$MCD · The Intrinsic Value Podcast · 2026-11-08

McDonald's might be the best known brand in the world and it's the world's largest fast food franchise and trading at multi-year lows. Almost never get the opportunity to buy McDonald's shares at a discount and and Buffett once owned 4% of McDonald's and and called selling it one of his biggest mistakes.

Well, today we will find out whether the market is finally giving us a chance to make up for that mistake and make it part of our portfolio. I looked back at all the episodes we did covering stocks and I did notice that we've never covered a restaurant before.

We we've done airlines, e-commerce, banks, luxury software, data centers, apps, and a whole bunch of other types of businesses, but not a single restaurant.

But really, it's a moot point since uh you don't tip anyways at McDonald's. Well, maybe that's why McDonald's has more than 70 million daily customers globally.

And it's really an incredible number if you think about it, but McDonald's is the most recognizable brand really in the world. So, it's not too much of a surprise. I don't know in which country you would need to be to ask them whether they know McDonald's, and they would say no. Um, I feel like wherever you go in the world, everybody knows McDonald's, and most people you talk to actually have visited one.

One of those 70 million daily customers and perhaps one of the most loyal ones is a, you know, person we all know, Warren Buffett.

He's pretty famous for his McDonald's visits. I know there's this video, you know, where he shows his daily life and the first stop is in the morning at McDonald's. And he also invested in the stock back then in 1996.

He actually owned more than 4% of the company. And that was worth about $1.4 billion. And he ended up selling a stake though. and he called that decision later a very big mistake just a couple of years later actually when he wrote one of his letters and McDonald's performed quite well.

So he looked back at it and he definitely owned some companies like Coca-Cola for example who are at least in a similar business and he sort of you know thought it was a mistake to sell it and that investment would have been worth about 10 times more today than what he paid and that wouldn't even include all the dividends that he would have been paid and we all know he's quite big on those dividend stocks and nevertheless he had some concerns about the business model and that he basically didn't see the same concerns with his other investments like Coca-Cola which made him kind of famous today and um actually I saw a video where he and Charlie argued why they saw their position.

A great many of the decisions on fast food as to where you eat is simply based on which one you see. I mean convenience is a huge factor. So if you are going by a McDonald's or a Burger King or a Wendy's uh and you happen to be hungry at that point or if you're traveling on the road and you see one of those signs up, you're probably going to stop at the you may very well stop at the one you see.

Uh, so there's there is not the there's a loyalty factor, but but it's it's just not going to be the the same in food. People want to vary their I don't I mean, I'm happy to eat every day, but but most people want to vary what where they where they eat as they as they uh uh go through the uh the week or the the month or the year.

And and they don't really have any great desire to vary their their soft drink the same way. It's just that it's not the it's not the same thing. So, it's no knock on McDonald's at all.

It's just the nature of the of the kind of kind of industry they're in.

Charlie, I can't think of anybody else who before McDonald's ever did what McDonald's did to create a chain of restaurants on such a scale uh that that that worked.

but the it is a much tougher business that McDonald's is in. >> It's price sensitive, too. There's actually another investor that we know quite well who has a history of McDonald's, too, and that's Bill Aman.

He took a 5% stake in McDonald's about 20 years ago, and his thesis back then was that something like 90% of McDonald's economic earnings came from its land and and its franchising.

And actually the real estate alone was worth more than the entire market capitalization of the company at the time. So his idea uh that he proposed was to spin off most of the company owned restaurants and then borrow against the real estate to to buy back more stock.

And back then McDonald's didn't want to do that. So Aman eventually sold his state just like Buffett did. Then if you look at what McDonald's did in the past two decades, it's more or less exactly what Bill Aman wanted the company to do.

But that's not what the company was supposed to do when it started. So maybe we just talk a bit about the history of the business which is definitely interesting. So there was a time obviously when it was just about selling burgers at McDonald's and the company was founded by two brothers in San Bernardino which is in California and that was about 85 years ago.

So the names of those two brothers were Richard and Maurice McDonald. So that kind of answers the questions of you know why McDonald's is called McDonald's. And for the first 8 years it was more or less a normal drive-in with car hops and a big menu.

And by the way, for all the people who don't know what cars are, because I didn't know before I researched it, it's basically if you just drive in your car to a parking lot and then you would get the service in your car.

So you also eat in your car. So it's not the same as a drive-thru, which is what I thought when I first looked at it. But in 1948, they sort of revolutionized that model. So they revolutionize how fast food works.

And you basically move from these car hops to what we know today, basically, you know, a century later. So they closed for a few months. They cut the menu down to nine items. I know that we at TAP we often talk about simplicity.

So that's what they did. They had a huge menu before and then they cut it down to just nine items and they got rid as I said of the co-ops and they basically rebuilt the kitchen as an assembly line. So they called it the speedy service system.

But, you know, for McDonald's, the most important thing is that the business model survived. So, you have this limited menu and fast food delivery. So, you know, you can pick it up more or less immediately and then maybe just like do you do eat it in the car afterwards, but you can also take it home for example.

And I actually want to ask you another question, which is take a guess how much a hamburger cost back then when McDonald's was first founded. That's a pretty good guess. It's actually 15 cents.

So slightly less, but still I would say pretty good guess. And I got to say, when I saw those inflation rates, I thought that's a pretty good reminder to be invested in the market and not just have your money sit in any bank account.

I mean, 15 cents compared to what, you know, a burger nowadays costs. And I think it's about $4 if you just think about a hamburger, probably more if you would, for example, buy a Big Mac.

Um, anyway though, this model worked so well that they started selling a few franchises in California and then also later in Arizona. But the two brothers were at least not that interested in making it a larger thing.

