Good Morning, Vietnam; Here Comes McDonald’s

McDonald's (NYSE: MCD  ) is finally bringing the Big Mac to Vietnam and the country's rapidly growing economy. The question on my mind is, what took so long? After all, Burger King Worldwide (NYSE: BKW  ) and Yum! Brands (NYSE: YUM  ) both already have restaurants in the country. What's even more interesting is that Vietnam is the first new market for McDonald's in Southeast Asia in 20 years. Could McDonald's expansion into Vietnam be enough to boost global sales for the fast-food retailer?

A country with potential
Vietnam has a rapidly growing economy with more than 90 million people who all want a taste of American fast food. Since 2000, per capita incomes have nearly quadrupled. The median age in the country is only 28 years, and most of the population was born after the war. Therefore, you have a young country that wants to embrace American culture, and what better way to accomplish this than with McDonald's?

It is certainly a reversal of fortune for both U.S. multinationals and Vietnam since the end of the Vietnam War. McDonald's first location will be on Dien Bien Phu Street in Ho Chi Minh City and will have the country's first drive-thru. The opening is such a big deal that even McDonald's CEO Don Thompson will be there. Vietnam will be the 38th country for McDonald's in Asia, and the Ho Chi Minh City location marks the 10,000th location in the region.

What took so long?
McDonald's wanted to wait before entering Vietnam for three main reasons.For one, there was a lack of domestic beef cattle. Second, the supply chain infrastructure to ensure everything went from farm to table was not in place. Both are no longer an issue and have been rectified. The final delay was due to not having the right partner in Vietnam. McDonald's partner in Vietnam is Henry Nguyen, a former Goldman Sachs banker who now runs a venture capital and private equity firm called IDG Ventures Vietnam. He also happens to be married to the daughter of Vietnam's current prime minister.

What's on the menu?
On the menu there's McDonald's regular menu items and the McPork sandwich, which was added specifically for Vietnam. A Big Mac will cost 60,000 Vietnamese dong ($2.82). A Big Mac value meal with fries and a drink will cost 85,000 Vietnamese dong ($3.99). While more pricey than typical Vietnamese street food, going to McDonald's is more of a status symbol for the Vietnamese people as they get a taste of Americana.

Plenty of catching up to do
McDonald's has plenty of catching up to do in Vietnam. KFC has been operating in the country since 1997 and now has 135 locations there. Burger King entered Vietnam back in 2011 and now has almost 20 restaurants. Other chains also in the country include Baskin-Robbins, Dairy Queen, Carl's Jr., Popeye's Louisiana Kitchen, and Subway. Subway opened its first location last year in Ho Chi Minh City and now has three locations. Over the next few years, McDonald's plans on catching up and having 100 restaurants in the country.

Shares are still attractive
Shares of McDonald's are still cheaper than shares of Yum! Brands or Burger King Worldwide. McDonald's is trading at only 15 times next year's earnings, while Yum! Brands trades at 17 times and Burger King Worldwide trades at 26 times. McDonald's also has the highest dividend yield among the three at 3.4%. Shares of McDonald's have underperformed the market and are trading at the same price as last year.

Foolish assessment
While Vietnam is not big enough to have a meaningful impact on McDonald's global sales, it's nice knowing that there are still markets without a McDonald's. We see a McDonald's on practically every corner and think that there's no way the restaurant chain can keep growing. Well, McDonald's is proving that there are still markets out there without a location yet.

McDonald's has made some mistakes lately, as described in "McDonald's Has More Than a Chicken Wing Problem." That said, I'm still a big believer in the long-term growth story of McDonald's. For investors with a long-term horizon, McDonald's has been a proven winner, and that trend will continue as there still remains untapped markets like Vietnam for McDonald's.

Put your money where your mouth is
Millions of Americans have waited on the sidelines since the market meltdown in 2008 and 2009, too scared to invest and put their money at further risk. Yet those who've stayed out of the market have missed out on huge gains and put their financial futures in jeopardy. In our brand-new special report, "Your Essential Guide to Start Investing Today," The Motley Fool's personal finance experts show you why investing is so important and what you need to do to get started. Click here to get your copy today -- it's absolutely free.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2832352, ~/Articles/ArticleHandler.aspx, 3/28/2015 8:13:18 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Apple's next smart device (warning, it may shock you

Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early-in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!