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McDonald’s (MCD) is one of the world’s largest fast food outlets with over 32 thousand locations. They own about 20 percent of their restaurants and franchise the rest. Owned restaurants are more capital-intensive. Franchise owners provide initial building capital and provide ongoing maintenance. Income comes both from sales in company-operated restaurants and fees from franchise stores. The latter may include rent and royalties. Company restaurants are also used as testing ground for new products and business strategies and a corporate training ground.

Recent strategies focus on increasing sales at current locations instead of attempting to open many new ones. They’ve entered the lucrative coffee market dominated by Starbucks. Today they serve cappuccinos and espressos and face bidding wars with the other retailers hoping to follow in Starbucks’ footprints.

MCD 2010 sales have shown a strong increase in international sales. Specifically the APMEA (Asia/Pacific, Middle East and Africa) division has been a major contributor to recent profits.

McDonald’s History

McDonald’s was begun in the 1950’s by Ray Kroc and is still based in the Chicago area where it began. It is listed on the NYSE as MCD stock. As one of the first fast food restaurants to go nationwide, McDonald’s has had a fine history of good management practices and corresponding profits. Stock prices have, for the most part, steadily risen since inception.

In the 90’s and 2000’s, consumer preferences starting moving to more nutritious selections than McDonald’s had offered in the past. Movies like “Super Size Me” injured McDonald’s sales as consumers turned to healthier alternatives. In 2003 management introduced a two-pronged strategy that simultaneously revamped domestic stores with newer, healthier menu items and longer hours while aggressively expanding international operations. Their decision to concentrate on franchise stores increased income without little increase in overhead.

Both strategies worked. Sales have grown by one third since 2003. Sales increases were recognized despite an overall downturn in consumer spending. International stores are really what are driving profit growth. Markets like China, Latin America and India with their growing middle classes provide great earnings potential for McDonald’s.

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