview with an analyst who explains very succinctly
that McDonald's can win a price war because the franchisees 
spend so much money on advertising.

The McDonald's discussion is about four minutes into this 10
minute video, but it's worth the wait.

Rachael Rothman on McDonald's
.


Analysts - More Discounting at McDonald's

Some smart people quoted in this article.
Howard Penney, managing director of investment research firm Hedgeye Risk 
Management says: “McDonald's can't ever go back to the Dollar Menu.
It's permanently gone.”

Kate MacArthur reports for Crain's Chicago Business
.

McDonald's CFO Foresaw Drought


McDonald’s Bought Commodities Before Rally, Cuts Cost Forecast - Bloomberg:

McDonald's Rare Profit Miss Signals Slower Growth Ahead - Forbes

McDonald's Rare Profit Miss Signals Slower Growth Ahead - Forbes:
.

July 22, 2012

McDonald's of India to Lower Prices 6-15%

The last sentence in this article is profound:
"The move is line with the fast food giant's international positioning of value and affordability, with more stress on volumes than margins."

The Economic Times reports HERE
.

July 20, 2012

What's the Beef?

Burger Business Reports on Beef Prices
.

Chipotle Down

Friday morning most restaurant shares are under pressure because of poor earnings from Chipotle. Discussing commodities on CNBC an analyst from Raymond James quiped,

"Chicken is just corn with feathers"

News on Chipotle is HERE

July 19, 2012

It's Going to be a Hard Candy Christmas?

When announcing "disaster" areas due to the drought USDA Secretary Tom Vilsack
said: "ranchers were most seriously affected and he expects the prices of beef,
poultry and pork "may go down a bit, but over time they will rise."

In other words, restaurants may get some relief this summer but just about the time
the industry comes up against the tough comps caused by the warm weather of
winter 2011/2012 the corporate folks will be pushing for discounting and coupons to
keep same store sales from going negative.

Yikes!

Dow Jones Reports HERE
.

The Food Cost Maize



This article contains some interesting facts about  where the money goes when we buy groceries.


The Tax Cliff Is a Growth Killer - WSJ.com

The economist who brought us the Reagan Recovery in the 1980s writes
about the upcoming tax problems.

Arthur Laffer and Ford Scudder: The Tax Cliff Is a Growth Killer - WSJ.com:
.

July 14, 2012

QSR Remodels


Wendy's is telling investors “Image Activation is more than a remodel” and 
increases sales by more than 25%. We suspect Wendy's management is doing 
what other large chains have done - at the beginning of the initiative remodel 
some really dilapidated stores where the remodel was long overdue. This puffs up
the numbers making a good sales pitch for franchisees (and Wall Street).

Time Mag reports HERE

Complimentary Newsletters - Technomic, Inc.


If you receive restaurant industry news by E-mail you know that some of the E-mails
are interesting and some are mainly advertisements. One of the best we receive is the
newsletter from research firm Technomic. There is little or no advertising, the format 
is clean, and they even include reports from prominent Wall Street firms.

You can sign up for Technomic publications HERE
.