MCD – Sticking To Their Knitting?

On December 16th, the WSJ ran an article about the best CEOs of 2008. One of the CEOs mentioned was Jim Skinner of McDonald’s. Not to take anything away from Mr. Skinner, but he had very little to do with MCD’s turnaround. Instead, it was his job not to mess with what was working.

The article went on to say that "McDonald's has done a terrific job of improving what it does at its existing locations, improving the food, improving service, expanding the menu, expanding hours." Importantly, "They've stuck to their knitting and made their existing stuff better and it's paid off."

MCD’s new beverage strategy is a clear example of the company now expanding the complexity of its store operations instead of maintaining its simplicity. Expanding into gourmet coffee is not an example of “making stuff better” like the company has done successfully in the past.

I don’t believe that MCD’s beverage strategy will drive top line results in 2009 as most people expect. MCD has been so successful for so long that there is a high level of compliancy surrounding the company’s ability to execute. The Bullish-Bearish Indicator from IChartpro.com highlights these high expectations. MCD’s rating currently stands at a 60.2 versus the average for all QSR names (including MCD) of 21.9. Additionally, MCD’s bullish-bearish indicator has increased since December 2007 while the rest of the group has declined.

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