So they themselves wouldn't have been the reason why now everybody in the world knows McDonald's. There was a guy though who was very interested in making it a bigger thing.

Oh yeah, that was uh Ray Croc. And as you know from your trip to the US a few months back, Daniel, I love milkshakes. And Croc was a salesman for milkshake machines. So I think in another life that's a job I I would have had.

And actually McDonald's ordered some of his machines and he was basically wondering why one hamburger shop would need eight of his machines. So he actually went out to San Bernardino and and visited the shops.

And when he saw the lines of people in front of the store, he realized how they ran the kitchen really more like a factory than a restaurant. Uh he saw the potential for how this could be much bigger than a handful of stores.

And so he made a deal with him. Croc would get the right to franchise McDonald's nationally. the franchises would pay 1.9% of sales and then out of that 1.9% about a half a percent would go back to the brothers.

And so in 1955 Croc opened his first restaurant in Illinois and he paid a franchise fee of just $950. And that sounds very cheap, but for perspective, that would be about $12,000 in today's money, which is still not that bad because today I Googled that the initial fee for a McDonald's franchise is about $45,000.

And if you combine all the costs that go into, you know, building it and so forth, you would actually spend between $1.5 and $3 million to open up a new McDonald's. So, obviously, it depends on where you want to build it, right?

And those additional costs are also why the deal for Croc back then was pretty terrible. He sold 18 franchises in total in his first year, and he could barely even cover his expenses.

So, he was basically paying for things like, you know, field consultants, employee training, and then site selection. And he was getting 1.4% 4% of sales for it, which even if you think about it, doesn't sound like a lot of money.

He solved that problem though by turning McDonald's into the massive real estate company that we know and basically discuss today. And he did that by meeting a man who was called Harry Sunburn.

And Sunburn had been the finance VP at Tasty Freeze. I personally don't know it. It's never been in Germany. I don't know if it's, you know, a name to you. Apparently, it still exists.

And it was basically an ice cream and burger chain company. And in 1956, he joined Croc as basically the CFO of the company and then later the president. And Sunborn had the idea not only to focus on making money on the hamburgers, but instead on the land and the stores and then franchise them out.

So McDonald's would find a site, then they would buy it or at least take a long-term lease on it and then they would subleasase it to the franchisee with a markup of about 20 to 40%.

And the rent was basically set as the greater of a fixed minimum or a percentage of sales.

Well, I've definitely seen uh I don't know if there's any Tasty Freezes open, but I've definitely seen the remnants of uh sort of like how you see uh you drive past some places and you can see where there was a Blockbuster sign hanging up.

Uh and it's like sort of like the dirt around the lettering has been like engraved into into the siding. Um I' I've definitely seen some artifacts of of Tasty Freeze. But uh anyways, when there was really an economic downturn or a bad month, I think what's interesting about this model is that he made sure he was paid through this fixed minimum.

And then in the good times, he had some exposure to the upside, right? When the restaurant did well, he he would benefit more from this percentage split that he has that scales with the restaurant's success.

It's a way better model than the one he had running or going for him before.

And basically, there are three major advantages to that model. So, first it obviously gave the company a second revenue stream that was much more reliable than the royalty. And then second, it also gave them control back because if you're a franchisee who isn't running the store well, which is quite important for your reputation if you have so many stores, you all need them to run pretty well.

Well, then at this point, you're not a ly anymore, but you're actually a tenant. And as we all know, a tenant can be evicted. And then the third advantage is, and probably this is the most interesting one, it also made the company bankable because if you want to buy new stores, you'll need a lot of money and probably also credit.

So Sunborn went to banks and insurance companies for that matter and essentially told them, look, we are not in the restaurant business anymore. We're now a real estate company.

And if you were in the 50s, and that's probably still true today, the restaurant industry is seen as a place where, you know, probably money goes to die. It's not easy to get credit because often times those places go broke at some point, but real estate can get your loan much more easily.

So that was the money that they used to, you know, fund the expansion of the business, especially buying new property.

And I also got to say that the insurance companies that loaned them money made a pretty incredible deal too. When I looked at the details, I think they gave them a loan of about $1.5 million at an interest rate of 7% which back then was quite normal.

And to be completely honest, we kind of getting there again. But they also received 22.5% of the equity in that company.

If anything, a 7% interest rate to sort of a an upstart uh franchise business model, that that sounds like a a pretty good pretty good rate. But I guess they had to hand over 22 and a half% of the equity to to get that.

And of course that 22.5% would be worth tens of billions of dollars today even after accounting for dilution over time. So yeah, that's a pretty good return on uh $1.5 million.

But I've actually heard that Croc really wasn't the type of guy that you would want to do business with, at least not from a a personal standpoint. I mean, he was clearly a very good businessman, um, but maybe not so much of a a great partner.

And so he eventually decided that he wanted to own all of McDonald's and buy out the founder brothers. And I think you mentioned they wanted something like $2.7 million. And that was a pretty major investment back then.

And Croc wasn't happy about the price tag, but he did end up paying it. He did, but at that point he didn't yet actually own all of the McDonald's franchise, you know, stores because there was one left that the McDonald's brothers, it was actually the the original one in San Bernardino.

They promised to their employees. So they obviously couldn't name it McDonald's anymore because they sold that name to Croc. So they just called it the Big M. But even that was, you know, not enough for Croc.

He wanted that store to be closed. So what he did is he opened a McDonald's store close by and then basically over time bankrupted the Big M. So he later said in an interview about this, I needed the McDonald name and those golden arches.

So what are you going to do with a name like Croc?

So, um I even think that if you look back at it, probably McDonald's needed a guy like him to turn this company into, you know, the global empire that it is today because I think it fits the business model much more than this romantic idea of the McDonald's brothers.

