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ChrisGraley (29.72)

Ronald McDonald is an economic genious!

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July 01, 2009 – Comments (17)

Mickey D's is going ahead with a premium "Angus" burger that they have been working on for the last 2.5 years.

The new burger is 1/3 pound and will cost $3.99. For most companies, announcing a premium product in a down economy is a death sentence, but I think it's a fabulous idea for MCD.

1st, they've caught up with Yum Brands in emerging market growth.

2nd, the McCafe concept has taken off like a rocket.

They get continued growth prospects in Asia and steal market share from Starbucks at home in a down economy at the same time.

So why ruin that with a premium offering in a down economy? They aren't! They are actually enhancing it!

People are still gonna eat at MCD because it's the cheapest place to eat out. We have bigger problems if people stop eating there. They are picking up a bunch of people that are used to eating at "Friday's", "BW3","Applebees" ect..., that are used to paying $6- $9 for a burger. They also have their own customers that buy the most expensive burgers on the menu because they feel like kings at MCD despite their meager incomes. They are probably losing share on that last group as people cut back and that is why their timing is perfect to fill in the gap with the first group. It also helps them long term if some of those new customersl like the $4 burger better than the $6-$9 burgers they are used to. The only thing that can kill this is over-marketing like they did with they "Arch-Deluxe". Other than that, this is a cheap experiment and if it works, it helps the win new customers, increase profit margins, and creates customer interest all at the same time.

17 Comments – Post Your Own

#1) On July 01, 2009 at 7:22 PM, Seano67 (25.17) wrote:

Yeah, what the hell. It's certainly not a bad idea, and paying $3.99 for a 'premium' burger (yes, I know this is McD's, so 'premium' has to be taken very much into context), well that's a hell of a deal for what looks to be a great big hamburger made with a higher grade of beef. I bet they sell a ton of these. I take my sons to McDonald's all the time, and I would certainly pony up an extra buck or two in order to get a truly decent hamburger.

http://www.angusthirdpounders.com/

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#2) On July 01, 2009 at 7:40 PM, rd80 (97.30) wrote:

I tried one of the Angus burgers a few days ago.  Pretty good.

Mickey D's -  expanding my waistline and my net worth.

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#3) On July 01, 2009 at 7:42 PM, Seano67 (25.17) wrote:

McDonald's actually has a lot going in its favor. Another thing they offer that is a *major* draw for the parents of young children are their Playland and Playplace concepts. I mean those things are so cool. My boys absolutely love it, and it turns the mundane act of going out for a hamburger into this big, fun adventure for them.

I love it. It's a great idea. 

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#4) On July 01, 2009 at 7:54 PM, tonylogan1 (28.27) wrote:

Angus burger was test marketed in CA for quite a while now. It is very good and good for MCD. (Bad for my waistline)

Unfortunately MCD will suffer from balance sheet issues along with the rest of the commercial impending decline. Take a look at how much incremental sales an Angus burger will have on income vs what a 10% decline in commercial real estate looks like...

For all fools.. (not directed at blog initiator)... be sure to do full DD before buying stock.

That said, it would still not be a bad trade to go long MCD and short commercial real estate (or short a MCD competitor in worse financial position)

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#5) On July 01, 2009 at 8:04 PM, soycapital (< 20) wrote:

In my humble opinion if anyone can survive and still make a profit it will be companies like MCD. Bought some right after the flu scare when it took a dip. I'd look to buy similar companies serving good value also. Ideas???

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#6) On July 01, 2009 at 8:14 PM, dividendhound (< 20) wrote:

Not that it is relevant, but you can't beat McDonald's french fries.  Throw a bunch of salt and pepper on them and you have yourself a nice treat.  I think the premium burger idea is a good one, although it depends, of course, on whether you can taste the difference.  The cost difference is not so much in absolute terms.  I generally have felt that their burgers are their weak spot, so this could help shore it up. 

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#7) On July 01, 2009 at 8:18 PM, djkumquat (49.62) wrote:

it's spelled genius, fyi.

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#8) On July 01, 2009 at 8:20 PM, djkumquat (49.62) wrote:

and i'm still not going to eat anything from mickey d's.

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#9) On July 01, 2009 at 8:33 PM, soycapital (< 20) wrote:

a genious, for the record is an extra special genius that eats at mickey d's.

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#10) On July 01, 2009 at 8:56 PM, ChrisGraley (29.72) wrote:

What Tony is getting into is a lot more complicated, but he has a valid point.

MCD makes money in this order...

