The price of MCD shares declined recently due to disappointing sales results. The “Fast Money” crew on CNBC talked about McDonalds by comparing it to Chipotle, which is rapidly growing sales and impressing investors. But when I think of MCD, I think more of Wal Mart. Both companies are wildly popular with the masses of consumers. Neither is a niche player, to say the least. And both are extremely capable of running their businesses very profitably for a long time.
Although neither company is the sexy choice (Chipotle is probably more trendy than McDonalds to investors and certain consumers, as Target once was to Wal Mart and Amazon probably now is), it is likely that both will be serving lots of customers for many more decades. And the companies’ world class management teams will do so profitably and adjust to competitive factors effectively. I recently read that 8 of 10 shoppers visit Wal Mart regularly. And my personal experience with McDonalds seems similar.
I suppose the business risk with these blue chip companies is that their “cooler” competitors will one day be their downfalls. And it is hard not to wonder if people will get so health conscious so quickly, and if McDonalds will not be able to change the public’s perception of their restaurants being unhealthy places to eat. And it is easy to believe why McDonalds may not be considered as hip as its Chipotle-type peers. This morning I stopped by a McDonalds and that particular location was being jack hammered and generally ripped apart while attempting to serve me. With the McDonalds/Chipotle comparison fresh in my mind, I couldn’t help but wonder how clean and nice a Chipotle location probably is.
But I don’t for sure know what a Chipotle looks like. There is not one in little old Augusta, Georgia. I suppose we are not hip enough yet. But there are many McDonalds locations. And the newer and more recently renovated locations are much nicer than in the past. And the menu is certainly continuing to get more and more health conscious. I ordered a bowl of oatmeal with no brown sugar today, after all.
Disclosure: I purchased MCD today, after the stock had declined 2-3% after missing investors’ estimates for its sales results. And WMT is also a core holding.