JPMorgan Considers McDonald's Australia Strategy

Following the “McTrip” event in Sydney on November 16, JPMorgan’s John Ivankoe noted that Australia was the No. 2 market in the world for McDonald's Corporation MCD in terms of store-level profitability and among the five “International Lead” markets.

Ivankoe maintains an Overweight rating on the company, with a price target of $127.

Australia Strategy

“Australia has 955 of the segments 6,802 stores, which average $3.8 million. The market is ~78 percent of the geographic size of the continental U.S. with ~7 percent of the total population and ~61 percent of the population lives in the 5 cities with a population over 1 million,” the analyst explained.

Competition is also different in Australia, with numerous units being operated in the country by top competitors.

“The Australian population is intensely prideful of ‘their’ locals’ coffee and yet McCafe ‘Barista Made’ sales makes the McCafe subbrand the largest away-from-home restaurant coffee brand in Australia,” the analyst pointed out.

Initiatives

Digital menu boards are being installed at McDonald’s drive throughs in the country, which will allow the menu to feature 7–8 day parts rather than the current 2–3 day parts.

In fact, the company is expected to recapture market share through its initiatives to enhance its menu, improve restaurant operations and expand its digital capabilities.

However, despite all efforts, same-store traffic levels in Australia have only climbed back to the 2012 levels at the end of 2016.

“This was an important and unexpected learning on McTrip – that MCD does not contribute capital for franchisee remodels outside of the U.S. but instead commits to a fixed rent reduction for 7 years as an incentive for franchisees to commit to remodeling the buildings that they operate but MCD owns,” Ivankoe went on to say.

The company is bringing about changes in the United States too, with customer now being able to choose table service inside McDonald’s restaurants. This is an effort by the company to offer an experience beyond that of the traditional fast-food chain.