McDonalds Resurgence

Last weekend's Wall Street Journal ran an article on McDonalds, the fastfood titan. Now that it's in my portfolio, the story caught my eye.

As the nearby Yahoo-sourced price chart indicates (please click on the chart to see a larger version), the company really has turned around in the last five years, and outperformed the S&P over the period.

The firm's CEO, Jim Skinner, was a part of the management team that began to improve McDonald's four years ago. He moved up to his current job when one CEO died suddenly, and the next resigned to wage a battle with cancer.

What I liked about Skinner's responses in the interview was how clear-thinking and sensible he is. For instance, he said,

"....we proved that we were getting bigger but not better. And we have to be better. Your experience today at McDonald's has to be a better experience than it was yesterday. People have limited time today. They don't want to get up and go, "Gee, I don't know. Do I think I can go to McDonald's?" "

Skinner has a clear focus on his customers' behaviors, which is always heartening in a CEO, especially in a retail business, where there are so many individual purchase decisions each day.

Later in the interview, he is quoted as saying, regarding the four-year old turnaround strategy,

"We had contributed $4B or $5B to capital expenditures and building new stores over four years, and yet we didn't have any corresponding incremental operating-income growth. So we decided to focus on our existing restaurants. Those of us that were hardcore restaurant people, which I was at the time, were saying, "Look, we've got to do a better job of delivering what we called quality, service and cleanliness on a daily basis in our restaurants." And value. Because value proposition's very important."

Skinner's remarks show how sharp this company's management team is. He related later that a considerable amount of time and effort of every senior manager is spent identifying and grooming their upcoming talent. He attributes the company's ability to 'accelerate our momentum' to 'selecting the high-potential people.'

When asked what his biggest remaining challenge is, Skinner replied,

"I worry about complacency. We're not satisfied. We have a lot of work to do."

That's what I love to read about from CEOs whose company's shares I own. Toyota's CEO says the same thing, whereas his faltering rival, Rick Wagoner of GM, feels he's on track.

I loved the things I read about Jim Skinner, and McDonald's, in the Journal piece. It impressed me so much, that, having just bought some of its shares, I had lunch there yesterday, on the way back from a midday errand.

It was everything Skinner contended. The food was well-prepared, and less expensive than I expected. The store was very clean. Though after the noon-time rush, one employee did nothing but circulate among the tables, wiping off food remnants and spraying, then wiping them clean with a disinfectant. My visit was fast, clean, and delivered familiar food. The menu even seemed simplified and easier to use than I recalled on my last visit to a McDonalds some years ago.

Needless to say, I hope the company continues to do well. At least for the next six months of my portfolio investment. Based upon Jim Skinner's interview in the Wall Street Journal, I'm confident that it will do so.