Even after the recent new economy correction, they both command market caps well above Mickey D's $50 billion. So, I ask you this -- do you think there will ever be a time where the acquisition of taste buds gets the same kind of coverage as the quest for eyeballs?
Because I have come across a lot of people in my life. I've met the masterminds behind Internet startups and those who aspire to even greater feats. I've met the online masses and those who remain unwired. I haven't rubbed elbows with you, yet, though your cousin looks familiar. In short, the world makes for a long list of people, hope and potential. They all have at least one thing in common -- they all have to eat.
With more than 27,000 restaurants worldwide, the history of McDonald's is as dynamic as the stories taking root today. Ray Kroc was a distributor of milkshake machines back in 1954 when he went to visit one of his smaller clients -- two brothers running a hamburger shack out in California. He was blown away at how popular and efficient the Dick and Mac McDonald burger stand was. As he saw his eight Multimixers whirling away milkshakes at a frenetic pace, he began to wonder how his mixer sales would grow exponentially with more restaurants.
Kroc proposed expansion and he offered to help. A year later, Kroc opened the first McDonald's prototype restaurant in Illinois. The first day's take? $366.12. Well, what did you expect, serving up fifteen cent hamburgers in 1955?
Oh, that's right, I forgot to touch on the merits of inflation. Unlike the high tech sectors that are all the rave today -- where average selling prices keep getting lower and lower -- here is a venue where fifteen cent hamburgers become sixteen cent hamburgers.
It's easy to see how growing a chain, where the units that make up that chain keep growing sales at the store level, is a worthy investment from a top line perspective. But what about the bottom line? Last year, McDonald's generated $1.1 billion in free cash flow -- with most of that going to buy back 24.2 million shares.
While McDonald's isn't going to dazzle or haunt you with erratic returns, it is going to consistently nickel and dime its way higher and higher. Since 1989, earnings have grown from $0.48 to $1.39 a share. The kicker here is that if you back out one-time charges in the "Made For You" 1998 restaurant upgrade, the company grew the bottom line each and every year.
That is universal consistency. Like the products themselves. Sure, you will find some tweaks in the menu to appeal to the local culture -- like McLobster in Maine and the McBratwurst in the Midwest -- but the staples remain the same. I'll leave it to my Pulp Fiction buddies Jules and Vincent to prove the point.
Jules (referring to Mickey D's in Paris): What'd they call a Big Mac?
Vincent: Big Mac's a Big Mac, but they call it Le Big Mac.
So where does that leave us? Is Le Bear Bill really going to take a sledgehammer to the Golden Arches? Will he brand my argument a Kroc? If so, will he 'fess up to the last time he ate at a McDonald's? Or how much longer before his baby daughter grows to embrace the Happy Meal?
Every day, five new McDonald's open their doors. With the world so ripe for expansion it should come as no surprise that nine out of every ten new restaurants are now located overseas.
That is why McDonald's is the world's most recognized brand. Not AOL. Not Yahoo! Not even Coke <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KO)") else Response.Write("(NYSE: KO)") end if %>. Ronald McDonald is second only to Santa Claus in terms of global character recognition, too. Not Mickey Mouse. Not that "You've Got Mail" guy.
Ultimately, McDonald's stock is a lot like one of its own Value Meals. It's cheap and satisfying. Sure, the company will deal with the same labor issues and quarterly taste fluctuations that every company must deal with. However, it is one of those awesome all-weather companies that have proven resilient in all economic climates. In good times and bad, McDonald's provides great value for the ever-growing home meal replacement market. No matter where you go, McDonald's is there.
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