In the latest episode of the “Biz Doc Podcast,” Tom Ellsworth discusses financial education and the future of business leadership in America, and then delves into a case study analyzing McDonald’s recent moves in the coffee market, continuing the theme of exploring what’s next.




Founding

McDonald’s was founded in 1940 by brothers Richard and Maurice McDonald in San Bernadino, CA. They developed the “Speedee Service System” in 1948, a quick kitchen-to-window food preparation system loosely modeled on White Castle.

In 1955, a man named Ray Kroc joined and offered to work with them as a franchise sales agent. He liked to say he built the first McDonald’s franchise location, but it was actually the ninth. In 1961, during a very contentious time, Kroc bought out the two founders for $2 million (a large sum in those days). This is all documented in the movie The Founder starring Michael Keaton.

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It has a Hollywood spin on it, but is largely correct. Kroc, at times a jerk and a betrayer of the brothers’ original vision, nevertheless took McDonald’s into the global empire status it is today.

In April 1965, McDonald’s went public at $22.50 a share. It split 12 times since then, so one 1965 share is 729 today. If you had held onto a share since the beginning, you would have amassed over $15,000 in dividends.

In this episode of The Biz Doc Podcast, Tom delves into a case study analyzing McDonald's recent moves in the coffee market, and explores what's next.

In 2005, McDonald’s was seeing a revenue of $19 billion; it slowly climbed up to $28 billion, a $10 billion increase, by 2013 — less than 10 years later. Jim Skinner was the CEO through this period until 2012. Don Thompson then took over until 2015: at an annual meeting of the franchisers, he went to back to his hotel room, had a heart attack, and died. He was replaced by Steve Easterbrook, who would serve until 2019. Growth at that point began to trend downward, because around 2015 America became very health conscious and took a sharp turn away from fast food in general.

In this episode of The Biz Doc Podcast, Tom delves into a case study analyzing McDonald's recent moves in the coffee market, and explores what's next.

Easterbrook was also alleged to have been in some kind of a sexual relationship with a company employee, and was summarily fired. He was replaced with Chris Kempczinski, who drove the valuation of McDonald’s straight up.

Between 2018 and 2023, McDonald’s stock nearly doubled.

In this episode of The Biz Doc Podcast, Tom delves into a case study analyzing McDonald's recent moves in the coffee market, and explores what's next.

The chart shows a dip in Winter-Spring 2020 due to COVID, and then a steady climb back up under the leadership of Kempczinski. Now, it has a market cap of over $200 billion.

What has Kempczinski been doing?

Doing everything he can to increase revenues, create a larger gross margin, higher gross profits, and increasing their operating income while managing their operating expenses well.

In this episode of The Biz Doc Podcast, Tom delves into a case study analyzing McDonald's recent moves in the coffee market, and explores what's next.

McDonald’s is one of the top 5 most valuable brands in the world. The company has taken advantage of the new world where every company has an app: its app has 150 million users (90-day = active), yielding $20 billion in trailing 12 months (TTM) sales. At any given time, there are 55,000 delivery orders being prepared. McDonald’s also gets an estimated 69 million customers per day. They have 40,000 locations across 118 countries, the most of any chain in the world; the U.S. only has 14,000 of them.

Future

Its plan for the future is digital. It plans to double the amount of sales through the app during the next four years and increase its active loyalty base to 250 million users. Similarly, McDonald’s claims it has the largest delivery program in the industry. But they want 30 percent of orders to originate from mobile by 2027. It also wants to add more drive-thru locations, expand to 50,000 store locations by the end of 2027, and integrate Google AI technology to improve its services (they already have a partnership to do so).

In this episode of The Biz Doc Podcast, Tom delves into a case study analyzing McDonald's recent moves in the coffee market, and explores what's next.

It took 20 years to go from 30,000 stores to 40,000 stores. Now, they want to do the same amount of growth in a quarter of the time. Will they be able to do it?

McDonald’s next plan for innovation is CosMc’s (pronounced Cosmics). There is a test location in Bolingbrook, Illinois and the plan is to build nine more in Texas and Illinois in 2024. The idea is a beverages-only store location to compete with Starbucks, featuring coffees, teas and flavored drinks. They will evaluate at the end of ’24 if it is a viable business model.

In this episode of The Biz Doc Podcast, Tom delves into a case study analyzing McDonald's recent moves in the coffee market, and explores what's next.

Lessons for You and Me

Mature companies can and should innovate. Levels of innovation difficulty are broken down according to the Ansoff Model into 10 levels. Level 3 is Market Penetration: same market, same product, just slightly different. Level 5 is Product Development: same market, new product. Level 6 is Market Development (new market, same product). Level 8 is Diversification: new products, new markets.

Bottom line is to stay curious and push your team: get people talking about freshening up your inventory, doing the market research and going out and seeing what results you get.

Watch the rest of Biz Doc’s video below to see which strategies he recommends, as well as his observations on financial education and the future of business leadership.




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