Translated by Andrew Vanburen from: 一個講金 一個講心 餐廳孖寶成功之謎 (中文翻譯, 請閱讀下面)
IT SEEMS that no market has been free from freefall selloffs of late, with budget crises, sovereign debts and political turmoil turning investor sentiment decidedly downtrodden.
However, even as consumer sentiment struggles to recover, two major names in the restaurant business have proven to be brazenly countercyclical, and may point to similar opportunities in Hong Kong.
In fact I would put forth that during bear markets, the most interesting case studies are the stocks which actually climb up the valuation chain. This is not only because they buck the trends, but also because they must enjoy a level of intrinsic value that warrants closer investigation.
Looking overseas, two of the best examples of this phenomenon are fast food giant McDonald’s and cyber/casual chat/caffeine filling station leader Starbucks.
Year-to-date, McDonald’s has provided a return on investment of around 17% while Seattle-based Starbucks is even better at 23%.
These compare very favorably indeed to the weighted ROI for the S&P 500 which over the same period is at negative 2%.
Some may point to the near monopoly-like presence of these two food and beverage (F&B) behemoths, and the absence of US antitrust legislation covering the sector, as reasons for their success.
But at the end of the day, no one forces consumers – American or otherwise – to stand at the counter waiting for Big Macs or iced lattes.
Therefore, comparing them to something more familiar to local investors such as Hong Kong power firm CLP Holdings Ltd (HK: 2) -- whose shares are currently near 52-week highs with a one-year return of over 22% -- is a flawed argument.
Furthermore, if investors are hoping to find facile parallels between McDonald’s and Starbucks and the secrets to their recent valuation strength, they will be sorely disappointed because the two cases are very unique.
As for McDonald’s, the current helmsman – CEO Jim Skinner – never graduated college but served 10 years in the US Navy. Therefore, at the risk of resorting to clichés, he runs a tight ship and like most Navy veterans, doesn’t believe small talk and gossip have any place on a crowded vessel... or in a Fortune 500 company.
He keeps his cards close to his chest and only shares pertinent company information with those at the top, and on a need-to-know basis only.
Prior to Skinner taking charge in November 2004, McDonald’s Corporation was struggling to stay on top, with consistently falling profits for the Illinois-based firm.
He quickly determined that the home of the Golden Arches was failing to compete with the growing number of rivals in the fast food space and was instead over-relying on its well-worn strategies and menu offerings of yesteryear.
He also felt that the company was moving away from its core business strengths and diversifying into unchartered waters for a global restaurant chain (according to Fortune, McDonald’s previously owned and operated luxury Swiss hotels).
However, after streamlining operations and refocusing on its core strengths, post-Skinner McDonald’s set one goal for the restaurant chain.
Whether proprietary or locally-managed and licensed, each restaurant would be solely devoted to boosting revenue, and success was to be measured by this standard alone.
Thanks in large part to Skinner’s leadership, McDonald’s group revenue rose to over 70 bln usd in 2008 from around 50 bln in 2004.
In 2009, he was named CEO of the Year by Chief Executive magazine.
100 consecutive months of growth
McDonald’s used its newly restructured business model, reemphasized accountability, digitalized logistics and ordering systemization to know exactly how many French fries and hamburger patties each restaurant should have in stock on any given day.
The fast food chain recently said its August same-store sales (SSS) growth rose 3.5% year-on-year.
On the surface this announcement seems quite par for the industry, but its largest market is still struggling to avoid double-digit unemployment, and August’s SSS rise was the 100th consecutive monthly increase, setting a new company record!
With numbers like these, it is little wonder the 90 bln usd franchise is attracting such investor attention.
Starbuck’s rise has followed a very different path to prominence.
CEO Howard Schultz is far more interested in the connection between interpersonal and societal relationships to a successful business than is McDonald’s Skinner because, quite frankly, sipping coffee is by nature much more social an activity than ordering a Big Mac through a drive-thru window.
Schultz is also more appreciative of the marriage-of-convenience that exists between an increasingly technical world and the whole cafe experience.
He is most interested in providing a comfortable quasi-corporate setting for patrons and providing the best beans available than in maximizing same-store sales for revenue’s sake alone, because it is the setting and ambience as well as the purchased product, that has brought the Seattle-based firm this far.
Therefore, he is known as a stickler for quality – both in terms of goods and services – and is known as one of the biggest advocates of staff training, followed by regular refresher courses.
Therefore, most employees would admit that getting a job at Starbucks is much harder than at McDonald’s.
Schultz not only insists on the high quality beans for Starbuck’s roasted blends, but also the highest quality staff available, which makes sense if one thinks of how long one normally spends lounging in a Starbuck’s venue surrounded by Baristas compared to the typical quick, utilitarian visit to a fast food restaurant.
Intangibles like the “added value” of comfortable seating and smiling serving staff also allow Starbucks to have more flexibility in pricing as compared to more volume-centric McDonald’s.
The two F&B giants have different business models, but the results are the same – enviable returns for shareholders.
Therefore, for market watchers like myself, it is important not to fall into the lazy habit of saying successful industry peers must have similar growth models.
Those who like the beauty and strength of raw numbers will likely be more comfortable investing in McDonald’s shares.
However, for those of us who appreciate a good “overnight” success story with staying power, perhaps Starbucks is a better choice.
And finally, for those of us with a soft side for the Hong Kong market, there are certainly more than a few proxies for these two examples worthy of investor attention.
Restaurant Giant SHANGHAI MIN’S IPO; Latest On PRC Property/Insurance
一個講金 一個講心 餐廳孖寶成功之謎