McDoanld’s plans to spend $1 billion on renovating its 1,400 outlets across Canada by the end of 2012. Renovation would include fireplaces, flat-screen TVs, unlimited Wi-Fi, double-lane drive-thrus and separate eating areas for big groups. This move would help McDonald’s in solidifying its position in Canada while giving stiff competition to the other fast food operators. McDonald’s competes with Wendy’s (NYSE:WEN), Subway, Burger King and Yum! Brands (NYSE:YUM). In the specialty coffee market, it competes with Starbucks (NASDAQ:SBUX).
We currently maintain a $85 price estimate for McDonald’s stock, which is roughly in line with the market price.
Canada Renovation Plan
McDonald’s also intends to add new equipment to help facilitate faster service. It would help it in servicing customized orders once it expands its food offerings to include salads, coffee and beverages. Renovation plans also include changes in kitchen layouts. Expanded food offerings would provide lots of options to customers in terms of available food choices. The restaurants will have flexible designs and could be tailored in accordance with local communities and demographics.
McDonald’s has done fairly well vis-a-vis its competitors in the last few years. It has battled with recession and has become a renowned brand in many Asian countries. We believe it is undertaking this renovation as part of a long term vision wherein these renovations would play a key role in attracting customers to its stores.
Part of Overall International Growth
We believe that McDonald’s efforts to expand its presence in international markets and in particular emerging markets has been paying off. For instance, Asia-Pacific, Middle East and Africa (APMEA) delivered strong comparable sales growth with China leading the way. This supported the company’s impressive 34% growth in operating income in the most recent quarter.
In China in particular, McDonald’s is averaging a new restaurant opening every day in China and plans to recruit 50,000 employees in China this year, including 1,000 university graduates as management trainees.
There is still ample untapped potential for McDonald’s in these developing markets, and we will see if the king of the Big Mac can offset slower growth in Europe and the U.S. with strong growth in other markets.
See McDonald’s Invests in Russian Growth as Part of EM Focus and More Happy Meals in China Fuel McDonald’s Growth
