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McDonald’s added U.S. restaurants last year for the first time since 2014

admin by admin
January 31, 2023
in Restaurants & Services


McDonald’s wants to build more new restaurants after adding locations last year in the U.S. for the first time since 2014. / Photo courtesy of McDonald’s.

McDonald’s did something it hadn’t done for eight years in 2022: Add new locations in its biggest market.

The Chicago-based burger giant finished the year with 13,444 restaurants in the U.S., or six more than it had at the end of 2021. The company hadn’t done that since 2014.

And now the company has plans for more. McDonald’s executives reiterated on Tuesday that they are intent on building new locations both in the U.S. and globally, saying the brand’s performance in recent years gives it permission to do so.

“Our strong comp and brand performance has given us the right to build new units at a faster rate than we have historically,” CEO Chris Kempczinski told investors.

McDonald’s in the early 2000s slowed unit growth to focus on building sales per location, keeping new unit development to less than 1% per year.

When sales started to struggle in 2012, the company opted to go in the other direction. The brand peaked at 14,350 locations in the U.S. in 2014 and then it began closing restaurants. McDonald’s closed more than 900 locations between that year and the end of 2021, when it had 13,438 restaurants.

Franchisees instead spent their money remodeling locations and acquiring stores from McDonald’s. The company has been selling stores to franchisees and operates just more than 800 fewer locations than it did in 2014. That number would be higher but for McDonald’s acquisition of one of its largest franchisees last year.

In the meantime, the company has closed restaurants in areas that don’t fit with its model any longer, a strategy that it accelerated during the pandemic. McDonald’s closed more than 400 locations between 2019 and 2021. Many of them were in places such as Walmart, which the burger chain has largely abandoned to concentrate on more traditional drive-thru locations.

By closing weak locations and focusing on remodels, McDonald’s has built unit economics. The company has recorded only two negative quarters—one of which was during the worst of the pandemic—since the second half of 2015. A typical McDonald’s restaurant makes about $1 million more in revenue annually than it did in 2016.

“We haven’t added new units in the U.S. in eight years,” CFO Ian Borden told investors. “So we’ve had eight years in which we’ve been largely focused on a remodel program. Our U.S. business is in significantly better shape today than it was back then.”

And with the company not building new locations, existing restaurants are more valuable than ever. McDonald’s restaurants were some of the most valuable on the secondary market, selling for as much as 10 times EBITDA (or earnings before interest, taxes, depreciation and amortization) despite a high number of available locations.

As such, the company believes that it can, and perhaps should, focus on new unit growth. The brand gave something of a preview of what it might be thinking last year when it opened a mostly automated, takeout restaurant in Texas. Yet executives said they were analyzing what kind of locations the system should build and where.

“We want to take some time this year to make sure we feel confident about the exact number, the pacing, the quality of the site, so that when we do roll that out we’ve got the ability to drive both comp sales as well as unit growth,” Kempczinski said.

That’s not an insignificant concern. McDonald’s strength in recent years has come at least in part because it hasn’t been aggressively growing units. By reducing the supply of locations around the country, the burger chain has spread more sales to a smaller number of locations. Building more restaurants could endanger some unit volumes by increasing the supply of locations.

Kempczinski is cognizant of those concerns and said there needs to be a balance. “We have to walk and chew gum,” he said. “It’s not one or the other. It’s the two of them in combination.

“You want to be growing units when you’ve got strong comp sales because that reflects the underlying health of the business. I’m always very leery when I see someone out there putting a strong unit-growth number without strong underlying comp sales because that’s historically not been a good recipe in our industry.”

So, get ready for more McDonald’s restaurants in the coming years.

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