McDonald's, the global economic boom and Cameron's myopia

Mr_Mumble

McDonald’s November Store Sales Rise 7.4%

McDonald’s Corp. (MCD), the world’s largest restaurant chain, said sales at stores open at least 13 months rose 7.4 percent globally last month, driven by demand in Japan and China.

Analysts forecasted a gain of 5 percent, the average of five estimates compiled by Bloomberg. Sales in Asia, Africa and the Middle East advanced 8.1 percent, the most since December last year, the Oak Brook, Illinois-based company said today in a statement. Analysts projected a gain of 5.9 percent.

McDonald's share price is at another all time high today, up 80%+ from 2008-9 when its share price barely declined. Sales are becoming more broad-based globally:

Sales in all regions topped estimates, helped by peppermint mochas and chicken McNuggets in the U.S. and promotions in Europe. Both U.S. and European sales rose 6.5 percent. Analysts were expecting growth of 5 percent and 4.3 percent respectively.

Asia, Africa and the Middle East account for more than 20 percent of McDonald’s revenue. About one-third comes from U.S. restaurants.

Now McDonalds may just have awesome management and effective processes that are making small time operations suffer but then if you look at global GDP growth rates then it's hardly a surprise McDonald's is doing well:



This graph was taken by simply sticking GDP along with the countries into Google. China, India and Indonesia make up more than 40% of the global population and none of these countries were particularly impacted by the "global crisis" of 2008-9. Brazil is the only country that had a decline in GDP and it bounced back strongly (thanks to it being a commodity play with Petrobras and Vale). Poland, Israel and South Korea were just choices off the top of my head for different parts of the world - Chile, South Africa and Singapore are examples of other countries with similar growth rates.

So the "economic crisis" is very much a first world phenom (while I've picked the UK on the above chart it is very much a proxy for western-Europe, and yes, that includes Germany). As the Economist pointed out in its chart "double your income" yesterday the developing countries are rapidly gaining - it has taken China 12 years to double its per capita real income compared to 154 years for the UK in the 18th and 19th century. Of course it's impossible for first world countries to grow as quickly as developing nations - we're nearer the production-possibility frontier and thanks to freer trade less-developed nations are catching up rapidly (even fictional lefties agree)! Yet, there are first world countries such as Australia, Switzerland, Taiwan, Canada, South Korea and Singapore that are doing well despite the problems elsewhere, why? Perhaps it's because they're so open to trade with anyone - especially the rapidly growing ones - and are not hamstrung by politics the way other first world countries that are stuck in trade protectorates, such as the EU, are.

A simple example: South Korea hasn't been concentrating on political shenanigans in Brussels these past few weeks like Britain has. Instead South Korea has set up another trade agreement with the US to sell cars, TVs, washing machines and ships through companies such as Samsung, LG, Kia and Hyundai. Whose politicians are being more constructive here?! The argument from defenders of the British political class is that geographical locale means Britain has to be involved with European political constructs to do well economically - it defies the reality that Norway and Switzerland are doing a-okay without having this "influence" and anyone who thinks geography is so important must be on a planet that hasn't seen the Sino-manufacturing revolution. One of those people seems to be our PM:

"We are in it [the EU] because we are a trading nation, Britain needs those European markets open for our businesses, our goods, our services, we've always needed them. "

Because the US or Singapore or China are not trading nations and do no trade with the EU? Piffle. This is the kind of Europhile bilge that you'd expect Clegg or Blair to come out with. Yes, we need the markets open but that's all we need - we don't need to believe we're some neo-colonial power that has to influence other nations.

With recent economic data from both Japan and the US showing encouraging signs that leaves Europe as an elaborate anchor on world economies. Having Britain as a barnacle on this decaying edifice is not a good strategy.

The EU - and Euro-socialism in general - is seen as more and more of a 3rd world construct. Consider the comments from the Chinese's head of investment or the latest book from world's most successful non-fiction writer with the tagline "a tragi-comic romp across Europe". In America this book is called:

Boomerang: Travels in the New Third World

amusingly the name has been changed for Europe:

Boomerang: The Meltdown Tour

can't imagine the reason for that name change!

Hopefully the populous of Europe realise before it is too late that the "global financial crisis" narrative is a ruse that hides the incompetence of their rulers who care far more about their utopian political constructs than the suffering proletariat.

