Skeptics Unsure McDonald's Can Attain Sales-Doubling

2 min read
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Oak Brook, Illinois-McDonald's Corp. is ordering up super-sized sales at its U.S. restaurants, where better food and emerging technologies, even a new 401(k) retirement plan to spur more full-time hourly employment, would help double sales this decade.

But analysts and chain insiders are skeptical about whether the company's 10-year plan for growth is realistic.

By 2010, McDonald's intends to double domestic systemwide sales and triple cash flow, according to Alan Feldman, president of McDonald's USA.

"The key to our future vision is implementing category-changing innovations, as we have done at other times in our history," said Feldman, who made public details of an internal "blueprint for growth" at a recent investors' conference. "So we are pushing the boundaries of our business to find menu of service initiatives that will ignite top- and bottom-line sales."

McDonald's goal, Feldman said, "is to double our business, not by doubling the number of restaurants, but rather by significantly increasing average unit volumes at existing restaurants."

Wall Street viewed the new growth plan with marked skepticism. "I think that's a formidable goal for McDonald's or any mature restaurant company," said Damon Brundage, a food-service analyst with Raymond, James & Associates in New York.

In order for McDonald's to reach those goals, the company's new brands-particularly Boston Market, Chipotle Mexican Grill or Donatos Pizza-would have to play a much bigger role in the growth picture extended five years out and beyond, Brundage said.

Dick Adams, president of Consortium Members Inc., a group representing about 350 McDonald's franchisees, said the company's sales over the past 10 years have not come close to doubling. He pointed out that domestic average unit volumes have grown from more than $1.4 million in 1990 to a little more than $1.5 million in 2000.

"And that was during the 10 years when there was still room to build new restaurants," Adams said. "Now that they've overbuilt the U.S. system, they're going to double sales in the next 10 years? I don't think so."

Adams said he believed McDonald's will triple franchisee cash flow, not by driving individual restaurant profitability, but by doubling the average number of stores per operator from four to eight.

"They will have to get to that ratio by reducing the number of domestic franchisees," he said. "The higher ratio means the more cash per operating entity." -Nation's Restaurant News

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