December 31, 2015

They Aren't Making McDonald's Real Estate Anymore

McDonald's investors and analysts have been salivating over the equity in McDonald's real estate portfolio for decades.

Many think that McDonald's should follow the lead of other companies and spin off their 
real estate assets into a real estate investment trust (REIT). Theoretically investors would 
buy shares in the REIT thereby "monetizing" McDonald's unrecognized McDonald's real estate values.

During the November 2015 meeting with analysts McDonald's management told investors
they had wisely decided there would be no REIT and as it just wasn't a good fit for the 
system. However, management did disclose that by the end of 2015 the company will have 
sold four McDonald's locations for about $130 million. This may be the first time in history
that McDonald's has publicly discussed such transactions. I assume past transactions were
detailed in financial disclosures but the specifics were not broadcast. 

When Ray Kroc and Harry Sonneborn developed their approach to McDonald's real estate 
it was with the intention that there would be a McDonald's store at any specific location in perpetuity. They knew they couldn't build much of a chain if established stores were to come and go every 20 or 30 years. They either bought the property or secured leases with extensive options. 

This strategy had an added benefit - franchises could be bought and sold with the buyer confident they were acquiring a long term business - creating more equity for the seller. 

But a real estate formula that's worked well for 50 plus years is changing and Operators 
should be aware of this evolution. 

I won't try to predict what McDonald's management will do but I know how Wall Street analysts think and MCD shareholders are pretty predictable. Going forward analysts will 
be expecting a certain amount of activity in McDonald's real estate sales. The substantial 
sale prices of the four locations in 2015 will be the baseline. If management doesn't 
produce a comparable annual line item analysts will ask "why not?". 

Individual McDonald's shareholders will now drive-by their local McDonald's wondering if 
that location shouldn't become a mixed-use office tower.

And the REIT issue will not disappear. When McDonald's share price has a downturn or is merely flat or dividends don't grow investors will again want to revisit the REIT idea. A management team and board of directors who are not getting results for shareholders 
might be unable to resist.

This not meant to alarm all McDonald's Operators since it will not involve a lot of stores. 
At least in the saturated USA McDonald's can't build total sales and income by shutting 
down stores in large numbers. And, while many McDonald's properties have increased in value, there will only be a few where the resale value exceeds the future income stream 
as a McDonald's restaurant. But, things are gradually changing.

2016 should be the year that McDonald's Operators become more involved and more know-ledgeable about the properties they are renting. Nothing could be worse for an Operator's equity than questions about a store's long term existence. Nothing could be worse for a store's cash flow than having the owners of an independent REIT making decisions about store rent and other occupancy costs.

Discussion?

Bloomberg reports on the November meeting HERE
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December 28, 2015

Subway's Franchisees - "Stop the Discounting"

As for those "Five Dollar Footlong" ads, Mr. Carroll said the marketing at one time
"made that offer so amazingly attractive: I'm getting an $8 sandwhich for $5." But, 
he added, "after a while you convince consumers that it's really only a $5 sandwich 
and so that's really what it's worth."

Behind Subway's New Post-Jared Strategy - AdAge
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December 24, 2015

Delivery Still Hot Topic

Still wondering how it's going to work when there's a third
party in-between a franchisee and their customer.  

Sounds like lots of opportunities for finger pointing.

Delivery was the buzzword of the year for restaurants in 2015
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December 8, 2015

December 7, 2015

Chipotle Mexican Grill to Tighten Food Safety Standards

I've always considered McDonald's to be the world's safest place to eat because of the 
relatively small number of closely controlled suppliers. The idea of a large restaurant 
chain "sourcing locally" sounded risky - and for Chipotle it has been.

In addition, Chipotle does not have an army of locally based franchisees helping to keep 
an eye on the suppliers, it all has to be done from the corporate office(s).

Chipotle Mexican Grill to tighten food safety standards for produce
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November 11, 2015

McDonald's Analyst's Day

The dust from Tuesday's Analyst's Day has settled so for those McDonald's Operators interested in knowing more about management's plans for the future of the company ...

The take from NRN is HERE

Crain's Chicago Business reports HERE

Yahoo Finance recaps what the analysts are saying HERE

A replay of the webcast is HERE

The Q&A with the analysts is always the most interesting part of the webcast.

November 10, 2015

Investors Impressed With MCD - And Then They Weren't


McDonald's Operators Can Breathe Again

McDonald's management says they will not form a REIT.
.

McREIT or not to McREIT

McDonald's Operators may hear some discussion from today's analyst meeting about
doing something with the McDonald's real estate empire in the form of a Real Estate Investment Trust. While having a third party influencing the real estate side of the 
franchise relationship would be disastrous for McDonald's Operators - not to worry.

