Tuesday, January 27, 2015

McDonald's: Good food, good dividend. But that 'evil empire' label kills me.

"If you work just for money, you'll never make it, but if you love what you're doing and you always put the customer first, success will be yours," - Ray Kroc, McDonald's founder. (1902-1984)

My 30-something children call McDonald’s the “evil empire.” They say the big fast-food chain represents everything bad about America’s industrialized food business. They won’t eat there. In fact they will drive farther by miles to eat at a local food cart or independent café even though they shell out more money to do so. Cost is secondary to their personal values around buying home-grown, chemical-free, organic food.
It’s not just me saying this. Analysts at Standard & Poor’s say McDonald’s “is less appealing to Millennials who want healthier food.” This trend is beginning to show in McDonald’s bottom line with U.S. same-store sales down last year more than 2 percent.
This hurts my heart because I like McDonald’s.  I grew up with McDonald’s. I fed my kids Mickey D’s “Happy Meals” and  have owned stock in the company since my mother gave me my first five shares in the 1980s.
I realize that this change of heart about McDonald’s is a generational thing. In its prime McDonald’s represented everything good about American enterprise and innovation. Through enthusiastic franchise owners (14,000 stores) in small towns and big cities across the country, the company delivered consistent quality food at a reasonable price. You could count on a McDonald’s hamburger to be a cut above the local greasy spoon. The fries were (and are) exceptional... salty, tasty and crunchy, but not too crunchy.
Store décor with their bright colors gives you a happy feeling when you walk in the door. Those primary colors have been a symbol of American proactive can-do business around the world. Meanwhile, the company made a lot of its franchisers rich and became part of the strong dividend-generating middle class stock portfolio for people like my mother.
Global expansion, showing the way
I read lately that McDonald’s (the world’s leading food service organization) is expanding into Kazakhstan. That will add more units to its 36,000-store roster that employs 1.9 million people in 100 countries around the world. McDonald’s generated revenue of $27.4 billion last year.
But U.S. sales were off 1.7 percent. Sales in Europe, down 1.1 percent. Overall consolidated revenues were down 2 percent for several reasons: Strengthening of the U.S. dollar, turmoil in Russia and the Ukraine and supplier issues in China, its most promising market.
However, we are seeing a sea change in the chain's core business in America. My grandson begs me to take him to McDonald’s when we're out together but I he asks me to promise not to tell his dad. The 10-year-old loves the fries. I explain that it’s not a good idea to get in the habit of misleading his dad. We eat the fries and take the heat. It’s not about the calories but the unseen chemicals. It's trendy to hate McDonald's.
Fact: McDonald’s serves 70 million meals a day around the world..
 So what’s going on? Obviously there’s been a cultural shift away from corporate fast-food to fresh-made local eating. Never mind that it costs a lot more.
This change may have to do with a maturing (I’m not sure that the right word) of America since 9/11 and the continuing threat of disaster from a terrorist attack, an economic crash. Twenty-four-hour news makes us think the world is coming to an end any minute, that kids will be snatched off street corners if you don't watch them and that our food is killing us.
Popular movies tell the stories of all powerful evil in the form of space aliens, trolls from fantasy worlds and sinister empires who want to destroy civilization as we know it. Video games prey on the same lurking fears.
The reality in our world evil does exist. We believe it.
After World War II when McDonald’s got its start, we thought we’d defeated evil. The future looked bright. McDonald's reflected that optimism and still does.
Now with evil unknowns in every corner, we seek a cozy dark coffee shop or a restaurant with a retro homey feel as a way to feel protected, safe. We want control over our food as a way to feel in control of something.
McDonald’s with its free, open, bright-colored approach to the world is not how we feel or where we want to be. Never mind that its food, once thought innovative, is now bland when compared with a Chipotle Mexican Grill burrito with hot sauce. 
So what’s going to happen to McDonald’s and to the little old ladies who love the company's 3.7 percent stock dividend?
McDonald’s executives pledge to return $18 to $20 billion to shareholders between 2014 and 2016 and hold steady on the dividend. It will cut capital costs by opening fewer stores this year, only 1,000. Food costs for beef and cheese are coming down after setting records in 2014. That will help the bottom line. And, McDonald’s is reducing the number of menu items to speed up service and simplify choices. In the past four years menu items jumped from 53 to 72. 
I personally think McDonald’s did a good job of improving its coffee and adding the McCafe coffee items. I love the grilled chicken salad as a way to hold down the calories. The calorie content on the back of restaurant place mats helps me explain a few things to my grandson. Hey, I believe that people are responsible for what goes in their mouths and should be managing those calories. Going to McDonald’s is not the problem. Eating too much is. My advice to McDonald’s:
Stop freaking out and get back to your core mission of providing quality fast-food at an attractive price.
- Improve order times and make it easy for customers to read the menu board in the drive-thru and inside stores. Right now my eyes fly around trying to find what I want. Nothing jumps out.
- Forget the “build your own sandwich” program. That's way too complicated.
- Launch a campaign to remind America how many kids get their first jobs at McDonald’s, how many people take home a paycheck from McDonald’s. Make it more transparent to the public that employees have opportunities to advance in the organization.
- Encourage local franchise owners to be more visible in their communities.
- Remind us why Ronald McDonald is such a great guy and raises money for Ronald McDonald’s Houses all over the country that benefit kids.
It truly hurts my heart to hear McDonald’s called the evil empire as if it needs to be destroyed.
America loves hamburgers. That food category ($63 billion in sales) is not going away. McDonald’s is much too innovative to be counted out. That’s why I will continue to own McDonald’s stock, enjoy its food and reinvest that great dividend.

No comments:

Post a Comment