24 January 2015

McDonalds - Trash in the food, is it still good?

Reputation is Everything

McDonalds has been experiencing a lot of bad publicity of late, especially in Japan. Publicity it certainly wished it didn't have. How about some dental material along with your burger? Maybe it came off the consumer's dental work and had nothing to do with McDonalds? But there was also the human tooth in fries, vinyl in chicken nuggets, and plastic in sundae. Not the kind of free gifts we want from our Macs for sure!

In any case, as a global company, it is hard for McDonalds to guarantee the quality and efficacy of its global supply chain. Making it even harder are the regional franchises with their own supply chains. It's a tough quality control problem. In an increasingly global market, ensuring the quality control of its entire supply chain can really be a bugbear. All it takes is a lapse or two, the loss of trust, and it's major damage to a company's reputation.

Healthy Lifestyle, Trendy Lifestyle

The trend towards healthy lifestyle and hence healthy food isn't helping McDonalds in its mature markets. Past attempts at healthy variations haven't turned out well. Their healthy variants just don't give the same kind of oomph.

In Australia, it is apparently carrying out some experiments at selective outlets with some trendy ideas. Seems Mac is very profitable in Australia. It's always good to experiment from a position of strength.

Trying Too Hard, More is Not Better

In the US, it seems their overly complex variety of menu options have created an execution problem, with stores taking too long to generate fast food. Can't call yourself a fast food joint if it doesn't come out fast enough right?

I recall with fondness the wonderful burgers from In-N-Out. Their menu is really the simplest I have ever seen. No complexities. Yet, the quality of the food is such that it makes you crave for more. Ever seen how they make their french fries? I saw them having a machine that peeled and sliced a potato, and the slices drop straight into the fryer. How fresh can it get?

Simplicity has its beauty.

It's All About Junior

Has the taste bud of its most important customer demographic changed? Their strongest proponents could well be the kids. Give your kids a choice of visiting a Mac, would they say no? They still like it right? So you have the very young who would drag their parents along. And then there're the price-sensitive teenagers. Price matters.

It boils down to children and teenagers. If these are the future of the human race, and they continue to like Mac, the future seems bright for the yellow arch?

Where Goes its Future?

It faces stiff competition from numerous fast food joints in its US market. Is this a passing fad or these are serious alternatives? Is it going downhill like Kodak and the sunset death throes of the wet film business, or is this just a blip in its long history?

Or will this moment in time turn out to be another wonderful opportunity to become an owner of McDonalds I wonder?

Here's a value proposition: If you're a frequent customer of McDonalds, instead of just paying them for your burgers and fries, how about owning their shares and collecting their dividends? Mac pays you instead!?

McDonalds remains a key midfielder in My US Team.

Disclaimer: Do your due diligence!

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