4 ms·

Well, without knowing how the Corp is setup, that’s a bad example as this could easily exist: an international company can very easily be paying for high wages

Well, without knowing how the Corp is setup, that’s a bad example as this could easily exist: an international company can very easily be paying for high wages in one nation (ie loss leading) by low wages in another. Or staying profitable and with open doors. And so on. Unless you’ve done an FSA class and you can explain me your thinking more, it’s worth appreciating there are a ton of levers that impact Corp finance. Same way you have performance trade offs for one algo vs the other.

kjksf 6y ago
It makes zero sense for McDonalds (or Starbucks or anyone else) to operate a money loosing restaurant. Furthermore, 82% of McDonald restaurants are franchises i.e. not owned by McDonald. https://www.fool.com/investing/general/2016/04/03/what-percentage-of-mcdonalds-restaurants-are-owned.aspx#:~:text=All%20told%2C%20a%20full%2082,for%20the%20company%20to%20run https://www.fool.com/investing/general/2016/04/03/what-perce...
- dogman144 6y ago
  The franchise part is interesting, although McD’s owning them or not doesn’t matter as the cash flow is what’s relevant. In this case I wonder what the terms are for franchise owners in EU vs USA and if they account for higher wage laws. There are a number of reasons corporate entities operate certain or many stores at a loss. Very well known example is flagship locations that are locally at a loss, but earn for the brand on other ways. Example being Times Square NYC locations. This still makes sense at a franchise model, but less likely I bet. EU isn’t a flag ship obviously, but I also didn’t say loss. Loss leading is similar, but not a perfect analogy (sure). My earlier example still holds, even with franchisees per the term, but you should expand your bad event set to loss or low profits. On the net, being in Europe is worth it despite higher operating costs, but maybe USA operating costs need to be lower as a result. I mean this all to say, there are so many factors involved such that it’s a false premise argument without controlling for intra-market differences.
  - shkkmo 6y ago
    Are you seriously arguing that yhe entire EU McDonald's market is operating at a loss? That makes zero sense. Clearly it is possible to operate McDonald's in the EU and not burn money. Thus clearly there is a fast food business model that involves paying higher wages. Does this mean that every fast food store will remain profitable with the same hours? Probably not, but it does clearly mean that some fast food stores would be able to stay open and profitable.
    - dogman144 6y ago
      No I said loss leading probably wasn’t a good analogy. Did you not read that? However, McD EU could be less profitable, McD picks up the slack. This is fairly straightforward financial accounting. Which is all to say: without discussing this from knowledge of a form 10k or similar details is a very weak argument approach.
      - shkkmo 6y ago
        Then your whole point is pointless, the OP granted the possibility of McD EU being less profitable in their original post.
        dogman144 6y ago
        Yes, and then OP said this which is why I responded: “ That implies that the model is (in principle) just alright” It implies any number of things, but not that if the model works in EU it can also coexist with the same model in the US. The scenario I said is an easy and fairly common example of why they could not coexist. Without breaking out a form 10k and a fair bit of financial statement analysis, it’s somewhat like saying that “well I get 1GB internet in NYC, it implies the model for fast internet works so we could do it in Montana tomorrow.” To the extent that it’s important to know and discuss the actual factors involved such that the MBAs doing these decisions at McD will take you seriously, that implication is seriously flawed. Hence, why this hasn’t changed since Milton Friedman and the 80s. Ever wonder why that is? It’s because arguments made without any Corp fin awareness don’t work with the audiences with the power to change it.
deleted 6y ago
[deleted]
TheRealSteel 6y ago
If their entire European, Australian and New Zealand operations weren't profitable, why would they run them at all? They wouldn't use American profits to support them, they'd shut them down.
- dogman144 6y ago
  Mm does this make sense: Profitable is a spectrum, end of the day it all reports back through McD USA. ebtida in EU might be a bit lower than ideal because of laws changing over time. So, to make numbers, they can juice things in USA.
  - atoav 6y ago
    You are aware that when you say "they can juice things in USA", "things" stands for people?
    - dogman144 6y ago
      You are aware that you can either use soft language, or discuss in the terms that are actually used, right? What’s more important: sensitivities or understanding how the decisions actually work so you’re in the mix to change things with the audience to change it? They can wait out ethics based arguments for decades, and they do. The moment a community activist actually starts calling corps out on their sh*t from the perspective that’s actually used to build these policies, then the corps lose their main advantage which is ignoring calls to ethics like this which don’t work as they’re not at all related to the MBA’s incentive structure who makes that decision.

