uploads/2017/01/4-15.jpg

How Is McDonald’s Expanding Its Business?

By

Updated

Unit growth

In this article, we’ll discuss another revenue driver: unit growth. In the last 12 months, McDonald’s (MCD) has increased its overall unit count by 1%, from 36,525 to 36,899.

With the intention of expanding its franchised restaurants to account for 95% of its total restaurants, McDonald’s has been focused on franchising and refranchising. In the last 12 months, the count of MCD’s franchised restaurants has risen by 1,149 units, while the count of its company-owned restaurants has fallen by 775 units.

Article continues below advertisement

Unit growth across segments

Compared to 4Q15, the overall count of McDonald’s restaurants in the United States fell by 104 units, with company-owned restaurants falling by 251 units and franchised restaurants rising by 147 units.

During the same period, the overall count of the International Lead Markets segment rose by 49 units, with franchised restaurants rising by 211 and company-owned franchised restaurants falling by 162 units.

With 65 more units, the High-Growth Markets segment was the only segment that increased its company-owned restaurants’ unit count in 4Q16. The segment added 221 franchised restaurants during the same period.

In the Foundational Markets segment, the company added 570 franchised restaurants, while the unit count of its company-owned restaurants fell by 427.

Outlook

McDonald’s has signed a strategic partnership with CITIC Group and The Carlyle Group to open 1,500 new restaurants in China in the next five years. With 2,400 restaurants already running, these new restaurants could make China McDonald’s second-largest market.

At the beginning of 2015, the company had planned to refranchise 4,000 restaurants by the end of 2018. According to the company, the plan is on track, with refranchising to reach 3,500 restaurants by mid-2017 and 4,000 restaurants by the end of 2018.

ETF exposure

You can gain exposure to McDonald’s by investing in the Consumer Discretionary Select Sector SPDR ETF (XLY), which has invested 4.2% of its holdings in McDonald’s. XLY has also invested 3.5%, 0.94%, and 0.49%, respectively, in Starbucks (SBUX), Yum! Brands (YUM), and Chipotle Mexican Grill (CMG).

Next, we’ll look at McDonald’s 4Q16 margins.

Advertisement

More From Market Realist