Franchise Equity Group: November 2014

We've always encouraged McDonald's Operators (and franchisees from any brand) to follow the
communications between corporate management and their investors and analysts who cover the
company. This usually takes the form of press releases and on-line conference calls following
the publication of a particular quarterly earnings report.

But presentations like the aforementioned Morgan Stanley Conference can be more instructive.
The end-of the-quarter conference calls are 80% about the past and 20% about the future. Investor conference presentations are almost entirely about the future. Since the future of McDonald's is in question it's important to study how management plans to reinvent the brand.

Especially since this reinvention of McDonald's is being orchestrated by executives who've never
run a real restaurant or come face to face with a real McDonald's customer.

Three things stand out of the McDonald's discussion at this conference:

* All of McDonald's problems will be solved through "Technology". Management says their digital
strategy will "revolutionize how the customer experiences us".

* Simplifying the menu and operation while adding customized products was discussed with no
serious discussion about real world conflicts this creates. Technology will take care of everything.

* Other than talk of selling some McOpCos there was no mention during these discussions of the
fact that McDonald's has franchisees. If a Wall Street analyst was new to the industry they might assume that every McDonald's was operated by McOpCo. Menu prices are discussed with no mention of franchisees. Vast technology investments are discussed with no mention of franchisee buy-in. Changes to the kitchen are discussed with no mention that those kitchens are owned by franchisees.

Normally there is rhetoric such as "our franchisees are aligned with our plan" or some positive statement. This time it was as though McDonald's Operators don't exist.
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