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McDonald's Reveals Strategic Partner for 2 Asian Markets
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In March, McDonald’s Corporation (MCD - Free Report) revealed its master licensee model, which is the core of the company’s growth strategy in Asia. The company has plans to refranchise over 3,000 restaurants in Asia and has thus been seeking master franchisees for key Asian markets.
McDonald’s aims to identify strategic partners who will enhance its competitive advantages and resources to enable faster, localized decision making on growth initiatives, and increase capital investment in restaurant expansion.
This strategy is in line with the company’s turnaround plan announced by the company’s CEO, Steve Easterbrook, in May 2015. Included in the plan is its commitment to refranchise nearly 4,000 restaurants by the end of 2018, and its long-term goal of becoming 95% franchised.
The reduction in ownership would weigh on near-term revenues, as it replaces company-operated sales with franchised sales. However, over the long term, it will reduce the company’s capital requirements and facilitate earnings per share growth and Return on Equity expansion.
In keeping with these, McDonald’s recently announced that Lionhorn Pte. Ltd. will be its Developmental Licensee (DL) for Singapore and Malaysian markets. Led by Sheik Fahd and Abdulrahman Alireza, Longhorn has been the DL for nearly 100 McDonald’s restaurants over the past 20 years.
Per the agreement, Longhorn will assume ownership of McDonald’s Malaysian and Singaporean business, which encompasses 390 restaurants. Of these, more than 80% were company owned till now. Moving forward, Longhorn will own McDonald’s restaurants in these two countries and provide the capital necessary to expand the business there.
Other restaurateurs that follow the refranchising business model include The Wendy’s Company (WEN - Free Report) , YUM! Brands, Inc. (YUM - Free Report) and Papa John’s International, Inc. (PZZA - Free Report) .
Shares of McDonald’s have seen periods of ups and downs this year. After a favorable first-half 2016 compared to the Zacks categorized Retail Food & Restaurants industry, the stock went down sharply after the announcement of its second-quarter results. However, announcement of better-than-expected third-quarter results changed the story yet again. While the stock consistently underperformed the market from Jul 26 to Oct 21 (negative 6.4% growth vs. negative 5% growth of the industry), it started outperforming since Oct 21 (3.8% vs. 2.4% till Dec 2).
It remains to be seen how this strategy plays out for McDonald’s in the long run.
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McDonald's Reveals Strategic Partner for 2 Asian Markets
In March, McDonald’s Corporation (MCD - Free Report) revealed its master licensee model, which is the core of the company’s growth strategy in Asia. The company has plans to refranchise over 3,000 restaurants in Asia and has thus been seeking master franchisees for key Asian markets.
McDonald’s aims to identify strategic partners who will enhance its competitive advantages and resources to enable faster, localized decision making on growth initiatives, and increase capital investment in restaurant expansion.
This strategy is in line with the company’s turnaround plan announced by the company’s CEO, Steve Easterbrook, in May 2015. Included in the plan is its commitment to refranchise nearly 4,000 restaurants by the end of 2018, and its long-term goal of becoming 95% franchised.
The reduction in ownership would weigh on near-term revenues, as it replaces company-operated sales with franchised sales. However, over the long term, it will reduce the company’s capital requirements and facilitate earnings per share growth and Return on Equity expansion.
In keeping with these, McDonald’s recently announced that Lionhorn Pte. Ltd. will be its Developmental Licensee (DL) for Singapore and Malaysian markets. Led by Sheik Fahd and Abdulrahman Alireza, Longhorn has been the DL for nearly 100 McDonald’s restaurants over the past 20 years.
Per the agreement, Longhorn will assume ownership of McDonald’s Malaysian and Singaporean business, which encompasses 390 restaurants. Of these, more than 80% were company owned till now. Moving forward, Longhorn will own McDonald’s restaurants in these two countries and provide the capital necessary to expand the business there.
Other restaurateurs that follow the refranchising business model include The Wendy’s Company (WEN - Free Report) , YUM! Brands, Inc. (YUM - Free Report) and Papa John’s International, Inc. (PZZA - Free Report) .
Shares of McDonald’s have seen periods of ups and downs this year. After a favorable first-half 2016 compared to the Zacks categorized Retail Food & Restaurants industry, the stock went down sharply after the announcement of its second-quarter results. However, announcement of better-than-expected third-quarter results changed the story yet again. While the stock consistently underperformed the market from Jul 26 to Oct 21 (negative 6.4% growth vs. negative 5% growth of the industry), it started outperforming since Oct 21 (3.8% vs. 2.4% till Dec 2).
It remains to be seen how this strategy plays out for McDonald’s in the long run.
McDonald’s currently holds a Zacks Rank #2 (Buy). You can see see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Today, you are invited to download the full list of 220 Zacks Rank #1 ""Strong Buy"" stocks – absolutely free of charge. Since 1988, Zacks Rank #1 stocks have nearly tripled the market, with average gains of +26% per year. Plus, you can access the list of portfolio-killing Zacks Rank #5 ""Strong Sells"" and other private research. See these stocks free >>