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Wednesday, November 15, 2006

Is McDonald's Smarter Than The Competition? (MCD)(BKC)(WEN)

McDonald's same store sales in October were not just good. They were much better than those of their direct competitors. But why? With more stories and higher market penetration, in theory smaller fast food retailers should be able to grow faster.

But, the theory does not work. McDonald's same store sales rose 5.5%. At Wendy's, the figure was a pitiful 1.2%. At Burger King, the figure was 2.6%. McDonald's also generate substantially more revenue per store than its rivals.

Wall St. often wants to look for complex reasons as to why one company does better than the competition, espcially in a large market like fast food. How can one company, with products similar to its rivals, do so much better?

Part of the reason is that McDonald's is not focusing on increasing its number of stores, especially in the US. It has worked on increasing its revenue yield per store. But, that explanation in-and-of-itself is inadequate.

It would appear that McDonald's offers a menu that is, very simply, more attractive than what Burger King and Wendy's have. The food is just as unhealthy any in the world. But, people like it more. McDonald's is like Toyota. It just has a "line up" that buyers like better.

If investors are looking for something more complex to give them comfort about the growing McDonald's fast food lead they won't find it.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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