I mean, obviously the marketing is probably supposed to be more focused on harmony, family, friendliness, and so forth. At least when I think back about my childhood, that's how McDonald's seemed to me.

And if you want to run a successful fast food chain, that's what you want, right? The marketing is supposed to be, hey, this is healthy food. This is for families. It's cheap. But we all know back there in the kitchen, you have to be very strict about how you do things.

You have to be fast. You have to be efficient. And that's basically what McDonald's did, right? They were precise. They were relentless.

And you know, there was this by Croc actually invented playbook of what he called QSC andV, which stands for quality, service, cleanliness, and value. And probably some of that reputation has not survived after he, you know, gave that business up to the people who followed.

Uh one of the most recent things that comes to mind for me when I think of McDonald's, since I'm not really a particularly active customer, was that viral clip of the CEO where he basically takes a bite into their own burger and it's like very difficult for him. and he looks uncomfortable and so was not the best viral marketing for the company that you could imagine.

Yeah. He also called the burger a quote unquote product, which might be right technically, but it's definitely not what you want to hear someone say about the food that you just ate a couple of hours ago.

I mean, to me, Chris Kamchinsky, who is the McDonald's CEO we just talked about, just seems to be more of a numbers guy and, you know, perhaps not the most authentic person for a video shoot eating a burger because to me it seemed like, and he also said that in an interview later on, he was just way more concerned with, you know, not looking weird while eating and talking.

But, I mean, I don't eat at McDonald's because I believe the food they sell to you is not healthy and that's obviously well documented as well. And I think there definitely is a place for McDonald's to exist.

But still, if the general perception is what you sell is unhealthy and then you as a CEO are sitting there in a video and it feels like you don't want to eat your own food, that's definitely not good.

And so McDonald's has an incentive to lower food quality uh if it means saving more money. And since they serve lower income customers, it's really not a great uh setup for for society because they have this incentive to really worsen the quality of the ingredients and not a lot of incentive to produce higher quality, healthier food for folks.

there is definitely a reason why we pitch McDonald's as a stock today because McDonald's itself, as we alluded to in the beginning, is more of a real estate business than anything else.

So the way this works in detail is that McDonald's operates only about 5% of all its restaurants itself and the other 95% are run by franchises. So McDonald's owns the land under roughly 60% of them most of them in the US and then in nearly 80% of cases McDonald's owns the building too.

So when they don't own the land they basically lease it and then they lease it for markup to the franchisee. In the end, in the vast majority of cases, the franchisee is a McDonald's tenant or has McDonald's as their landlord.

And that is a dramatically better business than just running the low margin restaurants themselves. I mean, if you look at the margins, for example, McDonald's has an operating margin of 46%.

And even that place is only at margins of about 15%. So for the restaurant business that McDonald's runs itself, the revenue is close to $10 billion. And then the costs on there are about $8.5 billion.

So that includes everything from food to labor and those are the biggest parts, but also all the other stuff. So the margin there is also about 15%. So even if you look at the places that they actually operate, they're quite good at being efficient and having high margins compared to other, you know, industry peers.

But obviously the rent and the royalties are about $16.5 billion coming at an 84% margin. So it's a way better and more important business for McDonald's.

And if you add it all up, more than 90% of profits come from franchising. So that's royalties and and then the rent that the franchises basically pay to McDonald's for owning the real estate.

And that's also why you have this generally weird dynamic where the margin for McDonald's goes up basically whenever they sell a restaurant to a franchisee. And so what you more commonly see is that margins go up with scale uh as companies spread their revenues across a fixed cost base or as a restaurant you'll build more stores.

But in this case it's it's different, right? revenue goes down because you're losing out on the sales from the restaurant that you owned entirely, which on average would be about $4 million per year per store, but you then replace it with less capital intensive rent and and royalty payments that come with a higher profit margin.

And at the latest investor day, McDonald's actually said that they want the operating margin to be in the low to mid-50s by 2030. And part of why they want to get there or maybe how they want to get there is just selling more places and then franchising them out which is again a good way as you said to you know increase the margin and it also means that revenue is going down a bit but it's definitely the better trade-off

But we should get more into this question today of of how much McDonald's is impacted by GLP1s and whether it will become a big problem for them. And I think it's particularly interesting given that they technically are really only indirectly dependent on the success of their restaurants.

Right? So, we just talked about the main business of McDonald's, you know, the listed publicly traded company is not actually, you know, selling burgers technically.

we may be moving into a world where we look back sort of in astonishment at the widespread rates of obesity today and we see that as being a thing of the past and that would be great for society but obviously not so great for McDonald's shareholders.

just one quick comment on on your first point because of course McDonald's still needs to ensure that the restaurants and the franchises are popular and you know they make a good amount of money because otherwise they will just close their stores and if they do that they will also stop paying rent and royalties.

So a lot of people you know made this real estate argument and we'll get into the value of it in a minute. So there definitely is a good investment case just based on how much that is worth.

But still in general you need the you know restaurants and you need McDonald's itself to still be a place where people want to go and eat even though you know the the stock or the company behind the stock is not trading on how many burgers are actually being sold.

But again it's interesting if you think about how much the real estate is actually worth for McDonald's right now because it's on the balance sheet with only about $28 billion of value.

So that's basically the value that McDonald's once paid for all of these stores and you know the real estate in general. And much of that land and the buildings were bought decades ago.

So partly in the 1960s and the 1970s. So the real estate is worth a lot more money today than back then. In fact, there are some estimates that are found that are basically saying or at least estimating that the real estate alone could be worth about $120 billion today.

and that's a company that owns its land and and bought much of it at at lower prices uh decades ago. It's definitely similar. I feel like it's copot on steroids because McDonald's not only owns way more real estate, but it's also in the most sought after addresses in the world basically.

