In my town of Point Pleasant, New Jersey you have many choices in the world of fast food. In town alone you have a Wendys, Burger King, McDonalds and Kentucky Fried Chicken. In neighboring towns you have Chipotle, White Castle, Chickfila and many more options. One thing is clear. McDonalds is losing customers. In my area the local McDonalds and Burger King are closed by 10PM while the Wendys has drive thru orders until 2AM. One local employee who works at both Wendys and McDonalds will not eat at McDonalds due to the lack of fresh ingredients.
So what does this mean for the stock? A loss in customers can severely impact earnings and revenue estimates and performance. The only country McDonalds reported increases in sales were in Europe during Q2. McDonalds is exposed to many more markets, most of which it is seeing its market share evaporate. In Asia McDonalds is being vastly outperformed by Yum! Brands.
Due to the hustle and bustle of today's America fast food restaurants are growing in sales. The problem for McDonalds is that name recognition isn't what gets the customer in the door any more. What gets the customer in the door now is great food. McDonalds is severely lacking in that department.
McDonalds does have some positives going for it that makes it an enticing buy for investors such as providing a strong comparative dividend, it is a legacy company [around since 1940], and it has yet to meet its suggested price target set by most analysts. However, McDonalds appeal is to do what everyone else is already doing and hope it brings in more revenue. McDonalds started serving "gourmet" coffee after some other fast food chains did. McDonalds started providing a healthier alternative to their menu after others did. Now McDonalds is coming out with the "breakfast all day" idea, but with chains like Taco Bell offering more intriguing breakfast options this is unlikely to succeed.
With alternatives everywhere McDonalds loss of consumers is set to trigger a long term decline on the stock. While the stock likely won't hit 2002 numbers when the stock hovered around $16 it is likely to fall to 2010 numbers when the stock traded from $66 to $76. McDonalds dividend may make it worthwhile to keep for now, but consider selling when McDonalds doesn't report consumer growth in Q3 and Q4.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.