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  1. Home
  2. / Investing
  3. / Consumer Staples

McDonald's Uses U.K. Market as Springboard for International Sales Growth

The company's U.K. success could give investors a preview of how it plans to expand globally.
By MARTIN BACCARDAX
Oct 25, 2017 | 09:00 AM EDT
Stocks quotes in this article: MCD, DPZ, QSR, SBUX, YUM

McDonald's  (MCD) surprised investors Tuesday with stronger-than-expected comparable sales figures that belied both tough domestic competition and specific challenges in key overseas markets.

However, the world's largest restaurant chain has been consistently growing sales in the United Kingdom for more than a decade, using Europe's key market as an incubator for marketing ideas and strategy changes around the world.

And given the group's U.K. success, that could be an excellent precursor for its stock performance in the months ahead.

McDonald's posted a 6% rise in comparable global sales for the three months ending in September, the company said, with revenues tabbed at $5.75 billion.

CEO Steven Easterbrook touted the ninth consecutive quarterly gain in comparable sales -- which the company defines as stores open for more than a year -- during a conference call with investors, but that figure pales when compared to the 46-quarter run seen in the United Kingdom.

McDonald's doesn't break out U.K. sales from its "international lead markets" segment, which recorded comparable growth of 5.7%, but it nonetheless noted that locations in the country are having "great success in their modernized restaurants."

Interestingly, U.K. sales were driven in no small part to the rollout of delivery service via the UberEATs app, which is in use at around 20% of the group's 1,250 U.K. stores after its debut earlier this year.

Since then, McDonald's has notched record sales in both July and August in Britain in what U.K. CEO Paul Pomroy called "an increasingly competitive market."

"We're getting enough of an early read to be encouraged by delivery," said CFO Kevin Ozan during a conference call with investors, adding that delivery availability was a "meaningful contributor" to comparable sales growth where it was available.

While Ozan declined to detail the degree to which delivery options added to sales growth, the rollout could nonetheless be a compelling addition to McDonald's ruthless path of innovation and reinvention.

Remember, this is the company that was, only 15 years ago, synonymous with poor health and fattening foods, thanks in large part to its portrayal in the hit documentary Super Size Me.

That film, which many believed could have signaled the downfall of one of America's greatest corporate successes, instead gave birth to a major menu transformation -- its "Go Active" push -- that ultimately redefined the global fast-food industry.

In fact, McDonald's stock has risen more than 522% since Morgan Spurlock's low-budget movie debut in May 2004, nearly five times more than the Dow Jones Industrial Average.

It's worth noting, however, that McDonald's has had a firm grip on the U.K. market for a number of years and has around 500 more stores than its nearest rival, Burger King, up and down the country.

The broader U.K. fast-food market isn't nearly as competitive as it is in the United States, where the group scraps for customers in a field of midmarket restaurants, nationwide pizza delivery chains and take-home food options from grocery stores that simply don't exist to the same degree in Britain.

Furthermore, while U.K. sales may continue to advance, margin pressures owing to food import costs in the wake of the pound's 12% collapse against the U.S. dollar since the country voted to leave the European Union in June 2016 still echo around the group's supply chain.

That said, McDonald's has smashed most of its peer group -- including Starbucks (SBUX) , Yum Brands (YUM) , Domino's Pizza (DPZ) and Restaurant Brands International (QSR)  -- with a year-to-date gain of nearly 35%.

Investors looking to get a sneak peek into its 2018 performance would do well to monitor its U.K. success.

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TAGS: Investing | Global Equity | Consumer Staples | Stocks

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