McDonald’s Business Model Ten Times Better than Hardee’s?

McDonald’s Business Model Ten Times Better than Hardee’s?


In late February, THL Partners agreed to take CKE Restaurants (CKR) private in a transaction worth $694 million. CKE operates both Hardees and Carl’s Jr Restaurants. As you can see from the chart below, CKE operates about 3100 locations whereas McDonalds (MCD) operates nearly 32,000.

My first impression of the CKE deal was, “Wow, that doesn’t seem like much.” So I ran the math. Effectively, CKE was paid $478,799 per location. I wondered how this compared to McDonalds? McDonalds has around 32,000 total locations and a market capitalization of $75.8 billion. This equates to nearly $5.9 million per location. Please note that some liberties and assumptions were needed to make an apples-to-apples comparison. You can see these assumptions in the chart below.

    Note
Hardees Company Stores                            416    
Hardees Franchised Stores                            779    
Carl's Jr Company Stores                            482    
Carl's Jr Franchised Stores                          1426    
Total Company Stores                            898   29% of total stores
Total Franchised Stores     '                     2205    
       
       
CKE Restaurants Selling Price  $              693,900,000    
# Stores *                           1449   formula = franchised location = 25% value of company store
Value per store  $                    478,882    
       
McDonalds Market Value 2008  $         75,800,000,000    
# Franchise Stores                         25,465    
# company stores                           6,502   20% of total stores
# stores *                   12,868   formula = franchised location = 25% value of company store
Value per store  $                 5,890,467    

 

What is interesting in this comparison is that McDonald’s business model and Hardees’ business model are very similar. They both serve hamburger-hungry consumers. They market differently and price differently, however, they have very similar menus and covet the same 20-something male customer.

business model- McDonalds

So how can McDonald’s business model yield ten times the value? Here are some key differences in their models:

An entire book could be written why McDonald’s business model is better than Carl’s Jr’s business model. However, the message of this posting is to illustrate how two very similar businesses and business models can yield very different financial results for their owners. Let’s hope that the new CKE owners can innovate the business model to create a market value closer to McDonald’s.

Notes:

* Due to franchise revenue accounting differences an assumption had to be made as to the value of a franchised location vs. a company location.  For our computation, a  franchised location was valued at 25% of a company location.

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