McDonald’s: Strengths, Weaknesses, Opportunities, Threats

Ryan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

A SWOT analysis is a look at a company’s strengths, weaknesses, opportunities, and threats, and is an excellent way to gain a detailed and thorough perspective on a company and its future. Fresh of a disastrous third quarter earnings report, I would like to pinpoint on the golden arches, McDonald’s Corporation (NYSE: MCD).   

Strengths:

  • Stability and Predictability: McDonald’s has been serving burgers since 1940, and will continue this success into the future because of their innovative nature and massive value and power
  • Brand Recognition and Loyalty: The golden arches logo represents one of the most recognizable brands in the world, and nearly everyone knows what McDonald’s is
  • Consistent Top-Line Growth:  The company has consistently grown revenues in the mid-single digits range for the past years, and should continue this trend into the future   
  • Dividend: McDonald’s has a long and proven track record of paying out and raising its dividend, and currently pays out quarterly installments of $0.77, which when annualized puts the dividend as yielding 3.50%
  • Global Presence: As of the end of 2011, the company possesses 33,510 restaurants in 119 countries, with a strong presence in every major country in the world

Weaknesses:

  • Saturated Nature of Business: The company has a presence in nearly every nook and cranny the world has to offer, so there is not much more room to run
  • Low Barrier to Entry: All a person has to possess to compete with McDonald’s is food, and it is an under-exaggeration to say that there is fierce completion in the industry McDonald’s operates in
  • Vulnerability to Rising Input Costs: The historic drought this year has already caused food prices to soar, and this will cause McDonald’s to face a situation in which they raise prices for their customers or allow their margins to be squeezed, a lose-lose situation
  • Recent Disappointment: Recently the company has reported declining revenues and a great strain on their same-store growth rate; however in the long-term view of things these short-term issues should not prove significant   

Opportunities:

  • Product Innovation: One of the company’s most successful line of products in the past years has been its McCafe beverages, a line that was just recently integrated, and new products are constantly in McDonald’s pipelines
  • Dividend Growth: Since implementing the dividend program, the company has persistently raised its payouts, as just recently the company raised the quarterly payments by 10%; this trend will probably continue into the future
  • Emerging Market Growth: North American and European markets are stagnant and will remain in this state until the global economic picture brightens; however, emerging markets such as the APMEA region (Asia Pacific, Middle East, and Africa) grew 18% in sales from 2010 to 2011

Threats:

  • Intense Competition: McDonald’s operates in arguably the most competitive industry in the world, and this intense competition to provide the consumer with the best product at the lowest price leads to the squeezing of margins
  • Economic Downfall: While McDonald’s is not thought of as a luxury brand, their food still costs money, and in times of despair money dedicated to eating out is one of the first luxuries to go
  • Health Regulation: Recently, the state of New York has debated over whether selling soft drink beverages over a certain size should be banned, and as a considerable chunk of McDonald’s revenue is derived from selling sugar-packed drinks; this could prove to be detrimental to McDonald’s
  • World’s Expanding Waistline: The world is becoming more and more obese with each passing day, and as McDonald’s food is not considered the healthiest, customers may turn to alternatives

Competitors:

Major publically-traded competitors of McDonald’s include Burger King (NYSE: BKW) and Wendy’s (NASDAQ: WEN). Burger King, while significantly smaller than McDonald’s, competes directly with the golden arches as they offer burgers, fries, ice cream, and many other products that duplicate McDonald’s menu offerings. Wendy’s is even smaller than Burger King, and like both of the other companies offers a similar menu. Compared with McDonald’s on a financial level, neither company comes even close to matching McDonald’s dividend, sales, or stability.  

The Foolish Bottom Line:

McDonald’s possesses several strengths, weaknesses, opportunities, and threats; however, in the end it's a stable company with a dominant global presence. Despite the recent sluggishness the company has displayed, these issues should prove to be nothing more than a bump in the road over the long haul. At current prices, the company appears attractive to any long-term investors.  

Eat Up, Fools

Check out The Motley Fool’s premium report on McDonalds in which Fool analysts break down reasons to buy or sell MCD, and you'll receive continuing updates as major events unfold during the year. To get started, click here now.

 


makinmoney2424 owns shares of McDonald's. The Motley Fool owns shares of McDonald's. Motley Fool newsletter services recommend Burger King Worldwide and McDonald's. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

blog comments powered by Disqus

Compare Brokers

Fool Disclosure