Why unit growth for McDonald’s isn’t as important in the US

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Unit growth

So far, we’ve discussed same-store sales. Same-store sales are one of McDonald’s (MCD) key revenue drivers. The second key revenue driver is growing restaurant units. By setting up stores in underpenetrated regions, the company can capture revenue growth.

MCD Restaurant Units 2014-10-27

As of the third quarter ending September 30, 2014, McDonald’s had more than 35,860 restaurants across the globe. In the third quarter alone, it added 181 new restaurant units. Three of the restaurant units were company-operated. 178 of the restaurant units were franchise restaurants.

In September, the company added 750 restaurants globally. It closed 46 company-operated restaurants. McDonald’s reached maturity in the U.S. Revenue growth through same-store sales is a more important metric than unit growth.

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For newer restaurant companies—like Chipotle Mexican Grill (CMG)—growing units and revenue growth are equally important. Revenue growth is obtained by penetrating deeper into the markets. To put it in perspective, McDonald’s has over 14,000 restaurants in the U.S. CMG has ~1,700 restaurants in the U.S.

Management also highlighted the change in its site selection. It’s site selection improved over the years. It positions McDonald’s for long-term growth. The company selects relevant locations. It doesn’t just focus on new unit movement.

To take advantage of McDonald’s and CMG, you can consider the Consumer Discretionary Select Sector SPDR Fund (XLY). XLY also includes Darden Restaurants (DRI).

Growing same-store sales depends on growing traffic and transactions. Companies—like Dunkin’ Brands (DNKN)—have been able to grow traffic and transactions by offering promotions.

McDonald’s runs promotional campaigns at certain times—like offering certain toys in its Happy Meal—to attract more traffic. In the next part of the series, we’ll look at McDonald’s other initiatives to increase traffic.

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