Take yourself back to 2004. You just watched the documentary, Super Size Me. After viewing the film, you begin to ask yourself if you ever want to eat at McDonald's (NYSE: MCD ) again.
The negative publicity for McDonald's was considerable at that time. The unannounced conclusion of the documentary was that McDonald's will make you fat. Tim Naughton attempted to prove this theory incorrect with his 2009 documentary, Fat Head. Due to a sarcastic and sometimes unfriendly attitude toward Morgan Spurlock, creator of Super Size Me, Fat Head wasn't nearly as popular. Though the following story of a man who ran his own McDonald's experiment will never be as well known as Super Size Me or Fat Head, it does prove an interesting point.
You control your own destiny, at least to a certain extent
Genetics and metabolism play a role in weight. On the other hand, just as the average student is required to work harder for an A plus, those with poor metabolism have to work harder at losing weight. This doesn't just pertain to exercise ... but diet. Take John Cisna as an example.
Cisna is a biology teacher from Iowa, and he was determined to prove that McDonald's doesn't make you fat. After eating only McDonald's for three months, he lost weight ... 37 pounds to be exact. His cholesterol dropped from 249 to 170, and his lipoprotein went from 173 to 113.
Cisna's strategy was to never exceed 2,000 calories in a day, and to get the average daily nutrients from his meals. His largest meal of the day would be dinner, which consisted of a value meal.
Cisna's impressive results proved that McDonald's doesn't make you fat. It's up to you to determine how and what to eat. The only catch here is that Cisna walked 40 minutes per day during these three months, whereas he didn't exercise prior to the experiment. However, even if that contributed to the weight loss and improved health, Cisna at least proved that Super Size Me was far-fetched in regards to McDonald's presence and marketing leading to negative health-effects.
Given the rapid rise of the health-conscious consumer, this is important information from an investing standpoint. While it doesn't act as a catalyst for improved sales at McDonald's, it shows that the brand is often unfairly perceived as an unhealthy dining option. Of course, McDonald's still sells plenty of fatty and high-calorie foods, which is what lead to this reputation, but what many people don't realize is that McDonald's is attempting to cater to all consumer demands. There are still millions upon millions of consumers who crave traditional fast food. Therefore, McDonald's must continue to offer these foods as an option if it wants to stay in business.
At the same time, McDonald's is slowly expanding its healthy menu offerings. It will be interesting to see how McDonald's manages to change its reputation for the better without alienating its traditional customer. It won't be easy, but you should never bet against McDonald's. That said, should you consider Burger King Worldwide (NYSE: BKW ) or Wendy's (NASDAQ: WEN ) instead?
McDonald's vs. Burger King and Wendy's
Approximately 80% of McDonald's restaurants are independently owned. This allows McDonald's to deliver locally relevant restaurant experiences and the ability to cater to changing consumer demand in different geographic areas throughout the world. Despite increased negative sentiment, McDonald's has grown its comps sales and customer visits for eight consecutive years.
Looking at a shorter time frame, Burger King managed to deliver comps sales growth across all there of its international regions last quarter (Q3) year over year. Overall, systemwide comps increased 0.9%. Comps declined 0.3% in the In the U.S. and Canada, primarily due to a weak consumer and fierce competition. However, the innovative Satisfries ("better-for-you French fries") demonstrates the company's ability to innovate, which then has the potential to increase traffic and sales. Burger King also opened a total of 133 restaurants, indicating that the company has a great deal of confidence in its future prospects.
As far as Wendy's goes, its third-quarter comps jumped 3.2%, indicating heightened demand and customer loyalty. Wendy's also successfully innovated with its Pretzel Bacon Cheeseburger. Modernized restaurant designs also played a role in the company's comps success. Wendy's expects these restaurant designs to be successful for 85%-90% of its locations.
On the innovative side, McDonald's hasn't managed to keep up with its Burger King and Wendy's recently, as its Mighty Wings proved to be too expensive and had to go up against to much competition in the wing space. On the other hand, McDonald's ability to generate significant cash flow -- $7.10 billion over the past year -- allows it to reinvest in its business (innovation attempts included) and return capital to shareholders via buybacks and dividends.
Fast-food restaurants, or quick-service restaurants, don't make you fat. This is especially true today, when every restaurant regardless of how it's categorized is looking to offer more healthy items on its menus. It's now simply a matter of marketing and perception, and in McDonald's case, not alienating its traditional customers while making this transition.
McDonald's is a long-term comps winners, which indicates continuous demand and strong brand loyalty. However, Burger King and Wendy's have delivered innovative successes recently, which has helped their comps performances, and might have led to market-share gains. If you're a value investor, then you might want to consider McDonald's. If you would prefer to go with the underdog and growth potential, then you might want to conduct more research on Burger King and/or Wendy's.
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