McDonald's New Initiative Could Boost Its Future Performance
McDonald's is considered one of the top quick-service restaurants in the world, with around 35,000 locations to serve more than 69 million customers in greater than 100 countries. Many investors had thought that McDonald's has gotten to a saturation point.
Nonetheless, in order to increase sales to keep outpacing its peers, such as Chipotle Mexican Grill and Yum! Brands , the company has started a bunch of initiatives for its future growth. These include premium beverages, kitchen improvement, and expansion of breakfast items in global markets.
McDonald's new initiatives
Previously, McDonald's introduced many new products to its menu and then remodeled its existing stores to keep consumers coming. However, it has been encountering the problem of "menu complexity," making McDonald's care less about the speed and service to consumers.
Since 2007, the number of items on McDonald's menu has increased as much as 70% to about 145 choices. Richard Adams, a former McDonald's store owner, commented, "It's gotten to the point where the operation has kind of broken down and that's all a symptom of the complication of the menu. They can't make the food fast enough."
McDonald's seems to realize its challenges and is ready to fix them. The company decided to delay some reimage projects in 2014 while focusing on kitchen improvements for better service and customization for customers. It is launching a new upscale "build-your-own burgers" concept, which will be tested in two restaurants in Southern California and Illinois.
According to Kevin Newell, McDonald's chief brand and strategy officer for the U.S. market, in order to enhance kitchen efficiency, the preparation table could hold dozens of fresh sandwich ingredients. He also estimated that McDonald's would have prep tables available at more than 14,000 locations in the U.S. nextyear. Moreover, the company mentioned that the kitchen upgrades would be a more "prudent use of franchisees' cash flow."
Chipotle could grow further with its new ShopHouse concept
McDonald's new "build-your-own" concept is similar to the Chipotle business model. However, while McDonald's sticks to its famous burger items, Chipotle has been introducing new and much healthier food. It also has the new concept called "ShopHouse Southeast Asian Kitchen" to serve consumers gluten- and dairy-free Asian dishes from Thailand, Malaysia, Vietnam, and Singapore.
Currently, the company has only three ShopHouse restaurants in operation, but it has been growing much faster than Chipotle's original concept in its early days. With its strong growth potential, ShopHouse could be considered one of the most important sources for Chipotle's long-term growth.
Yum! Brands goes healthier
Yum! Brands has three main restaurant concepts: Taco Bell, KFC, and Pizza Hut. Yum! Brands is a bit more unique than the other two restaurant chains because of its huge exposure to the largest consumer market in the world, China.
It generated nearly $6.9 billion in revenue in China, accounting for more than half of the company's total 2012 revenue. Interestingly, Yum! Brands has also tried to grow its business via its healthier eating concept to consumers.
The company recently launched a new format called "KFC eleven." While many consumers might think of KFC as having unhealthy food items, specifically its famous fried chicken, KFC eleven offers healthier and fresher options such as salads, grilled chicken, and rice bowls.
My Foolish take
If McDonald's could significantly improve speed and customer-service quality, it will definitely boost its sales and operating performance in the future. With its leading market position and its global restaurant network, investors could feel safe holding McDonald's in the long run. Moreover, we also get a decent dividend yield at 3.3% with the company's current trading price.
Yum! Brands offers a lower dividend yield at 2%, but it could experience good growth because of its exposure to the huge Chinese market. Chipotle, on the other hand, could be considered a growth stock. Although it did not pay any dividends, a new ShopHouse restaurant concept and the international market give Chipotle huge growth potential.
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The article McDonald's New Initiative Could Boost Its Future Performance originally appeared on Fool.com.Anh HOANG has no position in any stocks mentioned. The Motley Fool recommends Chipotle Mexican Grill and McDonald's. The Motley Fool owns shares of Chipotle Mexican Grill and McDonald's. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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