Notes From McDonald's Investor Day

McDonald's (MCD) had Investor Day in Chicago yesterday, and treated the analysts to breakfast AND lunch, and a pretty well developed presentation of US, Europe, APNEA, corporate and marketing actions underway.

One bit of news is that their franchisees are not suing them, unlike the Burger King mess underway.

We monitored the discussion, and relate the following interesting points that might get lost otherwise:

•  While they didn't want to get trapped into a number going forward, MCD had helped fund franchisees strategic leasehold improvement CAPEX--the McCafe expansion-- and might do so again for future initiatives. McDonald's owns a significant amount of the buildings and real estate, and credit is tight, even for Mcdonald's franchisees.
•  Most every financial metric displayed--restaurant margin, franchising margin, ROIC and ROIIC were up in every Division.
• The average US McDonald's franchisee unit had operational cash flow of $314K/unit last year (likely pre-debt service), and average equity of $4.7M per owner/operator. WOW !
• The MCD marketing machine is so well developed --with national and local-co-ops all plugging away on multiple,supportive and complimentary brand and product themes, and a great R&D pipeline. One result is that McDonald's value menu mix percentage was only 10-11% (13-14% if you count the doublecheeseburger).  Ergo, MCD doesn't run the same risk that Burger King (BKC) does by rolling the dice and putting its more limited TV behind a low end item,like the $.99 doublecheeseburger.
• MCD's early research estimated that of McCafe sales, 44% was incremental and 56% was tradeup. Either way, they win, if those numbers hold. That is one of the highest incremental gains seen in a long time.
•  MCD's European average annual unit sales (AUVs) are great--$3.4M US average in Europe, $2.4M in the US and $1.8M in Asia/Pacific/Middle East/Africa. Russia was at $5.5M...wow ! No wonder the MCD company ownership ratio was highest in Russia (as it should be, because the ROI works). MCD does not refranchise to chase percentage margins--like some did (SONC)-- but does so on a disciplined basis.
•  MCD's current media spending mix included 72% broadcast (down), and 12% digital (up). It is increasing its value oriented messaging next year.

MCD will be pressed to keep US same store sales positive--October was down .1%, and its an emotionally senstive metric. But these results overall show alot of size, scale and focus advantages.