McDonald’s Updates: India All-Vegetarian Restaurants, Extends Breakfast Hours in the U.S.

McDonald’s Corporation (NYSE:MCD), famous for its Big Mac, is opening its first all-vegetarian restaurant in India. Currently, McDonald’s menu in India includes vegetarian as well as meat items. ^[1] The move will help the fast food chain target consumers who are vegetarian but uncomfortable with eating out at restaurants which serve both vegetarian and meat products. It will also help the company strike a chord with the vegetarian community of the country.

It is still not clear if McDonald’s will add products designed specifically for the new, all-vegetarian outlets. But, introducing new products in accordance with the local tastes is one of the reasons why the world’s largest fast food chain has been successful in almost every country in which it operates. McDonald’s started the year strongly with same store sales rising 7.9% in the first quarter, but the numbers have cooled off since. The stock is down more than 10% in 2012 as investors worry about its slowing comparable sales growth, which turned negative in July. The numbers for August are not out yet.

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Breakfast at Wee Hours

McDonald’s is now serving its breakfast offerings such as Egg McMuffins, hotcakes with sausage, breakfast burritos, fruit and maple oatmeal during wee hours of the morning. This is one of the time slots which has significant potential for upside as opposed to the other slots that already have high traffic volumes. Only 1% of McDonald’s total traffic comes between 2 a.m and 5 a.m so obviously the restaurant chain sees this as a good opportunity to boost footfalls. ^[2]

Consumers are more open to the idea of grabbing a bite any time of the day and it’s not just about three daily meals anymore. Moreover, different consumers have different lifestyles, so offering more options certainly appeals to people who might not have a traditional morning-to-evening job.

To target the customers at more traditional hours, McDonald’s uses a combination of factors such as new product introductions (often marketed as premium or healthier) and value meals. Besides these, McDonald’s has been revamping its stores across America to make customers feel more welcome and offer free amenities such as Wi-Fi.

A greater proportion of McDonald’s restaurants are being switched to 24/7 formats. At the end of 2011, 40% of its total restaurants within the U.S. were open all day long, up from 36% in the previous year. Since most of McDonald’s restaurants worldwide are franchised, almost all of the incremental revenue generated goes to the bottom-line. Note that incremental revenues = (incremental sales)*(Royalty rate).

We have a $96 price estimate for McDonald’s, which is about 5% higher than the current market price.

Understand How a Company’s Products Impact its Stock Price at Trefis

1. McDonald’s goes vegetarian (in India); soul food gets healthier: Table Talk, September 5, 2012, oregonlive.com [↩]
2. McDonald’s 24/7: Wooing “Nocturnivores” to Breakfast After Midnight, August 8, 2012, brandchannel.com [↩]