You know, whenever you go to, for example, London or New York City, you will see a McDonald's at pretty much the best address that you can think of. And many of those deals, although not all, are owned by them.

So you can imagine just how valuable the real estate of them actually is.

And if you look at their market cap today, it's about $160 billion. So if those estimates are actually accurate, and the entire operating company is at that point only worth $40 billion, and that would be, you know, producing $8 billion in free cash flow in a normal year.

So you would technically, you know, dividing between the real estate business and then also the operating business. talk about five times cash flow for the operating business just because you have $120 billion worth with all the, you know, land and the buildings that they own.

And I know this sounds pretty good and then you're asking, well, if I can buy McDonald's for five times operating earnings, why wouldn't I do that? Well, technically, because I just said that you still need the restaurants to do well, otherwise, you know, the rent goes down, just you don't earn that anymore. And it's the same with the royalties.

So the biggest use of that asset is basically to just lever up against it and then buy back shares or maybe you know pay a dividend basically what black man suggested in you know 2005 so 20 years ago because otherwise if you sell it you just don't have an operating business anymore.

But to get back to your original question about the setup of the leases. So typically what you have is a 20-year franchise agreement which by the way is another reason for where you can't just sell all your buildings because you have tenants in there for at least 20 years if you know the contract just renewed.

And and as we discussed before, the rent is basically a percentage of sales with a fixed minimum. So, you know, it's yet another reason why McDonald's also needs to have the restaurants perform the best they can.

And the percentage basically depends on how much McDonald's invested in the side of the building. So, if you talk about an old building that's fully depreciated, you might talk about 8.5% of sales.

And then for a typical new building, you would talk about 10%. And for an expensive site, we just talked about the one in London or we talked about the one in New York City, you can easily also pay 15% because obviously the earnings potential there is much higher.

And then on top of that, you also pay a royalty that is 4% of sales in the US. And then there's a separate 4% for the national advertising fund.

It sounds uh pretty expensive. And if we go back to the the store economics and say the average McDonald's is doing about $4 million in in revenue per year, then they would pay something around $400,000 in rent, $160,000 in royalties, and then $160,000 would go into the marketing pot, too.

And that's before you account for any of the cost of actually running the place, right? The the food and the labor.

And then at the very top of the best economics you have the franchiser who is also the landlord and really nobody else does that better than McDonald's.

And when there's less demand for fast food and McDonald's in particular, obviously even the superior business model can't save them either. >> So, how are the the franchises doing right now?

And and perhaps I mean you can give an overview of of just McDonald's operating business generally.

Uh I think you mentioned that you don't have a ton of fast food chains uh like we do in the US, but obviously McDonald's is a major thing in in Germany as well. >> McDonald's is everywhere.

That that's true, but we definitely don't have the same selection or variety of fast food chains here in Germany or maybe just food sports in general.

I mean, what's quite remarkable how many food spots you guys have in the US and then even in smaller towns like for example Charlottesville and so many of them as we just talked about when I think we were driving to Chick-fil-A, which is actually a private company, but we talked about how many of those companies that we just see are publicly traded companies.

And when I was in London last week, Kyle actually asked me which German restaurant chain or brand he couldn't know because you know for example they're they're public company or they expand that globally and I actually struggled to name a single one which is uh it's kind of scary but yes again like McDonald's is obviously big in Germany and they generally differentiate between three market categories.

So the first one would be the US which is almost 40% of systemwide sales. So that means you have more than 13 12,000 restaurants and then 95% of those are franchised and McDonald's owns the real estate with most of them as I said especially in the US.

And then the second market is what they call international operated markets which is McDonald's speak for those are the big wealthy countries where McDonald's runs the market itself and then also franchises to local operators and that's Germany, it's the UK, it's France, it's Canada, it's Australia, Italy, Spain and so forth.

So primarily North America and Western Europe and that's 35% of systemwide sales.

And then you have the third bucket which is international developmental license markets and that basically includes you could say everything else. So you have you know China, Japan, Latin America, you have the Middle East, you have India and you know all of those markets.

McDonald's usually doesn't run any of the places. So there might be a master franchise that owns the whole country and then it builds its own restaurants with its own money of course and pays McDonald's a general royalty.

So that might be 26% of systemwide sales and it's about a quarter of all the restaurants of you know McDonald's globally.

Well, >> it's pretty remarkable to to see the difference between the share of systemwide sales and then the revenue that McDonald's actually makes in in those markets. So in the US, McDonald's owns the real estate most of the time.

So systemwide sales and the actual revenue are about even. Europe is responsible for 50% of systemwide sales but only 35% of McDonald's revenue. And then in the third bucket, the the difference is by far the largest.

So I assume that that third bucket, McDonald's, they don't own any real estate and it's just a royalty business only. Is that the right way to think of it? Yes. It's really only the royalty.

So usually when we talk about, you know, the franchise revenue, it's royalty and rent. In that third bucket, it's only the first part. So they don't own the real estate, they don't own anything.

It's basically just, you know, them giving the right to local uh companies to use the name McDonald's.

And by the way, if you ever want to look at basically the details of the franchisee side of McDonald's, you know, you should look into their filings because they break down in quite a lot of detail how that looks and they're actually the the source for a lot of the numbers that I have in this episode.

And then you have China, which I probably also should bring up because it's more of a special case. So McDonald's initially sold 80% of that business in 2017 to Scitec and Carlile, but then they bought back 28% just 2 or 3 years ago.

So now they own close to half of the business again. So it's slightly different for China compared to the rest of the third bucket.

>> And China is actually the fastest growing market by restaurant count for McDonald's. And management has talked about opening around a thousand restaurants a year there, which is just ridiculous.

But the comps in China were actually negative recently though.