The ongoing activities of the supplier owned REIT - System Capital Corporation - will
prevent any real transparency into McDonald's real estate and the topic will fade 
away as it always has.
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November 7, 2015

McDonald's Is Poised to Rule Fast Food Again

Much of this is a rehash of survey comments but it's always cute when a PR person 
speaks for the entire Operator community from her cubicle in Oak Brook. 

"We’re working to turn around our business with the support of our 3,100 independent 
franchisees, who are excited about sales drivers like all-day breakfast (which they 
overwhelmingly passed in a strong majority vote)," McDonald's spokeswoman Heidi 
Barker said. "We understand that they are reassured by our willingness to co-invest in 
future growth drivers."

Edward Jones analyst Jack Russo says: "There is change taking place and he franchisees 
don’t like that," Russo said. "McDonald’s is asking them to reinvest back in their 
business, in wages and labor, and they are not happy about that. But change had to 
happen at the company and they’ll be happy again at some point."

McDonald's Is Poised to Rule Fast Food Again - Business Insider
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November 3, 2015

Only The Government Thinks We Care About Calorie Counts

Studies: Putting calories on menus affects restaurants more than consumers
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There's Nothing Fast About Fast-Casual Restaurants







I've made more than my usual number of visits to "fast-casual" restaurants this fall. 

If one listens to the business media you'd think that Americans were flocking to 
Five Guys, Chipotle, and other non-QSR restaurants by the millions leaving 
McDonald's and Burger King locations vacant.

Maybe there's some of that happening if only because, as compared to a decade ago, 
there are a lot more fast-casuals out there. But it appears that fast casuals have put
huge limitation on themselves - the service and wait times are atrocious. 

I submit there are only a limited number of customers who will stand around waiting 
forever for their food. This leaves a huge competitive advantage for traditional QSRs 
because there are millions more customers who will forgo slow food for a quick grab
and go in the drive-thru or at the counter.

Any QSR brand that thinks they can drag those drive-thru customers inside to stand
around waiting for ten minutes after ordering does not understand their customers.

The felony dumb statement of 2015 was uttered from Oak Brook IL when a McDonald's spokesperson said, about Create Your Taste, "If they know we're making it especially 
for them people don't mind waiting".

There are a few such customers out there but not enough to justify destroying a 
restaurant system by being a copycat. 
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October 24, 2015

Best Case Ever For Secret Co-Op Ballots

I've always resisted postings and comments on this website that discuss upcoming 
promotions and marketing plans assuming that's proprietary information and discussing
it here might give competitors some advantage. But, since Nation's Restaurant News and Crain's have already reported on the "Pick 2"idea it's out of the bag.

In that light, I received mail from a McDonald's Operator asking that we try to generate 
some discussion about "Pick 2" on this website. While I can't republish the entire E-mail
but will kick things off by posting bullet points from the Operator E-mail.
_______________________________________________________________________

* Please focus your blog on this Pick 2 plan that is terrible for the O/Os.     

* I have spoken to a lot of O/Os who are afraid to speak up. I am not sure of what they are           afraid. Does anyone want another restaurant at this point?   

* Regardless, this OPNAD plan, overall, is terrible and will lead us back down the dollar 
   rabbit hole.  

* NRN has an article about it right now, but O/Os are voting.  

* It is crazy on who is voting yes and no.

* Anything we can do to kill this terrible plan is a first start.  

* I can’t believe that McDonald’s wants to run it this way, but more importantly, why would      you (as an O/O) not see it as your own small business. 

* Why worry over what McDonald’s thinks?  We are the ones up against tremendous debts    (due to McDonald’s) and meeting payroll. 

* O/Os need all the votes they can get. They need to know that a lot of Co-Ops have failed 
   this terrible plan, but not enough. 
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October 20, 2015

Monster Drinks at McDonald's

This is a flashback to the roll out of McCafe which was supposed to include such drinks
.

Yum Brands to Spin Off China Business

This restructuring at YUM is already generating discussion about McDonald's doing 
something with its real estate.

China Business - LA Times
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McFake Twitter Account on All Day Breakfast

Oak Brook has numerous fake social media accounts but the most amusing is on
Twitter with the handle "McD_Truth" who is trying to spin things for analysts.

With only a week under ADB's belt he is already claiming that:

ADB has increased the average check, lowered food cost by .50%, generated a 
huge sales increase, and Operators are 95% behind ADB.
.

Must McDonald's Always Be Politically Correct?


With all the challenges McDonald's faces - they have to waste resources on phony initiatives that will only raise operating costs.

