McDonald’s Customer Spending Levels Looking Up
McDonald’s (NYSE:MCD) competes with Wendy’s (NYSE:WEN), Burger King, and Yum! Brands (NYSE:YUM) in the fast food market, and is the leader in the hamburger fast food category. McDonald’s also competes with Starbucks (NASDAQ:SBUX) in the specialty coffee market. McDonald’s owns and franchises restaurants across the globe with over 32,000 restaurants in 117 countries. Of these, roughly 80% are operated by franchisees, with the balance being company-owned.
We currently maintain a $78.40 price estimate for McDonald’s stock, implying a roughly 5% premium to market price.
- Looking Beyond The Golden Arches: Drop McDonald’s Stock, Pick This Conglomerate?
- Down 14% YTD, What Lies Ahead For McDonald’s Stock Following Q2 Earnings?
- Down 12% This Year, What’s Happening With McDonald’s Stock?
- Dropping 8% Year To Date, Will McDonald’s Stock Recover Post Q1 Results?
- What To Expect From McDonald’s Q4 After Stock Up 13% Since 2023?
- After A 14% Top-Line Growth In Q2 Will McDonald’s Stock Deliver Another Strong Quarter?
Steady Growth in Average Spend per Customer Visit
Europe has the highest average spend across McDonald’s operations, followed by the United States. McDonald’s saw a slight spike in average spend in 2008 due to a rise in franchised restaurants in the U.S. and Europe as well as favorable currency impact with the U.S. dollar depreciating against the Euro. Additionally, the introduction of new premium products like the McCafe has increased average spend.
McDonald’s average spend per customer visit at its franchised stores has increased from $2.79 in 2006 to $3.28 in 2010, and we expect the growth trend to continue, albeit at a slower pace, reaching $3.6 by the end of our forecast period. The slowing pace is partially a result of growth from Asian and Middle-Eastern regions that have a lower average spend.
In its Q4 2010 earnings results released last month, McDonald’s reported a 5% year-on-year increase in global comparable store sales, largely due to customer-focused initiatives to enhance product offerings (See McDonald’s Sales Momentum into January Could Prompt Stock Upside). Recovering economic conditions, coupled with these new product offerings (like healthy menu items), should drive McDonald’s sales growth in the years to come.
Given the steady growth in spend per customer at franchised McDonald’s restaurants, we pose the following question:
What Percent of McDonald’s Stock Value Comes from Franchisee Rent & Fees?
A) 27%
B) 45%
C) 62%
D) 90%
Click a response above to see the answer
See our full analysis and $78.40 price estimate for McDonald’s