And obviously those are different uh customer demographics. But I think the point generally is that the consumers and the middle class even the upper middle class and especially of course the lower class are really struggling in China due to the property market crisis there.

And so their budgets for everything from luxury spending to even McDonald's are being impacted.

>> And it's definitely not a not a China specific story, right? I mean, McDonald's is a pretty good proxy for how consumers are generally doing, especially lower income customers.

And traffic has certainly slowed down in 2026. And that's globally, not only in the US or not only in China. It's not dramatic, but it was at least stagnant in Q1 and then it actually decreased slightly in Q2.

And at least management is expecting that that trend will continue for the rest of the year.

And I don't think that's really what scares me. Um I think there will be good times and bad times and when I can buy a business that I know will recover when, you know, times are getting better.

I'm happy to buy it at times when it's not all, you know, rainbows and sunshines and it just looks great. Which is why you now have to pay significantly less from McDonald's and just, you know, four to five months ago.

And as you sort of brought up, what I'm more interested in is whether McDonald's has more, let's say, long-term problems or maybe terminal problems, right? We talk about GLP1 as a threat to McDonald's or even competitors like Chick-fil-A, which I know you're a big fan of, might take some share and um I think those are the ones that I would actually focus on more.

So, when you listen to McDonald's calls, and I don't like it that much, it's mostly about getting through this economic downturn with, you know, something like value menus, digital offers, especially in the app and so forth.

But those long-term threats, they're not addressed to at least the extent that I would like.

Gosh, the McDonald's app is is such a big thing for kids and teenagers and folks in their their early 20s, too. I remember that being uh really uh defining how and where we would we would hang out if somebody had uh you know, a special offer for uh a free side of fries at McDonald's or a free soda.

All of a sudden, uh we would we would find ourselves hanging out there. And so, I think the app is really sort of an interesting point for them relative to their their competition, right?

And in terms of their advantages, they have more than 220 million folks who have opened the app in the last 90 days, 90-day active users. And that number has been growing by 45% in the last 3 years.

So the app is as popular than it's ever been. And those members on average, folks who uh frequently use the app, they end up attending the stores twice as often as non-loyalty members.

It's funny you bring it up because I only now remember that I actually did the same with a lot of my friends when we were back in school that somebody had the app and they were talking like hey I you know get 10 chicken nuggets for free so you just suddenly joined the group to to go there and it's funny because it was 10 years ago at least um and it was still a big thing but in the last 10 years it just grew exponentially right so the online sales unsurprisingly became more and more important each year since then so by now sales initiated on the phone represent about 40% of total systemwide sales in McDonald's top five markets and those are for example US, UK, Germany, those sort of markets and then in China it's probably unsurprisingly way more extreme than that with 98% of sales coming through a digital channel.

So that is not only the phone, it could also be on your desktop, but 98% of sales means basically all they sell, right?

And especially in times when the consumer is weak, I think that's an advantage that you have through the app because, you know, you can just re-engage people with these value offers for example, you know, special discounts, special menus, stuff that you usually don't get and all of that while you can basically get the list prices unchanged.

So it doesn't seem like things generally need to get cheaper. It's just an offer that, you know, for example, it's valid for 2 days. to get 10 chicken nuggets at 30% off and then you get more people um to go to a McDonald's again. But I still don't really think of it as a mode.

>> I would probably call it something of a margin of of safety. I mean, management has said about twothirds of the traffic they lost came from these loyal customers, people who were already in the app.

And one of the reasons they gave for that was that they cut back on on digital offers at the time. So, the advantage is that they can notice that quickly and and can act on it.

But it also means that regulars may quickly stop going to McDonald's when there are no special offers. And you basically condition your uh most active customer group to always expect discounts.

And that's an issue uh in a different way we talked about with Nike. It's definitely a problem also for the franchises and it's part of why they don't like that dynamic because it's easy for McDonald's to just re-engage people and get them into the shops.

some of the stuff the the franchises talked about in the last couple of months is a lot of times they just didn't have the same office. So somebody would go, you know, to a McDonald's because of the app.

There was an offer that they were supposed to get. They go to a certain McDonald's and they don't get what they thought they would get just based on the app. So some people do it and some people don't.

And obviously that's not a good thing for McDonald's. Usually you get the same experience every single time. That's why you go there. You know exactly what to expect. And part of that is also where the CEO said they didn't perform or they didn't execute at the level that they used to that you know you put out these offers for example and no matter where you go you'll actually be able to redeem them.

Um and that has been definitely a big problem especially when you think about that loyalty members by now make up about $40 billion of all sales last year and that's close to 30% of everything that McDonald's sells.

So if those people don't like the way you know their orders are handled at McDonald's that's definitely a big problem.

And the other advantage, if we talk about the positive side of the app again, is definitely the advertising rate. I mean, you talked about the advertising fund in itself, which if you just combine McDonald's, it's bigger than KFC, Taco Bell, and Pizza Hut combined.

And then you not only have that big, you know, marketing budget, it's also pointed pretty precisely at your customers because you have this huge database of 220 million people.

So again, it's not a mode, but it's definitely a massive advantage nonetheless. Even if, for example, you condition some people to to wait for office.

You mentioned uh the long-term risks to the business before, so maybe we should talk about them now. I was blown away recently when I heard that one in nine Americans are now using a GLP-1 drug to lose weight.

And that's tens of millions of people. And internationally, I think that trend is really just starting. And so from what I understand about the effect of these drugs, they basically reduce your hunger, which at first glance doesn't seem like much of a very good thing for fast food chains that also bet on these emotional decisions to kind of quickly choose fast food out of convenience uh instead of cooking something at at home yourself.

