UnMcDonalds?

UnMcDonalds?

The photo you are looking at was taken earlier today after a meeting with a very impressive planning firm. It’s a photograph of a bus running south on Castlereagh Street in Sydney and it’s an admission by one of the world’s iconic companies that its brand might be worth zip.

What struck me, and former New Yorkers and Montgomery Global portfolio managers Andy and Chris, is that saying something great and healthy – like a gourmet burger – is “UN”McDonald’s is in fact an admission that the McDonald’s brand is not great nor healthy. To be unMacdonald’s is to be good. By deduction, to be McDonald’s is not.

McDonald’s market capitalization sits at about US$92 billion. According to the Forbes list of the world’s most valuable brands, the McDonald’s brand – capped by those iconic golden arches – is worth US$39.5billion.

It seems like a lot of money but that bus running down Castlereagh tells me that the company doesn’t believe that valuation at all. One imagines head office in Oak Brook Illinois approved the campaign. But if the company suggests that something, new, tasty and delicious is “unMcDonald’s”, why would anyone want to go to McDonald’s to get it?

McDonald’s enjoyed packed restaurants and carparks in the 1970s and 80s, and when it introduced drive-throughs to Australia in 1981 the queues disrupted the surrounding traffic. But the days of disruption are over and what was once a valuable brand may now simply be an historic icon.

Since 2011 total company sales and franchise revenues have not grown despite the number of restaurants rising by almost 2500 globally. Net income is virtually unchanged since 2009 but since that year debt has risen 42 per cent. Same store sales and margins are also worth investigating.

The Australian business is actually doing better than global counterparts but if Australian franchisees, who pay McDonald’s a fee for advertising, want to sidestep the problems the global business is experiencing, they should at least question what appears at first glance to be a very unMcDonald’s strategy.

Roger Montgomery is the founder and Chief Investment Officer of Montgomery Investment Management. To invest with Montgomery domestically and globally, find out more.

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Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.

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