Thursday, July 04, 2013

McDonald's And Burger King In The Land Of The Free

I rarely patronize fast food chains because I dislike lowest-common denominator products.  Today is Independence Day and I have no backyard grill, so I felt like sampling the burnt beef offerings of the most widely available grills in our country.  That would be McDonald's (MCD) and Burger King (BKW).

The silliness of fast food as a lifestyle choice astounds me.  Chains are perpetually tweaking their menus to bring watered-down flair to customers whose taste buds have never ventured more than a few blocks from home.  The breakfast offerings at McDonald's now include white cheddar and egg whites on the McMuffin.  I tasted zero difference between that version and the normal McMuffin but many Americans aren't known for their taste anyway, so I don't expect the typical McDonald's customer to care.  "Mickey Dee's" also has smoothies for those who pretend to be concerned with their health and chilled coffees for those who pretend to be European sophisticates.

Burger King takes the fast food carnival to another level.  Their summer sandwich specials have cute Southern names.  The brightly lit picture menus are now on HDTV panels.  The drink dispenser is pure genius, with a touch-sensitive LED screen where you can mix and match about two dozen different combos of heavily sugared sodas and lemonades.  Man, that self-serve fountain is sugar heaven for every obese American.

I think these menus and eating arrangements are funny.  San Francisco has spoiled me with a plethora of fine dining establishments.  Dipping into the trough of fast food on rare days is enough to remind me of what I'm not missing by eating healthy.  Comparing the hilarity of the menus and dining concepts of America's most well-known lowbrow eateries is very subjective.  Let's compare their fundamentals instead, with all glory to Yahoo Finance.

Market cap:  $100.6B
P/E:  18.61
Profit Margin:  19.79%
ROE:  36.59%

Market cap:  $6.84B
P/E:  50
Profit Margin:  8.07%
ROE:  12.07%

Mickey Dee's is more than twice as profitable as the King and the market cap reflects this success.  The Golden Arches are absolutely blowing out same-store sales records this year.  Meanwhile, Burger King tries hard to catch up.  Casting the King as a growth story would be a sad take on that incredibly high P/E ratio.  Burger King has always been an also-ran in the fast food sector and their management knows it.  The company has had several ownership changes over the years thanks to private equity shops who thought they could make it more competitive.  Nice try.  I've always wondered why Burger King has consistently fumbled its non-US franchising strategy.  Burger King penetrated the Australian market with Hungry Jack's but lost control of the master franchise agreement in court.  

People who love fast food have forgotten how to love themselves.  Ronald Mc-Gall-Dang-Donald is the high priest of faux self-actualization for the masses all over the world.  He reigns supreme because the cheap thrill of salt, sugar, and fat appeal to our evolutionary biological preference for energy.  We have not evolved beyond our basest desires.  America leads the way in obesity because people in the land of the free are still free to eat themselves to death.

Full disclosure:  No position in either MCD or BKW.