It's an interesting topic and I think you know the two of us are by now quite famous for not covering healthcare companies but I definitely need to learn more about GLP1 and peptides and all that sort of stuff because you know it's quite interesting.

I mean I used to be much more into fitness and nutrition than I am nowadays. And one thing that you quickly learn is that there's pretty much nothing that you can take that's actually you know measurable in the effects that it has without side effects.

So maybe creatine, if you know what that is, is is probably the closest to to having that effect without any side effects. But then peptides came and there were these incredible stories about what they can do.

And I'm naturally skeptical as we all know. So I didn't pay much attention to them for a long time. But thinking about what they can do just seemed a bit too good for me to be true.

But GLP1 is one of those, you know, peptides and it appears to work pretty well.

And as you said, by now it's 11 to 12% of American adults now taking one of these GLP1 drugs. It could be a zmpic. It could be vigovi. It could actually be one of the more modern things.

These are actually I wouldn't say outdated, but they're definitely more modern versions of that on the market. And the use of those has nearly quadrupled in just 2 years time.

So these drugs are basically working by mimicking a natural gut hormone that slows digestion and then increases the feeling of fullness, which obviously leads to reduced appetite.

And now market research shows that households with a GLP-1 user tend to spend about 8% less at fast food chains, coffee shops, and basically all similar places within 6 months of using or taking that drug.

>> Goodness. I mean, given the number of people taking these drugs, are we starting to see these numbers show up in in McDonald's quarterly results? I think we should, but given that it's still mostly a US phenomenon and using the numbers that we talked about above, I think the impact right now should be about 1% of sales, which doesn't sound massive, but again, we're also just at the start.

And I think that McDonald's had some, you know, data from probably third parties because otherwise I wouldn't know how they how they get to it. But they say about 85% of households with a GLP1 user still visit McDonald's and it didn't sound like they would also spend significantly less money. So the impact is not huge.

So what they say is they basically prefer McNuggets, they prefer filto fish and happy meals. So basically what I ordered when I was 12 years old and obviously the reason why they like it is it's smaller meal sizes and it's also less fatty food.

So McDonald's is now trying these portion flexible and protein le options to sort of better accommodate their preferences.

It does seem intuitively though like smaller menus would equate to less spending even if they continue to go to McDonald's unless they're paying a premium for these uh these protein first options.

>> Well, you know, it's kind of funny, but they probably are. Like whenever you have these new protein products, um the price goes up. And actually, if you look at the numbers, the reason why McDonald's is not down further in terms of sales numbers is because they increase prices.

So, um if you think about that, it's not the most sustainable way. And I definitely don't buy the idea that it's supposed to be, you know, a chance for McDonald's, which is how they want to sell it to you.

I guess the question for us as investors is mostly whether this will be an impact of 1% or 10% on sales. And I got to admit, I thought it would be closer to 1% for a long time because again, I had this, you know, more skeptical view of GLP-1 drugs.

But the more I learn about them, the more uncertain I am. And honestly, I'm surprised we haven't yet seen a bigger impact.

When I talk to people who are currently using them, they describe not only less appetite but also a pretty major shift in the kinds of food that they crave. So sugar and sweets for example are way less popular and you crave more we talked about it protein which is why McDonald's now says hey we you know we want to sell more chicken we want to sell more fish but still you don't necessarily go to McDonald's for protein food.

So I also asked Trevor who's a a doctor in our mastermind community and this is what he said you know for GLP-1 drugs and their impact on their patients usually. I'm Dr. Trevor Day and today I'm explaining the biology behind the GLP1 blockbuster market.

So medications like we go from Novo and Zepbound from Eli Liy target specific receptors to achieve two massive shifts in consumer behavior. So first they slow gastrointestinal transit time.

Think of it as causing a traffic jam in the stomach and the intestines. So food moves slower, people feel fuller for longer and appetite reduces. Secondly, they also rewrite the perception of reward by altering the dopamine pathways in our brain.

So, you know, when you have that first sip of coffee in the morning, uh, or you eat that little bit of chocolate or you have that savory, greasy, salty French fry and you just think, "Ah, this is great.

" So, that's a little dopamine squirt that's happening in your brain. We also get dopamine squirts from social media, gambling, alcohol, things like that. Now, the GLP1s downplay these exact pleasure responses, basically crushing the cravings entirely.

So by correcting for both gut biology and brain chemistry, these therapies are changing consumer behavior. This is why they are rewriting the global healthcare economy.

What's also interesting is how some people said that their routines actually became healthier. So, you would probably think that people might not work out more or eat healthier because they feel like they have this magic GLP-1 drug that they can just take and uh it does the weight loss work for them.

But it actually turns out differently pretty frequently because people will feel more comfortable in their bodies and uh more capable of exercising uh and it sort of like jumpst starts their momentum in the right direction that they they build on.

So they end up often going to the gym more often or or going for a run more often than they otherwise would have.

>> We may need to say um because it might sound different. We are not doing any advertisements here for TP1 drives and we're not using them, but I was definitely surprised by how well they seem to work and also just by how far spread they currently are.

I mean it's still the beginning. Um and you know I thought about it too in terms of what do I think about them generally and I didn't really like the GLP1 drugs either because obviously they make it much easier to lose weight.

Um, that said, from a utilitarian perspective, they clearly produce way more good than bad. And I mean, if they force shops like McDonald's to change their menus and include healthier options, that would also be a major benefit for people like you and I.

>> Well, it does seem like the JLP1 question has has really yet to be answered. And yet, given the widespread use of them today, I would have expected a larger impact on the financial results of a company like McDonald's.

But that doesn't yet seem to be the case. And really the market narrative at the moment for explaining any weakness in McDonald's sales seems to be more macro related uh and and talking about how much money people have in their pocket than having to do with huge shifts in customer preferences.

