Old McDonald's: Quarter Pounder Equals Quarterly Losses

McDonald's, the king of fast food has found itself facing tough times and a tougher market.  So what is going on with McDonald's and why a 30% decrease in profits and a continued decline in stock price over the past year.  Lets take a look at that together.  This is a good lesion to learn not only if you have McDonald's stock in your portfolio but with all the investments in your portfolio, including mutual funds.

Once upon time McDonald's was the only show in in town.  Other similar fast food chains could not hold a candle to them.  McDonald's was the pioneer in fast food and everyone has followed in their shadow for years and years.  But now the competition is becoming greater and greater with many more fast food restaurants setting their sites on dethroning the king of fast food.  Over the years McDonald's has had to fight off increasing competition.  Use to be Burger King and Hardies were their only competition and they both struggled for market share in the shadows of McDonald's.  Burger King has recently restructured which has taken another bite out of the Big Mac and there are lots more players in the game taking away market share from McDonald's.

Is market share woes McDonald's only contributing factor for this 30% decrease in profit and fall in stock price?  Absolutely not!  McDonald's has made many mistakes at the hands of their cooperate decision makers.  McDonald's had a nitch that made them a success.  But over the years they have gotten away from their nitch and the basic concepts that made them so successful.  McDonald's over the years has tried to "keep up with the Joneses" instead of a basic focus on what they know they can do better than everyone else.  They, like many other sit down or fast food restaurants fell into the trap of having a menu to try to give something to everyone and to compete with all their market share competitors offering things like ribs, burritos, fish, salads, chicken, sundaes, etc.  And in select regional and foreign markets these choices are even more extended.  Such as in Asia offering rice and Asian traditional foods, beer in Germany, burrito's and taco's in Hispanic markets etc..   McDonald's fell in this trap and now they have a menu consisting in an average market of over 145 items.  How can anyone make over 145 items better than everyone else?  They can't and that is one area of which McDonald's has failed and now it is biting them in the ass because they forgot about the concepts of the basics that made them successful.

McDonald's has in recent years made other bad choices and has been victim of circumstances in foreign markets that were beyond their control and that they were not on top of.  They also took chances in hostile markets.  What kinds of things am I talking about?  How can anyone claim their hamburgers are 100% Pure Beef when they are full of Pink Slime?  Remember the Pink Slim?  Yes they admitted they used it in their hamburger meat and later stopped using pink slime due to public out cry and a drop in sales.  A loss they have never fully recovered from.  Over the past year they have also been used as a political pawn by the Russians closing down many McDonald's locations throughout the land which has been explained by the Russians due  the United States stand regarding the Ukraine and sanctions imposed up the Russians.  So basically they were kind of returning the favor.  In Asia there has been the scare of meat used by restaurants, fast food industries and found in groceries to be tainted with bacteria due to mishandling of meat during processing.  These two issues have hit McDonald's bottom line including the issues here in their largest market which is the United States, mainly caused by a decline in our economy and the Pink Slime scandal. 

So you may ask, where does McDonald's go from here and what should you do as an investor?  For the long term investor that has owned stock in McDonald's for many years and reaped some good profits, splits, and dividend growth.  Be happy and take a look in another direction.  There are many other Consumer Discretionary sector stocks that are better to wander your eye toward.  Some of these would be Nordstrom, Inc. (JWN), TJ Maxx (TJX), V.F. Corp. (VFC) which are all looking much more appealing to me right now.

McDonald's needs to pull back and get back to basics, do what they are great at, and not try to keep up with all the Joneses.  You can't be everything to everyone and McDonald's has failed to accept that.  When they do this and they focus more attention in what is going on in their foreign markets perhaps they will be worth another look at investing my dollar.  Until then I think I can find much better choices.

Gus S.

Disclaimer: Make sure to review any information found on this blog site with your personal financial advisor before making any decisions. I am providing general information and not financial advise. I am not a licensed stockbroker or financial advisor.