How McDonald's Plans to Keep Growing

With more than 34,000 locations in 117 countries, it's hard to believe a company like McDonald's (MCD 0.37%) can continue growing. However, management just released some glimpses on where the company might find future growth at the investor meeting on November 14.

 

From global growth opportunities to menu optimization, the company reaffirmed its long-term goals by showing a sound and detailed plan to conquer the global informal eating-out market, which is worth $1.2 trillion, according to Euromonitor. How does McDonald's plan to maintain its dominance in this market, and protect its business from the expansion of ambitious competitors such as Burger King (BKW.DL) and Wendy's (WEN 1.32%)?

 

To keep growth alive, McDonald's has decided to focus on three priorities: menu optimization, modernization of customer experience, and broadening accessibility.

 

Menu optimization involves going beyond traditional hamburgers and introducing a wider selection of beverages, chicken products, and beef products. For example, McCafe -- which was first opened in Australia in 1993 -- has expanded quite quickly. Now the company plans to introduce McCafe-branded packaged coffees via grocery stores.

 

In terms of customer experience, the company's reimaging and rebranding efforts are aimed at gaining non-traditional customers. For example, by offering free WiFi access and improving the quality of its premium coffee, McDonald's tries to capture market share from coffee chains.

 

Finally, in terms of accessibility, the company plans to improve capacity significantly, on top of building new restaurants. The company plans to spend $2.9 billion to $3 billion in 2014 to open 1,500 to 1,600 new restaurants, and remodel about 1,000 others. This should allow the company to maintain sales growth of 3%-5% and operating income growth of 6%-7%, amazing figures for a company serving around 68 million customers daily in 119 countries.

 

Although Burger King's recent focus on the high-end segment -- in Japan, the company sells cocktails -- and use of high-quality ingredients is promising, McDonald's has a stronger, iconic, and truly global brand which is embedded in the memory of customers from a very early age. This allows McDonald's to maintain a leading market position in practically every country in which it operates.

 

Note that between 2005 and 2008, inefficient and controversial marketing campaigns and the decision to sell absurdly expensive burgers in the middle of a severe financial crisis -- there was a $190 gourmet burger in the U.K. -- had a terrible negative impact on Burger King's sales. Although the company tried to keep up with McDonald's, it turned out that Wendy's was the real threat. In late 2011, Wendy's finally surpassed Burger King and became the second largest fast-food restaurant in the U.S.

 

With more than 6,000 locations worldwide, Wendy's owns a stronger brand than Burger King. Furthermore, Wendy's is constantly innovating its menu, while paying attention to its traditional offerings. To replace both the Big Mac and Whopper, the company launched its W burger at the end of 2011. In 2012, it introduced a new type of fries, a new salad, and the spicy guacamole chicken club, to name a few examples.

 

However, as Morningstar notes, Wendy's higher-quality products come at a higher price, and therefore make price-sensitive consumers shy away. The company concentrated on differentiating its products by using top-quality ingredients, and promoting an 'old-fashioned burger' concept. Instead, McDonald's has focused on keeping prices low. As a result, McDonald's appeals to a broader demographic.

 

Final Foolish takeaway
The world's largest chain of hamburger fast food restaurants remains an attractive investment, both in terms of value and growth. Management's commitment to permanent innovation and expansion, combined with McDonald's iconic brand, should help the company maintain its dominance in the fast food industry and conquer new segments.