August 22, 2017

No Wonder McDonald's SS Sales Are Trending Positive

Factor in the closing of hundreds of McDonald's USA locations and...

Restaurant chains have closed hundreds of locations
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4 comments:

Anonymous said...

Richard I'm not sure what your comparison means. Take McD for instance do you measure growth using existing (remaining) stores and new stores against those same stores when you (and others) are measuring growth (sales tc's income or?) Or just the total company sales last year versus this year, including new stores this year?

So exactly what does "No Wonder..." mean.

Thanks for the work you do, Loooonnnggggg time reader.

Richard Adams said...

I'm talking about same store sales. It's kind of a reverse-impact situation. When McDonald's opens a new store a portion of the new store's sales come from surrounding McDonald's stores. When an existing McDonald's store is closed some of those sales will go to other local McDonald's.

Likewise, when an Applebee's closes, a certain amount of that business will go to other restaurants in the area, including McDonald's.

None of this is quantifiable but due to McDonald's size and total penetration of U.S. markets it's easy to believe that McDonald's would be a beneficiary of this disruption in the restaurant marketplace.

Also, see the following post wherein Jonathan Maze writes about the consumer trends away from fast casual and back to QSR.

Thanks for the comment, I changed the headline to make things clear.

Anonymous said...

I see. But McDonald's as a US market for instance doesn't re-capture all of those sales for awhile (if forever) as it takes awhile to recapture significant amounts and there is some loss at the frequency level for some time. Long term benefits may include better profitability at the restaurants that already exist, but actual increased sales to the Corp will take awhile to occur. Proof of better marketing penetration is apparent in current sales increases even in isolated outlying restaurants.

Now increased sales are coming at a terrific (or horrific) cost due to deep discounting and remodel, technology, new equipment, wages, etc.

I humbly disagree that McD Corp is currently seeing direct benefit to this scenario at this point in time. Their downsizing of services/staff along with consolidation of operator numbers is a direct shift of costs to the stores and the long term benefit of that remains in the future.

Richard Adams said...

Of course, all of those sales won't come back to existing stores. But a McDonald's
veteran can tell stories about nearby stores closing, or burning down, or being
closed for a rebuild and at least some of those sales either permanently or
temporarily going to nearby McDonald's.

But you're making this too complicated.

I'm just addressing the one metric that everyone on Wall Street and the media
focuses on - same store sales results released on a quarterly basis. The analysts
look deeper but the headlines about same store sales are what impact the share
price.

If sales are good, management gives all the credit to their recent corporate
initiatives. If sales are soft, management blames the franchisees.

As for short or long term benefits - if same store sales are good, the share
price goes up. If sales are soft the shares will likely go down. That happens
instantly.
.