Which way, in fact, does the argument that everyone eats cut? The fact that everybody has to eat also means that pretty much everybody knows how to prepare food themselves, and they frequently choose to do so. Obviously that doesn't dissuade millions from eating at McDonald's, but it gives you a little idea of the competitive landscape. Very few people know how to set up a website, but virtually everybody knows how to cook a hamburger. In fact, virtually everybody knows how to make a better hamburger than McDonald's does.
That's not a crack at Mickey D's -- it's just a simple fact. (As a counter-argument, I will note that in my experience very few people can make better fries than the Golden Arches does.) The barriers to entry in the food preparation business are notoriously low. The fact that McDonald's has risen to the top of the fast-food heap is a testament indeed to the quality of the management at the company, but you can't overlook the competitiveness of the industry in which it operates, and the fact that that competitiveness has been squeezing both the growth opportunities and the profitability of the sales at McDonald's.
Rick quotes the famous lines from Pulp Fiction regarding the ubiquity of McDonald's, but perhaps the parody of that conversation from an episode of The Simpsons is more telling:
Lou: You know, I went to the McDonald's in Shelbyville on Friday night --
Wiggum: [interrupting] The McWhat?
Lou: Uh, the McDonald's. I, I never heard of it either, but they have over 2,000 locations in this state alone.
Eddie: Must've sprung up overnight.
Lou: You know, the funniest thing though; it's the little differences.
Wiggum: Example.
Lou: Well, at McDonald's you can buy a Krusty Burger with cheese, right? But they don't call it a Krusty Burger with cheese.
Wiggum: Get out! Well, what do they call it?
Lou: A Quarter Pounder with cheese.
Wiggum: Quarter Pounder with cheese? Well, I can picture the cheese, but, uh, do they have Krusty partially gelatinated non-dairy gum-based beverages?
Lou: Mm-hm. They call 'em, "shakes."
Eddie: Huh, shakes. You don't know what you're gettin'.
As Fat Tony would have said in another Simpsons episode, "It's funny because it's true." What McDonald's offers is remarkably similar to what any number of other establishments provide -- it just uses slightly different names. (Hint: it uses that "Mc" prefix.) Does McDonald's have a mild amount of pricing power because of its brand? Sure -- but it is very, very mild indeed given the ferocity of the competition in this space, and the price sensitivity of a great amount of its customer base.
"You get more for your money," goes the company slogan, but that doesn't apply to McDonald's as an investment. Over the last five years McDonald's has significantly underperformed the S&P 500. You deserve a break today, so, like so many other investors, you should get your money away from McDonald's and into an index fund -- that way you will get more for your money.
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