McDonald's signs on for Obama's 'American Business Act on Climate Pledge'
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October 15, 2015

NRN's Jonathan Maze on McDonald's Value

This is a great opportunity for McDonald's Operators to comment at the end of the article
or send Jonathan an E-mail. 

By the way, Oak Brook has a bunch of "anonymous" people trolling the Internet 
commenting on articles and posting fake tweets. Anyone who does not agree with the 
Oak Brook party line is called a "hater". Is OPNAD paying for this activity?

For this purpose there's nothing wrong with creating your own identity.

Did shifting away from the Dollar Menu hurt McDonald's?
.

But McDonald's Operators Are Upbeat About Q4

McDonald's franchisees optimistic about sales growth
.

Starbucks to Install Video Drive-Thru Screens




 

         Face to Face With Your Barista

On The Other Hand, Some McDonald's Operators Say ...

McDonald's franchisees say all-day breakfast is a nightmare - Business Insider
.

Andres Happy With Breakfast Rollout, Says Value Plan Next

Bloomberg Business reports - HERE
.

McSpin on ADB Drives MCD to New Highs

McDonald's Touches All-Time High On Analyst Upgrade - Investors.com
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October 13, 2015

Let McOpCo Test CYT

Comment of the week - so far.

CYT - "Also the cost of converting/remodeling our kitchens, the added labor needed, and 
the increased complexity and food costs will make this a poison pill for all but the most 
foolish operators to follow. Let McOpCo do it for 3 years FIRST."

Discussion is HERE
.

October 3, 2015

Analyst Kalinowski Covers Restaurants for Nomura Group




Nomura Highlights 'Mixed' Comp Trends In U.S. Restaurants
.

Wal-Mart Raises Pay Rates, Then Has to Lay Off 450

"The cuts come as the world's largest retailer struggles to shore up its profit margins,
which have been weighed down by a $1 billion investment announced earlier this year
to increase wages for half a million store-level workers and other cost pressures. The 
company's stock is down 26 percent so far this year."

Wal-Mart to cut hundreds of jobs at Arkansas headquarters
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Why McDonald’s All-Day Breakfast Was Years in the Making

A website with a silly name buys the silly notion that McDonald's Operators made the 
decision to serve breakfast all day - silly website.

From a website named "Eater"
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September 28, 2015

CYT Dialogue

Before it goes too far down-screen McDonald's Operators should revisit the post titled 
"On CYT", we've had some great Operator comments.

Or, go back to the post HERE

Or make a comment about CYT on this post . 
.

Technology Content from Nation's Restaurant News

What customers want from restaurant mobile apps

Taco Bell launches website for PC or tablet ordering
.

Chipotle’s Carnitas Achieves McRib Celebrity Status





MarketWatch reports
.

Restaurants Look to Keep Up with Burger Trends

Restaurants Look to Keep Up with Burger Trends - FSR magazine
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Wisdom From One of the Original McDonald's Operators

My first gig as a McDonald's store manager was with the partnership of Zien-Heller in Minneapolis. I didn't know much about the structure of the partnership except that they
had the rights to develop McDonald's in the City of Minneapolis and they controlled the
real estate. We knew we worked for both men but reported directly to Jim Zien, he was 
in the restaurants frequently, Sim Heller occasionally.

One day Sim Heller made an unannounced visit to my restaurant and was especially 
interested in a contractor who was tiling walls in the back of the kitchen, walls that had previously been painted. I was excited about the upgrade - him - not so much. 

Sim wiped his hand across the 4x4 salt and pepper tiles and just said, "I hope Zien can 
afford it". 

Today's McDonald's Operators should emulate the very wise Sim Heller and when asked
to get involved in questionable initiatives respond with, "I hope Easterbrook can afford it".

September 24, 2015

What Would McDonald's Do Without a Strategy VP?

The WSJ describes McDonald's as "a company long known for preferring 
internal candidates" ... well, history tells us that's not entirely true.

When McDonald's has a CEO who lacks an operations background, such as 
Greenberg or Easterbrook, the CEO tries to flush the top management people 
who have "ketchup in their veins" and bring in people who know nothing about
running a McDonald's or the McDonald's culture.

Anyone remember Alan Feldman?

McDonald's appoints strategy chief - Marketwatch
.

Restaurant Ad Spending Drops 10.4%

Not a bad idea - βurgerβusiness
.

September 22, 2015

Putting the New Starbucks App to the Test

Let's just say it didn't go particularly well.

Starbucks’ new order-ahead app review - Business Insider
.

Starbucks' Order-Ahead Application Available Nationwide





Bloomberg Business reports

McDonald's Cage-Free Egg Pledge

"McDonald's, the world's biggest restaurant chain, on Sept. 9 said it will switch to 
cage-free eggs by 2025 in the United States and Canada. However, the company 
does not plan to raise prices on its menu."

