McDonald’s unit growth
For a restaurant, the second key revenue driver is growing restaurant units. By setting up stores in underpenetrated regions, the company can capture revenue growth.
As of the fourth quarter ending in December 2014, McDonald’s (MCD) had a total of 36,258 plus restaurants across the globe. In the fourth quarter alone, McDonald’s added 394 new restaurant units. It’s important to note that 22 were company-operated and 372 were franchise restaurants. On a full-year basis, the company added 829 restaurants globally. It closed 24 company-operated restaurants.
Management highlighted its change in site selection. It’s site selection improved over the years. According to the company, this positioned McDonald’s for long-term growth. It selects relevant locations. It doesn’t only focus on new unit movement.
McDonald’s reached maturity in the US. As a result, revenue growth through same-store sales is a more important metric for the company than unit growth.
Unit growth is more important for newer companies
For newer restaurant companies—like Chipotle Mexican Grill (CMG) and Shake Shack (SHAK)—unit growth is more important to penetrate deeper into the markets. To put it into perspective, McDonald’s has over 14,000 restaurants in the US. Chipotle has about 1,700 restaurants in the US.
Growing same-stores sales depends on growing traffic and transaction. Companies, like Dunkin’ Brands (DNKN), have been able to grow traffic and transaction by offering promotions.
In the next part of this series, we’ll look at how weak same-store sales growth and growing units impacted McDonald’s revenue.