Carl31

Thing is, when cash is tight, people still want luxuries

to some, that is fast food. Places like McDonalds always boom during things like recession, i remember reading something similar with regards to the Subway franchise too

dtsazza

Mr Mumble - I appreciate the graph, but what's your actual point here?

Are you suggesting that Britain could still experience it's previous GDP growth, if only it tried/it wasn't for austerity? Are you suggesting that the Eastern world is bound to overtake us economically? Or are your suggesting something else?

To me, at least, it's not clear from your OP.

chewmylegoff

Not sure McDonald's doing well off the back of increased demand in China and Japan is really relevant to the rest of your post given that Japan's economy isn't exactly booming, having shrunk by 10% in 2009 and essentially flatlined ever since. Plus the Chinese figures are even more made up than everyone else's.

kabayiri

Companies in China are getting patent applications fast tracked in 10 months in some cases. Foreign patent applications like Dysons are taking 5 years.

Level playing field my @rse.

It's never existed in either direction.

We need to fight back. Maccy Ds will make a billion people in the East fat and unproductive. Way to go

julieq

Not a bad analysis. Actually I'm working currently on developing business in the faster growing economies, and although it's easy to say you're going to do it, it's not at all easy in practice. You have strong local competition, very little infrastructure and product centric expertise, and the incumbents fight like cornered rats to keep you out - this includes Japanese companies as well as the local ones.

What is striking though is how prevalant Western and Western European brands are over there (ASEAN and APAC in particular) and how little price differential exists at the top end - walk into any Mall in Kuala Lumpur or Singapore or Shanghai and you'll see that. What tended to happen 5 years ago is that very many of our companies were hypnotised by volume and dropped their trousers on price. Once you've done that there's no way back. The savvy companies - including McDonalds but also the Chanels and Louis Vuitons of the world - built strong brands and have managed to retain value. And yes, the reason for doing that is as the OP states really, there are limited growth opportunities in the West for all sorts of reasons, and there's really nowhere else to go. The difficult thing is going there and winning, it takes a bit more strategy and brains than a lot of our companies have.

It's amazing to think that McDonalds can be a brand in ASEAN where the food is uniformly amazing and cheap. Says a lot about the value of cultural exports, and where when I go to Malaysia for example and I delight in hawker stall food, the young local middle class wants to tie themselves to Western brands and brand values as means of identifying themselves as sophisticated and globalised.

In most of the region by the way there is a two speed economy, and the idea that there's mass patent infringement is misleading. There is a lot of copying, but no-one is fooled, and the aspiration is towards the quality Western product rather than the knock off. My in-laws have a little collection of Chinese knock off products - iPhones and so on - they buy on their travels for a laugh.

In answer to what I think the point was, we can't pull out of Europe even if we can grow in APAC and elsewhere. That's still going to be the bulk of our business and we have to be fully engaged, however irritating the French and Germans get (Cameron has played this just about right I think - he's made it clear we won't be bullied but given the other nations the space to work). But progressively it becomes less important over time.

Out,_Vile_Jelly

I'm afraid I stopped reading after it was described as a "restaurant" chain.

drc

McDonalds is regarded by some as comfort food that's affordable. In the same way that chocolate sales have gone through the roof during the crisis because people want comfort.

suki1001

Carl31 wrote: »

Thing is, when cash is tight, people still want luxuries

to some, that is fast food. Places like McDonalds always boom during things like recession, i remember reading something similar with regards to the Subway franchise too

You forgot Greggs! They are riding the storm too. I think I am probably helping them a bit too much, but I can't resist their 24p iced fingers, just as well I took up running again!

julieq

McDonalds isn't about cost or comfort in the Far East. You can buy tastier more comforting food at about a quarter of the price anywhere there is a McDonalds. It's about brand aspiration and acceptance of a globalised world view.

kabayiri

julieq wrote: »

McDonalds isn't about cost or comfort in the Far East. You can buy tastier more comforting food at about a quarter of the price anywhere there is a McDonalds. It's about brand aspiration and acceptance of a globalised world view.

Some companies have been very adept at selling a different abroad compared to the home market, it's true.

McDonalds is one such company, another is Budweiser.

They try and give the beer a premium feel here whereas in the states its very much standard fodder.

The other asset of McDonalds is the consistency. You should feel like you're able to walk into a McDs restaurant in Beijing and have the same food taste as back in Michigan.