Yeah, I was surprised too when when I looked at McDonald's, I thought it must be, you know, the stock going down must be due to GLP once and even then I was surprised by how severe or basically not severe the draw down has been because I could imagine this is a terminal risk that probably most people didn't think would exist for another 20 or 30 years.

But apparently that's not the case right now. It looks like the market is more worried as you said about the macro thing.

And actually McDonald's, if you compare charts, it very much behaves like an inverted 10-year Treasury bond. So, the 10-year node yield has climbed 32% since early March, while McDonald's stock has dropped an identical 32% over the same time frame.

So, one reason for the, you know, inverse correlation is that McDonald's real estate portfolio obviously drops in value when rates go up. And given its size, that's quite a substantial impact on the company.

And McDonald's also has $40 billion of long-term debt, although that is mostly fixed rate. So, I don't think it's about, you know, the debt they have and refinancing it, although it's currently at significantly lower rates, about 4% on average.

I think the second reason is that McDonald's, because of its stability and dividend, basically competes with bonds in some investors portfolio. So, you now have a 10-year that is paying you well over 5%.

And that seems it's not that attractive anymore to own McDonald's at a 3% dividend yield given that you don't take on any company related risk if you just own a bond.

Well, it's really interesting correlation. Uh, and really at the right price, I I like to take on the the company specific risk to get a potentially higher return, but that's not how everybody thinks about investing.

And some people prioritize uh, you know, more stable cash flows to live off of.

And what's fundamentally different to me today with McDonald's as an investment is that over the years there's been plenty of outrage against the company and and protests and movements supporting healthier lifestyles, but they all really rely on people building their own willpower to resist what is effectively a pretty addictive drug to many people, right?

I mean, it's a really potent concoction of sugar and salt and and fat. And biologically, our defenses to resist that are are just very poor. So, even though two decades worth of school kids, for example, in America have been shown the the Superersize Me documentary.

I remember watching that in middle school where this guy eats only at McDonald's for every meal over the course of a month and then documents the health effects. I mean, you can imagine how that went for him.

And and still, that didn't turn people off from eating there at at any kind of meaningful uh scale. But now that we have a widely available, affordable option that actually chemically changes our body's cravings for junk food, then to me that gives really a whole lot more reason to to believe that this is a challenge that's not going to fade away for McDonald's and will only continue to grow globally and also isn't one that's just a market narrative.

There is real substance to the concern. Whereas with some of these other movements that I talked about, um there's a lot of narrative and news around them, but at the end of the day, it didn't fundamentally change the reality that it's very hard to resist the temptation of junk food.

>> We often times talk about inertia and just doing what you have done in the past. So that you have now something that basically forces you to change that rhythm and just your your habits daily.

I think that's probably the most powerful threat that we have had McDonald's seeing in probably decades, if not ever. I think there are not a lot of people that would have thought that such a terminal risk would come up at any point, at least not as soon as it did.

>> Well, with all that said, how about we we talk about the competition, right? Cuz that's uh the other type of of risk here. You have these fast food companies potentially competing with each other over a shrinking pie of fast food spending dollars in the coming years.

And obviously, you know, my favorite is is Chick-fil-A, and it's really the only fast food that I'm that I'm willing to eat. And I do wish they were public uh cuz if they were, I would be buying shares handover fist.

I think it would be a good way to sort of hedge uh my own personal spending there and and just gosh, nothing beats their their sandwiches. They're so good.

And and for context, Chick-fil-A did about $ 24 billion in sales last year in the US and only 3,300 restaurants. And that's actually up from 12 billion in 2019. So they've doubled in six years. and their average restaurant does $7.7 million, which is nearly twice as much as McDonald's.

And I think what we've seen happen is Chick-fil-A in going increasingly from being a regional chain uh mostly across the southeast of the US to becoming more and more a nationwide chain.

What I was surprised to see when I did my research here is they actually closed on Sunday, which uh definitely gave me Germany vibes because all stores here are always closed on Sundays except actually for restaurants and theaters and so on.

And I don't really like that. Usually I stand there on a Sunday don't realizing what day it is and I can't get into the supermarket. So um yeah, I don't know how I feel about them being closed on Sundays, but I can at least now proudly say that I wasn't there when I visited you in Charlottesville on a Sunday.

So I could give it a try. And I must say it's pretty good even though I only had one bite. Um I think the quality of food is is likely higher than most other fast food places where you can go.

And because Chick-fil-A is so successful, I think that's part of why McDonald's wants to double down on chicken because I can definitely see there's competition coming in on that end.

And again, they talk about gaining 1.5 percentage points of share in chicken, which might be phrased similar to as your friend would do when they talk about chicken and beef competition.

So, I hope that at least sort of gives you an idea of why I think it sounds so weird talking like that. If you listen to an earnings call for hours and hours, multiple of them, and they talk about gaining 1.5% points of share in chicken, that just doesn't sound right to me.

I mean, it can maybe uh make you lose your appetite.

It's a bit of a weird way to think about things, but McDonald's should already be quite big in in chicken, right? I mean, McNuggets are are huge and they do have their own chicken sandwiches and wraps as well.

So, it's not like this is an entirely new product area for the company. Absolutely not. I mean, McDonald's has about 20% of the chicken market, which is actually $130 billion annually.

It's a absolutely massive market. And that's pretty much on par with beef, but beef is a smaller market. So, percentage- wise, McDonald's is much more dominant in beef compared to chicken.

And one of the interesting differences between McDonald's and Chick-fil-A is that franchises are only allowed to own one Chick-fil-A store. With McDonald's, you can own as many as you want.

And often times, especially if you are in smaller cities, one person owns the McDonald's stores of, you know, let's say the next 10 km range. So most of the people there have multiple stores.

