Mcdonald's (MCD) has weathered the latest global recession unscathed, with solid growth on both top- and bottom line worldwide. This hasn't gone unnoticed by the nervous investors looking for safe havens, as the company's market cap has hovered near the $100 billion mark. Jim Skinner, company CEO of 2004-2012, is to thank for much of the company's strong financials today, as he is often credited for the acclaimed turnaround strategy of 'Plan to Win'. In July 2012, Jim Skinner handed the CEO title to Don Thompson, who is now expected to keep up the momentum Skinner's leadership team created. Thompson was also part of the team, most recently as COO.
Thompson, 49, has worked at McDonald's for 22 years in various positions. He has a B.S. in electrical engineering from Purdue, and he started his career inside the company designing robotics for food transport and control circuits in cooking equipment. He is credited as the mastermind behind the McCafé line of beverages and such value menu innovations as the Snack Wrap. As COO, Thompson also led the effort of remodeling the restaurants to look less plasticky and more sleek and modern. Thompson is the first African-American to serve as Mcdonald's CEO.
Where will he be steering the largest food service company in the world? For some clues let's look at the latest conference call transcript, in which Thompson outlined some ideas as the newly crowned CEO.
One thing that stands out is Thompson's focus on driving guest count with promotional value menu items such as Spicy Chicken McBites and McCafé beverages. His faith in value meals seems strong: Using Australia's 'Loose change menu' as an example, he remarked that when people realize the value menu isn't going away, they will trade up to pricier meals. Thompson believes in the power of value meals and 'branded affordability' in China too, as well as capturing more breakfast sales.
In his answer to the first Q&A question, Thompson reassures that margins will not suffer as value will be balanced with premium meals and beverages in the marketing mix. Later in the session Thompson notes about countries where value menus are relatively new, including many EU countries and Australia:
"This is the time for us to really focus on guest count growth and market share gains. And so we'd really go at this very hard in times like these even though that means an investment."
Thompson seems to take the 'value proposition' very seriously. It might be the right thing to do during tough times like these, as consumers are low on discretionary income. However, one might ask whether market share and guest count are the right points of focus for long term success. McDonald's is increasingly positioning itself as the Wal-Mart of fast food, using its unmatched power in raw material procurement and passing on the scale advantage to customers by outpricing its competitors. This might work against McDonald's to an extent, as customers learn to see the company as very low-tier and move to better restaurants when the times get better.
However, I would still be more on the bullish side for McDonald's with Mr. Thompson at the helm. He's proven to be an amicable innovator with the pragmatic mindset of an engineer. He continues to focus on the vital elements of McDonald's turnaround in the 2000's: sleeker and more inviting restaurant design, more McCafé specialty coffee and other beverages, more value menu items to drive guest count. I believe that the ongoing restaurant modernizing together with more classy specialty beverages á la McCafé will work for McDonald's to combat the aforementioned 'Wal-Martization' effect.
At the time of the writing, Mcdonald's is trading at $88.25 a share with a market cap of $89 billion and a trailing 12 month P/E of 16.6. To conclude with reference to the title of this article, I believe Don Thompson is steering McDonald's towards more value.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
