McDonald's (NYSE:MCD) dominates the fast-food industry with one of the most recognizable brands on the planet. In fact, Mickey D's handled an incredible 15% of the 89 billion visits that people made to all quick-service restaurants last year.
Despite that ubiquity, there are some big changes going on at the fast-food giant that investors might not know about. These shifts could significantly alter both McDonald's finances and the way its brand is seen by customers over the coming years.
1. The chain is selling itself.
McDonald's is aiming to sell 4,000 of its company-owned restaurants to franchisees this year as part of a move to dramatically lower its operating base. In 2014, the year before the company launched this initiative, 80% of the chain's locations were franchised. That number hit 85% in 2016, and the company is aiming to push it to 95% over time.
By shifting toward franchising, McDonald's benefits from more predictable revenue, lower operating risk, and higher overall profitability. In the most recent quarter, for example, operating income jumped 13% even as revenue fell 4% -- thanks mainly to refranchising.
In exchange for stronger earnings, McDonald's gives up control over many aspects of the customer experience, and that can make big strategic moves harder to achieve. Chipotle (NYSE:CMG), for example, is likely happy that it doesn't franchise any of its locations. Sure, that setup meant the burrito specialist took the entire hit from lower customer traffic over the past year in the wake of its food safety scare. However, corporate ownership of its restaurants allowed management to make sweeping changes to its food preparations and branding so that it has now returned to posting revenue gains following a year of brutal declines.
2. McDonald's wants to be the world's biggest delivery business.
When you think of delivery specialists, you might picture a company like Amazon, whose network of huge fulfillment centers allows it to get products to most of its customers just days after the minute they click "buy." Soon, though, McDonald's might be the name that comes to mind when you think of delivery.
Consider that in its biggest markets, including the U.S, almost 75% of the population lives within three miles of a McDonald's restaurant. As the company explained in its recent global growth plan, that footprint means the chain is "uniquely positioned to become the global leader in delivery."
The fast-food giant has already seen booming results from its delivery offerings in places like China and Singapore, and it's actively testing out models, including partnering with third parties, that would work well in the U.S. Ironically, the company that pioneered the drive-thru could be the one that does the most to remove driving from the fast-food experience.
3. The company knows it messed up
After two years of painful market share losses, the message has gotten through to management that the company lost its way recently. "As customers' expectations increased," executives told investors in March, "McDonald's simply didn't keep pace with them."
The best evidence of that stumble comes from customer traffic, which dropped 2% last year to mark just a minor improvement from the 3% plunge in 2015.
Regaining diners lost to quick-service rivals like Chipotle and Shake Shack is a core pillar in its recovery strategy. McDonald's aims to do that with help from menu improvements like its recent switch to never-frozen beef in its Quarter Pounder. Added value options should help, too, as should its huge push toward adding and promoting digital ordering and payment options.
Customer traffic growth will be the best metric to judge whether the rebound plan is working, or whether McDonald's is doomed to lose market share over the longer term. Its latest results were encouraging on this score in that they showed a slight uptick in traffic that powered a surprisingly robust 4% jump in global sales.
Demitrios Kalogeropoulos owns shares of Chipotle Mexican Grill and McDonald's. The Motley Fool owns shares of and recommends Amazon and Chipotle Mexican Grill. The Motley Fool is short Shake Shack. The Motley Fool has a disclosure policy.
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