McDonald’s Invests in Russian Growth as Part of EM Focus
McDonald’s (NYSE:MCD) is looking to expand its footprint in Russia by increasing its store count by 15%, or about 40 new locations, in an effort to tap the growing demand for fast food. McDonald’s competes with Wendy’s (NYSE:WEN), Subway, Burger King, and Yum! Brands (NYSE:YUM) in the fast food market and is the market leader with about 19% share. The company also competes with Starbucks (NASDAQ:SBUX) in the specialty coffee market. We have $78.40 price estimate for McDonald’s stock, which is slightly ahead of market price.
McDonald’s Sets Sites on Emerging Market Growth
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The increasing disposable incomes, large populations and favorable demographics of emerging markets like Russia, China and India provide a unique opportunity for global fast food chains to expand. To get a better foothold in the fast growing Russian fast food market, McDonald’s is planning to increase its investments in Russia.
In 2010, the fast food chain opened over 30 restaurants, investing around $174.2 million. Going forward, the fast food chain plans to open more stores in this region, expecting to grow its store count by 15% each year. The Russian market is fragmented and so a number of international chains like Burger King and Subway are also looking to penetrate this market. [1]
In India, McDonald’s already has a strong presence and is looking to gain more popularity by localizing its menu such as introducing a new line of McSpicy products. [2]
In the chart above, we estimate that average spend per customer visit at McDonald’s restaurant has increased from $2.79 in 2006 to $3.28 in 2010, and could grow to around $3.60 by the end of our forecast period driven by increasing spend from emerging markets.
Growth in Restaurants
The number of McDonald’s franchised restaurants has been steadily increasing, reaching around 27,200 in 2010. Going forward, we expect this number to reach around 29,000 by the end of our forecast period, an average annual growth rate of 1%. However, with the emerging markets becoming more and more lucrative, McDonald’s may accelerate its expansion plans.
During our forecast period, if the number of McDonald’s franchised restaurants increase at a rate 150 basis points higher than our projected growth rate, reaching around 33,000 by the end of our forecast period, it would result in an upside of around 10% to our current price estimate for McDonald’s stock.
See our full analysis for McDonald’s
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