CNN/Money  

Our Terms of Service and Privacy Policy have changed.

By continuing to use this site, you are agreeing to the new Privacy Policy and Terms of Service.

graphic
Commentary > The Bottom Line
graphic
McDonald's: Back to basics?
The fast-food giant may go back to burgers and fries -- why didn't it think of that before?
March 28, 2003: 2:58 PM EST
By Adam Lashinsky, CNN/Money Contributing Columnist

Sign up for The Bottom Line e-mail newsletter

NAPLES, Fla. - First came word that Sears Roebuck was considering slimming itself down to be simply a retailer. Now arrives the suggestion that another tarnished corporate American icon, McDonald's, plans to get back to what it does best, selling hamburgers.

Before you know it there'll be a full-on trend in U.S. business: big companies doing what they do best and only what they do best.

Just maybe, after so much silliness in the last half of the 1990s that we now know extended far beyond Silicon Valley, common sense is at last taking hold in the executive suite.

As discussed here earlier in the week, Sears will try to sell its credit-card operation, a good idea, but one that calls into question the value of its rags-to-washing-machines business.

Back to the Golden Arches

The new CEO of McDonald's -- an un-retired company veteran -- seems to have gotten the back-to-basics bug himself. He's reportedly exploring selling the billion-dollar Partner Brands unit, which includes Boston Market, Chipotle Mexican Grill and Donatos Pizzeria.

The potential sale was reported earlier in the week in TheDeal.com, a financial news Web site, and reported in major newspapers on Friday. As of mid-day Friday, McDonald's wouldn't confirm the potential of a sale.

"It is inappropriate to discuss rumors and speculation about our business. As it relates to the Partner Brands, we have confidence in them and are always looking for ways to maximize their potential," said Anna Rozenich, McDonald's spokesperson.

Recently by Adam Lashinsky
graphic
The new Sears
NYSE: Who's minding the store?
Take your profits

The statistics of McDonald's are staggering. Partner Brands has revenues of about $1 billion, but loses a few tens of million of dollars a year. McDonald's itself is no better off. But CEO Jim Cantalupo seems to think the company can begin growing again once he pares back by about 600 the 30,025 restaurants McDonald's currently operates.

The cyclical nature of this is as frustrating as it is predictable. It was painfully obvious by the 1990s that you couldn't stumble down an American street -- or a Japanese one, for that matter -- without bumping into three McDonald's restaurants. There were too many of them.

Hence the need, under Cantalupo's predecessor, to diversify. But diversification only works if the existing businesses are sound. And McDonald's just got too oversaturated -- not to mention too unappetizing.

The conundrum here is the urge of public companies always to grow. If McDonald's had been private, might not slow, steady expansion producing healthy annual profits been good enough?

Instead, the company chased growth and invested its shareholders' money in diversification ideas that simply haven't worked. Now, with the stock trading at mid-1990s levels, it's highly likely it'll be a good opportunity for investors sooner rather than later. Growth will be possible again, in other words, after McDonald's knocks down some of the shoddy constructions it built.

The headline Friday in the New York Times perfectly summed up where the company that practically created fast food is heading: "McDonald's Said to Weigh An Arches-Only Strategy." Looking back, wasn't being the Golden Arches good enough all along?

A bullish indicator for another national pastime

I have it on very good authority that one of the toughest tickets in Southwest Florida of late has been a seat for a spring training game for Major League Baseball.

The Boston Red Sox and the Minnesota Twins have just wrapped up pre-season in these warm but rainy climes and have headed home to prepare for the real thing. Folks came in droves to see the boys of summer work out the spring kinks.

Conclusions: One, in tough times Midwesterners and New Englanders will make the drive to Florida -- so much the better if they can see Mom and Dad or Grandma and Grandpa -- before they'll fly off to fancier places. Two, with war on the tube, we need diversions even more than usual. Baseball's a good start.

Have a nice weekend.


Adam Lashinsky is a senior writer for Fortune magazine. Send e-mail to Adam at lashinskysbottomline@yahoo.com.

Sign up to receive The Bottom Line by e-mail.  Top of page




  More on COMMENTARY
Yes Virginia, there is a Santa Claus rally
Thanks for nothing, Corporate America
It's not just the economy, stupid
  TODAY'S TOP STORIES
Laptops could be banned from checked bags
Millions of Americans are left out of stock boom
Skechers stock soars as sneaker sales surge




graphic graphic