Oh yeah? ... Who says?

McDonald's cage-free egg pledge pressures farmers, squeezes supply - Yahoo
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On CYT - Seeking Your Comments



Any evidence there is an actual business case for Create Your Taste.

What are the hard numbers for remodeling, equipment, and implementation?

What are CYT's increased operating costs after implementation?


What is the actual (not dreamed about) increase in traffic?

Responses can be left as comments here or sent to adams at fegroup.com

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September 17, 2015

McDonald's Looks Outside for New Chief Strategy Officer

Not too sure what a "Strategy Officer" is but I've got your strategy right here >

Get serious about simplifying the menu and restaurant operation so you can serve more customers!

Julie Jargon from Dow Jones reports
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September 16, 2015

Good For Both McDonald's Operators and Oak Brook

Good news for McDonald's Operators since activist investors want to fiddle with
the McDonald's franchise business model.

Good news for Oak Brook since it would be a PR disaster if investors were allowed
to  examine the McDonald's real estate portfolio and the secret REIT(s) that have
been created over the years.
 
IRS questions tax-free real estate spinoffs; could affect restaurants - NRN
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McRevolt: The Frustrating Life of the McDonald’s Franchisee

McDonald’s Operators are probably weary of negative press concerning the brand 
but this Bloomberg article tells the story of an actual Operator’s career - Al Jarvis - 
former Michigan Operator.

I ribbed the reporter for quoting a college professor who likely knows nothing about 

the real business world and sent him this scene from a Rodney Dangerfield movie:

Back To School

He sent me back this scene from a Woody Allen movie:

Annie Hall

Bryan Gruley and Leslie Patton report for Bloomberg

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September 4, 2015

Why Launch Breakfast Now?

Many McDonald's Operators are wondering if, operation -
ally, it would have been a better plan to launch breakfast all day in January instead of launching at the beginning of one of busiest periods of the year.

There is an explanation - Oak Brook management needs good news NOW - and can't wait for next year.

Launching in early October gives them something new to talk about on the October 22nd conference call with Wall Street analysts. That will then carry them through their Oak Brook  meeting with analysts in November. Then things go quiet until the January 21st conference call discussing Q4 2015 with analysts.

During the first weeks of October analysts and reporters will wander through McDonald's restaurants observing people eating breakfast at all hours. Of course many of the menu 
items being consumed will be obtained for free by way of coupons (print or digital) paid for
by McDonald's Operators. MCD watchers won't know that and will be impressed with 
what they see.

So there will be something exciting to discuss on the late October call and chances are good 
that results for the fourth quarter will please shareholders when announced in January because:

* The massive amount of advertising against breakfast.

* National and local couponing discounting efforts.

* Sales in the USA went negative in the fourth quarter of 2013 so there's a good chance that  
"lapping" these two years of soft sales will produce some positive results for Q4 2015.

The more sophisticated analysts will understand this lapping but some won't and reporters definitely won't write about it so in late January there may be headlines proclaiming that  McDonald's USA has been "turned around".

And, since Oak Brook no longer releases monthly sales results this perception could give management cover through the spring conference calls and the 2015 shareholders meeting.

As the T-shirt says, "The time is now" - no matter what happens in the restaurants.

.

September 3, 2015

National Labor Relations Board Franchise Decision

A few have asked why there's been no discussion here about the NLRB ruling.
I have no good answer except the board's position on the franchisor/franchisee
relationship is so far from reality it's difficult to discuss.

Keep in mind, this isn't about McDonald's, it's about all franchised business. Like
minimum wage increases such rules and laws won't just apply to quick service 
resaurants but would impact muffler shops and haircut chains. If left to stand this
would effectively put most franchise chains out of business. Since the corporate 
side is the deep pocket they'd be responsible for everything that happens to a 
franchisee's employees. Not even McDonald's could afford to pay that bill.

Under those conditions why would any company sell franchises? Given the chance
of having their business unionized, why would any person buy a franchise?

We can expect a battle royal in the courts and in congress and it's probably going to
happen very quickly. But this will actually be decided in the 2016 election. 

Here's an interesting article sent in by a McDonald's Operator:

How to fix regulation without representation | TheHill

Here's an excellent opinion piece on the ruling:

 How This New Government Ruling Destroys the Franchise Business Model
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August 14, 2015

Crashing McDonald’s Annual Meeting

If McDonald's Operators cringe when hearing bad news about the brand - much
of the blame goes to the combative way in which the Oak Brook press relations 
people treat members of the media. Reporters rarely write about this abuse but 
Franchise Times is up front.

The solution? Hire some nice people.

Crashing McDonald’s annual meeting - Franchise Times
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