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August 03, 1998

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Subject: McDonald's debate
Author: candis

Looking over the arguments for MCD's, I keep on remembering my reaction to MCD's when I was younger--it was way coooool! As I grew into my teen years, it was cheap food. When I was in my twenties and thirties, single, childless, I thought MCD's was truly gross. I hated it with a passion that could only be matched by the thought of an unlimited, prepaid (by someone else--not me!) three-day shopping spree at all the stores on Michigan Avenue and getting to stay at the Hyatt with room service, besides.

I am now a mother of two boys that both **LOVE** MCD's. And so do I. Mostly. Sort of. Kinda. Allow me to explain.

"What any firm ultimately sells is confidence. Confidence in the quality of the product [...] and confidence that one is getting a good value for one's money."  

My little guys will often choose to go to MCD's when I offer to take them out to lunch--this even from the big little guy who is 7 and has graduated from Happy Meals to Big Macs (!) even though he lost the toy that came with the Happy Meal. Consider, too, that we live in an are where **all** the fast food chains are represented within a one mile drive and some are closer to our home than MCD's. MCD's is still the first pick with my little guys.

As a mom, I love MCD's now because the stores are *usually* kid friendly and I don't have to clean up all the mess the kids make (ok, it's a lousy reason, but it works for me). And those Playlands! Wonderful way to use up children's energy.

I hate MCD's because the bathrooms are not always the cleanest. I live in the Chicago area and I frequently visit relatives in Michigan and Indiana so I get to visit MCD's in three states. The MCD facilities in those three states are **NOT** uniform in cleanliness, nor are the buildings in the best of shape either.

The service in nearly all the MCD's is abysmally slow. The menu is not uniform. If you think this is not important, try imagining the plight of a mother with two children who are clamoring for apple juice and can't get it while on the Interstate because the particular MCD's you are at doesn't serve it. Not a pretty sight.

On the other hand, from an investor's point of view, this all means that MCD has amazing land holdings, (what would the breakup value of those holdings be worth, ala PEP/YUM?)terrific customer repeat business and a brand name that is rivaled only by Harley-Davidson (the only company that I know of that has people tatooing its logo on their bodies!). Did I mention that my little little guy's first words were "Nonalds!"? Powerful stuff.

  "The bottom line is that I don't know of any company that has the combination of things going for it that MCD has."

What any firm ultimately sells is confidence. Confidence in the quality of the product (and please keep in mind the product MCD sells is not just hamburgers and french fries--it sells predictabililty and convenience) and confidence that one is getting a good value for one's money. MCD's does that. It could be doing it a lot better in the execution of some facets of its product, but it is still sellng confidence.

Last year the stock price was stalled because Buffett was selling of his shares of MCD. Now that he has completed his sale of his MCD holdings, the price has been rising. I know Saint Warren rarely makes mistakes, but there is always the first time.

The bottom line is that I don't know of any company that has the combination of things going for it that MCD has. One could criticize MCD for many individual things. But when you look at the whole picture, the picture is pretty impressive. I keep remebering a passage from "The Motley Fool Investment Guide" that a company can have the best product and not be the best investment. Conversely, in my opinion, the best investment may not have the best product. I don't like the new french fries either, but I have MCD stock in my children's college portfolio.

Candis


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