Mcdonald’s Case Study Analysis

Shareholders’ returns

Records of the Earning per share have not been impressive. Although, the EPS rose from $5.41 in 2012 to $5.59 in 2013, it fell remarkable to as low as $4.85 in 2014.

 

Nigerian Economy

Nigeria is the 26^th biggest economy in the world, with a GDP of over $500bn. Nigeria recently rebased its GDP after 24 years, and debt to GDP shrank to 11% from 19% after rebasing. Global crude oil prices declined  further in July to $56.50pb From an average of  $63.75pb in June. This has continued to impact negatively on government revenue, external reserves and economic growth. The microeconomic challenges caused some companies to lay off staff, thereby leading to higher unemployment rate of 8.2% in Q2’ 15 from  7.5% in Q’15. On the brighter side, there was an improvement in power supply as output for july reached a new peak of 4,500 mw due to reduced vandalism of gas pipelines. Security issues persist in Nigeria, in the form of Boko Haram. They are prevalent in the north east of Nigeria and pose a major threat to investments and earnings of companies.

Several regulatory headwinds continue to impact the earnings of the financial sector. The following are some of the regulatory headwinds

1. CRR hike in public and private sector funds from 12% to 75% and 20% respectively.
2. Restrictions on dividend pay out by the CBN
3. Increase in interest rate payable on saving account to 30% of the MPR now at 13%.
4. Rules around regularly capital requirements and FX exposure
5. Gradual phase out of COT charges
6. Banks will have to come to the capital market to raise capital in order to enable then meet up with the Base ii and iii capital requirements; adoption commenced in October 2014.

 

Non financial sector

1. Insurgency activities in the north east continues to threaten earnings of the non-financial sectors in terms of raw material requirements and displacement of major distribution units
2. A fall in consumer disposable income since the last reduction in petrol subsidy
3. Exposure of fx risk in terms of loan and raw material importation. This is heightened by the recent devaluation.
4. Power tariff hike and its impact on earnings
5. Higher interest rate charges on facilities as a result of the hike in Mpr from 12% to 13%

 

Fast food industry

According to the association of fast food and confectioners of Nigeria (AFFCON ), the Nigerian fast food industry is healthy and currently worth about #250 billion with the potential to grow bigger. The industry is most loved in terms of employment, it is considered highly labor intensive, and it was identified as the leading overall employer of labor in Nigeria.

They are new entrants arising daily in the Nigerian fast food industry; be it local or international. Some of the local or indigenous quick service restaurants are Tantalizers, Mr Biggs, chicken lover, chicken republic, sweet sensation, Mama Cass, Chicken licking , captain cook, chicken spices and more. They provide a variety of Africana and continental cuisines to teeming customers. The presence of international brands such as Nandos, domino’s Pizzas, steers, and KFC is also felt in the industry.

Some big established outlets now offer opportunities for willing individual investors and entrepreneurs to own and operate fast food businesses with their brand names. Through these arrangements, it is planned that more restaurants will be opened in due time to meet the ever yearning desires of Nigerians for an ideal fast food industry in the country. The informal eating out seems prevalent in the Nigerian fast food industry, but also the formal fast food industry is very much in operation.

Mr Biggs is considered as the largest operator of fast food in Nigeria, with over 200 outlets  including its franchised stores located In about 48 cities in all the states of  the federation. Mr Biggs also operates outside Nigeria with outlets in Kumasi and Accra, which are both in Ghana. The popular Mr bigg’s brand emerged in August 1986 as a result of intense consumer research aimed at launching an ideal quick service restaurant in Nigeria.

Tantalizers, established by an indigenous entrepreneur, is another leading fast food chain in Nigeria. Its first outlet located in Festac town Lagos was first opened to customers on may 1, 1997. Tantalizers has about 50 outlets nationwide with about 21 locations in Lagos metropolis alone. Of recent, franchise agreements have been made to establish more outlets across the country.

Tasty fried chicken is also a big player, established in 1996, TFC was established with the aim of offering Nigerians a world class fast food service modeled after the Kentucky fried chicken. Chicken republic, a subsidiary of food concepts is another major player in the food industry in Nigeria. It was launched in 2005 and it now has a growing number of outlets in Nigeria.