kjksf 6y ago

It makes zero sense for McDonalds (or Starbucks or anyone else) to operate a money loosing restaurant. Furthermore, 82% of McDonald restaurants are franchises i.e. not owned by McDonald. https://www.fool.com/investing/general/2016/04/03/what-percentage-of-mcdonalds-restaurants-are-owned.aspx#:~:text=All%20told%2C%20a%20full%2082,for%20the%20company%20to%20run https://www.fool.com/investing/general/2016/04/03/what-perce...

dogman144 6y ago
The franchise part is interesting, although McD’s owning them or not doesn’t matter as the cash flow is what’s relevant. In this case I wonder what the terms are for franchise owners in EU vs USA and if they account for higher wage laws. There are a number of reasons corporate entities operate certain or many stores at a loss. Very well known example is flagship locations that are locally at a loss, but earn for the brand on other ways. Example being Times Square NYC locations. This still makes sense at a franchise model, but less likely I bet. EU isn’t a flag ship obviously, but I also didn’t say loss. Loss leading is similar, but not a perfect analogy (sure). My earlier example still holds, even with franchisees per the term, but you should expand your bad event set to loss or low profits. On the net, being in Europe is worth it despite higher operating costs, but maybe USA operating costs need to be lower as a result. I mean this all to say, there are so many factors involved such that it’s a false premise argument without controlling for intra-market differences.
- shkkmo 6y ago
  Are you seriously arguing that yhe entire EU McDonald's market is operating at a loss? That makes zero sense. Clearly it is possible to operate McDonald's in the EU and not burn money. Thus clearly there is a fast food business model that involves paying higher wages. Does this mean that every fast food store will remain profitable with the same hours? Probably not, but it does clearly mean that some fast food stores would be able to stay open and profitable.
  - dogman144 6y ago
    No I said loss leading probably wasn’t a good analogy. Did you not read that? However, McD EU could be less profitable, McD picks up the slack. This is fairly straightforward financial accounting. Which is all to say: without discussing this from knowledge of a form 10k or similar details is a very weak argument approach.
    - shkkmo 6y ago
      Then your whole point is pointless, the OP granted the possibility of McD EU being less profitable in their original post.
      - dogman144 6y ago
        Yes, and then OP said this which is why I responded: “ That implies that the model is (in principle) just alright” It implies any number of things, but not that if the model works in EU it can also coexist with the same model in the US. The scenario I said is an easy and fairly common example of why they could not coexist. Without breaking out a form 10k and a fair bit of financial statement analysis, it’s somewhat like saying that “well I get 1GB internet in NYC, it implies the model for fast internet works so we could do it in Montana tomorrow.” To the extent that it’s important to know and discuss the actual factors involved such that the MBAs doing these decisions at McD will take you seriously, that implication is seriously flawed. Hence, why this hasn’t changed since Milton Friedman and the 80s. Ever wonder why that is? It’s because arguments made without any Corp fin awareness don’t work with the audiences with the power to change it.

deleted 6y ago

[deleted]

TheRealSteel 6y ago

If their entire European, Australian and New Zealand operations weren't profitable, why would they run them at all? They wouldn't use American profits to support them, they'd shut them down.

dogman144 6y ago
Mm does this make sense: Profitable is a spectrum, end of the day it all reports back through McD USA. ebtida in EU might be a bit lower than ideal because of laws changing over time. So, to make numbers, they can juice things in USA.
- atoav 6y ago
  You are aware that when you say "they can juice things in USA", "things" stands for people?
  - dogman144 6y ago
    You are aware that you can either use soft language, or discuss in the terms that are actually used, right? What’s more important: sensitivities or understanding how the decisions actually work so you’re in the mix to change things with the audience to change it? They can wait out ethics based arguments for decades, and they do. The moment a community activist actually starts calling corps out on their sh*t from the perspective that’s actually used to build these policies, then the corps lose their main advantage which is ignoring calls to ethics like this which don’t work as they’re not at all related to the MBA’s incentive structure who makes that decision.