Bill Gates said that he was done with talking about cow farts.
But, the Beyond Meat movement shows that some people remain ignornant of the value herbivores bring to the table, as it were, for both the creation of topsoil & great food.
Kris Gunnars wants to you to be a proud meat eater.
It's very encouraging to hear that recent McDonald's Operator Pulse Surveys included Operator concerns about the growing complexity of the McDonald's restaurant operation and that Operators feel the regional staffs are "disconnected" from the restaurants.
It seems like yesterday that one of the components of the original Plan to Win was "Simplification". That was back when the McDonald's menu was about one-half the size it is today.
I don't know if a conscious decision to expand the menu exponentially was made at some point in time or the menu just evolved from a lack of discipline. McDonald's decision makers appear to believe that efficient operations are old hat and McDonald's restaurants must now be All Things to All People.
But don't the long-time operations people in McDonald's upper management know what they are doing to the capacity of the restaurants and the effectiveness of the people running the restaurants?
They might, but there are now so many Oak Brook decision makers who have no real restaurant experience that the people with real operations knowledge must get drowned by the new product pipeline and ignored. Or they may be told (by non-ops people) they are becoming obsolete and don't understand the realities of today's marketplace. That would be pretty intimidating.
In many ways McDonald's veterans have been to this movie before.
In the late 1990s McDonald's USA was on the ropes and Jack Greenberg staked the system's future on the Made For You cooking system. While millions of customers refused to wait in the long lines created by MFY no one would tell Jack Greenberg they'd created a huge problem. McDonald's USA went through another four years of sales problems and Operator failures.
At that time Greenberg was one of the few decision makers in McDonald's USA who didn't have decades of real restaurant experience. Because he lacked that operational background Greenberg apparently refused to listen to those who had such experience (or they were afraid to speak up).
Today, according to the corporate bios, there are only a couple of people on McDonald's upper management team who've ever run a real McDonald's restaurant. In addition there are the corporate marketing people running OPNAD who live in their own fantasy world and will never understand operations.
The danger is that these non-operations people are under intense pressure from Wall Street analysts who expect constant "Innovation". These analysts know McDonald's by the numbers but have no idea what they're seeing if they ever visit a McDonald's restaurant. I've been working with the analysts for more than 15 years and I know that they'll keep pushing for "Innovation" until McDonald's menu is the size of a Denny's menu.
And, while not as influential, the press is constantly hassling Oak Brook for "New Product News". The corporate PR people know that the easiest way to get a positive headline is to announce a new product line.
So who's going to tell the decision makers with no real restaurant experience about the damage they are doing to the growth prospects of McDonald's USA? It won't be anyone working in Oak Brook. Their career path will grind to a halt if they admit to their bosses that McDonald's can't be All Thing to All People.
It will have to be McDonald's Operators who stop the insanity through Co-Op and OPNAD decisions, surveys, public comments, and other activism. It's a long road back to a sensible menu and a workable kitchen system - only McDonald's Operators know the way.
McDonald's (MCD) has been in the national press of late with notes of franchisee problems. Many understand that McDonald's is partially a real estate story, and is one of the three primary MCD revenue streams. Being in real estate in the early years presented an understandable story to the lending community, that didn't understand $.15 hamburgers. It also was a way to control the franchise structure via a lease, and to take an ownership interest to smooth out early startup losses.
Over time, MCD corporate earnings have been partially reliant on the real estate margin. Early histories on MCD noted an 8.5% total restaurant rent goal and a MCD corporate real estate margin of 25-30%.
It's risen a lot since those days. Rent expense has generally increased worldwide, but McDonald's rent margin-its markup--has also. See the following extracts taken from the MCD last 10K filings.
The McDonald's rent margin is now almost 84%. This is the function of several factors, including higher store revenues over time, hitting a rent overage threshold that goes as high as 18% of revenue, as well as rent concessions that the landlord McDonald's realized that it did not pass on to the franchisees.
McDonald's rent per franchise lessor site is calculated as above, at over $292,000 per unit, up 26% from 2007. We don't have the exact breakout of McDonald's franchisee revenue for the lessor stores to run a rent percentage, but it rent has to be up. Rent revenue is up more than the number of franchisees, illustrating the issue.
McDonald's is 81% franchised. The franchise economic model has to work for MCD to expand. Restaurant economics were built on 6-8% rent. But the data above suggests actuals are higher.
The missed opportunity of the McDonald's model is that corporate could lower franchisees rents to offset the price discounting it does to hit the Street's same store sales goals-but to do so, it would have to find corporate G&A savings elsewhere to offset the rent decline. That is not on the corporate menu at this point.
McDonald's (MCD) weak same store sales results for October announced Friday threatened to take down the entire restaurant space stock platform.
One of the problems is MCD reports by calendar month. But not every month has the same number of weekdays and weekends each year, and MCD missed a Saturday and a Sunday this year.
This could be fixed. Fiscal year formats of 13 periods of 28 days have been standard for 30 years plus in this space and could so be adopted. Every back office system in the world has such flexibility.
I suspect the problem is getting franchisee reporting lined up. It's a change and will cost something. But we expect such systems from the QSR industry pioneer. And less stress on the publicly traded company is good for all.
What was of greater concern were the MCD sales components: With some analysts projecting an embedded 3% price increase in the U.S., either customer traffic was almost 5% lower or product mix shifted lower.
McDonald's sales momentum deterioration in the U.S. and Europe was the most pronounced. APMEA (Asia Pacific/Middle East/Africa) was -2.4% vs. the rest of world, had poor Japanese trends and bouncing Australian results, and has been weak or negative for some time.
McDonald's does not disclose results by nation, but we can tell by the process of elimination that the MCD powerhouse markets of France and Germany had to be down big time as MCD reported the U.K. was up.
Finally, while the same store sales metric is commonly understood in the business press, comparing to one prior year is not really the best measurement. It misses cumulative history.
McDonald's was down versus 2011, but still up versus 2010, 2009, 2008, and all years back to 2003. In fact, versus 2002, U.S. MCD same store sales is up cumulatively 55.4% coming into FY-12. Wendy's and Burger King do not have the same advantage.
Additionally, reporting same store sales on a five year compound average growth basis could be more meaningful.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
