February 28, 2014

Is McDonald's Building Too Many New Stores in the USA?

McDonald's Corporation recently filed their annual 10-K report for 2013 disclosing that 
the company opened 225 new restaurants in the United States during the past year and
plans to  open 250 new domestic locations in 2014.

However, the stated total number of restaurants in the USA increased by only 121 stores

due to closings. Two hundred and twenty five new locations sounds excessive in a nation
already saturated with McDonald's stores.

But is 121 too many new openings?

During the years 2005 through 2012 the number of total locations in the USA grew at an

average of 60 stores per year. This must be one of the reasons those were good years, 
there was little cannibalization of the existing restaurant base.

Is it just coincidental that the year McDonald's accelerates that growth is the year same 

store sales increases came to a grinding halt? There are certainly many factors influencing
sales trends and only McDonald's Operators in the field can judge the impact of new store openings.

But we do know one thing, mentioning new store numbers (225 in 2013 and 250 in 2014) 

is an effort to convince shareholders that McDonald's is still a growth company. While McDonald's management often discusses new store growth in other segments of the globe
it's been more than a decade since management has willingly discussed restaurant growth
in the USA.

This is likely a hangover from the disastrous "Convenience Strategy" of the 1990s.

.

11 comments:

Richard Adams said...

I hope it's clear that there are two growth measurements is this discussion:

1) New stores & 2) Total stores

2013's 225 only increased total stores by 121 because of stores that were closed.

What's unknown (at least to me)is if the number of new stores includes relocations. I've assumed it does not because doing so would be disingenuous.

Anonymous said...

McD o/os should be very careful with new stores. In our co-op they open very poorly, impact 3/4 other stores, and have high rents. Not a good way for an o/o to grow.

Anonymous said...

McDonald's needs to build new stores to keep the brand fresh.

Anonymous said...

If MCD can't get same store sales increases they need to increase the number of stores to raise total sales but opening new stores decreases same store sales. A real paradox. Don T. has a real challenge ahead of him. O/Os beware!

Anonymous said...

http://seekingalpha.com/article/2060033-mcdonalds-you-want-fries-with-that-dividend?isDirectRoadblock=true&source=email_rt_article_readmore&uprof=

Anonymous said...

When Corporate offers new location to O/O's they do so with high projections. Do yourself a caution, and undercut that projection by 35% and then you will realize impact done.

When Corporate knows they have a Winner of a New location, they open it as a McCopco.

Anonymous said...


Since the 1990s new mcd stores have put more o/os out of business than any other factor.

Anonymous said...

Impact is hurting sales in our small-town market. McDonald's is getting a little reckless about where they'll put new stores.

Anonymous said...

Their Guest Counts have become more important than Operators Income. Build it and they will Come!

Now convince them to spend more than the dollar menu offers!

Anonymous said...

McDonalds a GROWTH company??? Haaaaaaaaaaaaaaaaaaaaaaaaaaa!

Richard Adams said...

Opening new stores is one of the most exciting events in an Operator's career but caution is advised. A lot of mistakes were made during McDonald's Convenience Strategy in the late 1990s. One being that Operators were starved for new stores so they took anything McDonald's would offer. These days the Operators in the local markets know far more about where new stores might be appropriate than the McDonald's
corporate people.