1) Franchising

2) Company Operations

3) Real Estate transactions

The thing a lot of people are looking at is what happens to a company that owns a lot of commercial real estate when commercial real estate tanks? That's something everyone should think about!

I'm not as worried as most people, given that MCD is also buying in Asia at lightning speed at a time when real estate values are falling as well. But what everyone should be concerned about is that MCD will increase leverage to do this in a poor economy.

There are a thousand things to look at when you get a Macro company like MCD, but the main thing I'm looking at is the perspective from the lender. The bank really wants to loan money right now, but only money that is entirely safe. In MCD they have a stallwart company that is already beating the market financing huge growth opportunities in Asia.

Tony is right about shorting the laggards in this scenario, but I'm not afraid to trade naked in front of Ronald McDonald.

Blah! Tony just screwed up my dreams for the next few weeks! Those Carl's Jr commercials with Paris Hilton are gonna suddenly turn into nightmares that include Ronald McDonald and that creepy BK King guy.

 

Good luck investors!

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#11) On July 01, 2009 at 9:06 PM, ChrisGraley (29.72) wrote:

For those of you that haven't noticed from my other posts, typing and spelling are not my strong points. Pointing those things out, only proves that you don't have anything else to point out.

I could proof-read better, but I choose to make my statements and go on with something else.

If it bothers you, you don't have to read my posts. If you still want to read my posts and correct grammar, typing, or spelling, I won't listen but you can post anyway.

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#12) On July 01, 2009 at 10:41 PM, soycapital (< 20) wrote:

My intent was not to point out the spelling error but to have a laugh that someone has nothing better to comment about.

Concerning MCD and commercial real estate, if you have ever been in a McDonalds store in a large city around lunch time or most anytime it is busy! Even when the crap hit the fan they were busy and making $$. If the commercial real estate market problems hit MCD they will be one of the last hurt by it (unless I am missing something).

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#13) On July 01, 2009 at 10:56 PM, ChrisGraley (29.72) wrote:

Soy???

I agree.

I'm not sure where I slighted you, but apologize anyway.

My 2 points were that Tony had mentioned that commercial real estate has an effect on MCD and DJ kumquat mentioned my spelling sucks.

Both points are true, but I was trying to explain to DJ that the second thing is old news.

Sorry if I offended you.

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#14) On July 01, 2009 at 11:10 PM, soycapital (< 20) wrote:

I was born and raised in the "soybean capital of the world" Decatur, IL. Home to ADM, and other large soybean processors. I like MCD and am looking for similar survivors as I believe the fluff is going to be blown off the ball anytime here. I'd rather be in good quality dividend equities domestic and foreign than in USD if you know what I mean.

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#15) On July 02, 2009 at 12:02 AM, NOTvuffett (< 20) wrote:

Mmmmm, a big thick angus beef burger does sound good.  But then I think of the sad, grey, meat-like substances in their other burgers. 

And who among you has gone to a MickeyD's lately? The dining experience seems to be designed to be uncomfortable to get customers in and out quickly.  In my local area, a chain resturant with the more expensive burgers and a more relaxed atmosphere gets the bulk of the business at lunch time.

MCD does have good coffee, and I can see them taking market share from places like Starbucks.  When I go there, I ask for sugar and no cream.  It is sort of like Schrödinger's cat, I don't know what I have got until I have observed it.  Half the time, it is wrong.  Maybe they should call it McQuantum Cafe.  

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#16) On July 02, 2009 at 12:21 AM, ChrisGraley (29.72) wrote:

Jeez!

Now I have to apologize again!

The Soy triple question mark thing was to imply that I didn't know what you were upset about.

Soy is good.

Soy chocolate milk is extremely good.

Soy protein is about a thousand times better than whey protein.

As far as looking for survivors, I'm doing the same thing.  The thing I like about MCD is that they think this economy gives them an advantage.

 

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#17) On July 02, 2009 at 10:27 AM, tonylogan1 (28.27) wrote:

I really was not trying to be just a grumpy old man ragging on this poster... I just think it is important that the average investor understand their holdings better. They should at least be able to answer the question... If 10% of fast food places go out of business, what would the franchise impact be to MCD, even if MCD never has to close a store themselves? If they have to write down 10% of their real estate on their balance sheet, what does that look like?

I am not saying they will go down, but saying XOM is easy money becuase people are "always at the gas station when I go" or buy F becuase "people will always need cars" other such "justifications" I hear from people, are just not enough DD.

p.s. while I dont like spell check trolls... when you spell genius wrog, it is like saying "I speak good" or having a skill on your resume of "attention to detlais"... just kinda funny...

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