And [clears throat] maybe that's, you know, one of the reasons why the service at Chick-fil-A feels much better because if you own only one store, you'll be much more focused on making it the best business and, you know, the most efficient but also the most feelgood way for customers.

And if you own 10, you're just more interested in how you can run all of them as efficiently as possible. you can't focus as much on just one store.

>> I think my problem with McDonald's is really pretty anecdotal because really just their food makes me nauseous. I I don't think I've really enjoyed eating there since I was a kid.

I did used to love getting a uh you know, like a a plain cheeseburger back in the day and and like I said, I can maybe do a McMuffin, but um I I just don't have that same problem today with Chick-fil-A to the same extent.

And you know, it it sounds a little bit silly, but it also doesn't feel as trashy, for lack of a better word, to go there. The the social perception around eating at Chick-fil-A is definitely less negative, I've found, than McDonald's.

And perhaps it's because the restaurants are usually in better condition and it's a more pleasant atmosphere and and typically the the service at Chick-fil-A is just I mean, it's incredible. it it really actually feels like the employees want to be there, which is an anomaly in most jobs.

Uh, but you know, McDonald's employees, they're there's certainly not a resounding endorsement of of having pride in their jobs.

Uh, typically, one thing I noticed when I was at McDonald's in London is they don't taste like a lot. Like, you know, I was still kind of happy to just get another cheeseburger and kind of get reminded of, you know, how it was as a kid.

And I felt like back then they might not have been healthy, but I definitely like them. I enjoyed eating them. But now when I just, you know, took a bite, it didn't really feel like much. I I didn't

So, I'm not saying that, you know, McDonald's stock will follow Nike's path, but to me, they sort of have lost what made them special 10 to 15 years ago. And again, this could be 100% my my personal bias.

And as someone who doesn't eat fast food anymore, I'm aware I'm not the right person to ask, but McDonald's felt like a family and kids thing back in the day. And I just personally, and maybe just the advertising, don't get that feeling anymore.

It feels more like it's primarily winning on scale, accessibility, and again, inertia.

you used to go to McDonald's when it was supposed to be really cheap and fast. And since 2019 though, menu prices have gone up by 40%. I don't think people's incomes have gone up by 40% in that time.

And you know, of course, inflation did cause their input prices to go up as well, but it doesn't seem like McDonald's really did everything in their power to not pass on those costs to consumers.

And now they're trying to get people back with their $5 meal deals and and the under $3 menu. So they are trying to maybe find some redemption. They tested out their their pricing power and now they're going back on some of that.

And also to be fair to McDonald's, I compared their cost increases to their price increases between 2019 and 2025 and they didn't ruthlessly take margin on the back of you know rising inflation.

They were more or less in line with inflation averaged out over those years. The only higher increases have happened in 2022 and 2023, but basically in the years before that, they didn't increase prices as much.

Well, I've also heard that McDonald's besides chicken is is looking to expand uh into beverages and and so they launched a whole new drinks lineup under the mafe brand nationally back in May.

And so, uh, there was really a short time, about 2 years, when they ran these, uh, they're called Cosmix that were small shops that were really colorful and you could get these customizable specialty drinks and teas and and cold coffees and energy boosters and some light snacks, stuff like that, that were meant to target uh, Gen Z crowds and compete with Dutch Bros.

And so, they closed them again. But the most successful drinks are now supposed to be sold in McDonald's restaurants.

And McDonald's estimates that this market would be worth about hundred billion dollars, you know, at least in that range. and they have the goal to gain 1. 5 percentage points of share, which is coincidentally the same number as for chicken.

I'm not saying anything, but probably they have precise mathematical models for why exactly it's 1.5% of share, but um I just felt it was a a funny coincidence that it's, you know, 1.5 percentage points for both of these products.

So again, like the average US McDonald's is doing about $4 million in sales. And then after food, labor, rent, royalties, and so forth, the franchisee keeps about $500,000 in cash flow per restaurant.

And that's up almost 50% since 2019. So you would think they had a pretty good stretch. The problem though is that most of that appreciation came in the post-pandemic years. You know, we're talking 22 and 23 where also the price hikes have been way more significant than in the last couple of years.

So, while the six-year view might look great, franchisee cash flow is actually down about 10% from, you know, those post-pandemic peaks.

Basically, the way the model works is that McDonald's grows on someone else's capital, which is an incredible business model as long as that someone can actually afford to still make all the necessary changes and updates.

And right now, they're basically telling McDonald's, "Hey, we can't afford that anymore." And that's why McDonald's plans to step in with what they call the next strategy. And much of that strategy we have already discussed.

It's you know gaining share in chicken. It's expanding into beverages. It's growing the app and so on. But it's also about the restaurants themselves. So you're talking about remodeled kitchens.

You talk about new technology. Most likely we'll talk AI and for example, you know, the the part where you uh you order and so forth. And and for all of that, the average US restaurant needs about $800,000 of investment and roughly 70% of the US ones are supposed to go through it in the next 4 years.

And if you just do some quick math, that would be about 7 to8 billion of franchisee money. And because the franchises just said, hey, we can't afford to do all of those updates.

And you just said earlier that some of those do feel outdated, so it's definitely needed for those McDonald's franchises. McDonald is going to help. So they want to pay about $8.5 billion for the next 10 years, so through 2036.

And about 5 billion of that is supposed to come up until 2030. So you're talking 1. 5 to$2 billion of that as direct capital. So we talk actual cash and then the rest is rent relief.

So there's no major impact on the current cash levels, but obviously you make a bit less revenue.

And the stock fell 5% to a 4-year low on that day. But because of the business model of McDonald's, it's basically revenue coming straight off this 84% margin rent and royalty line.

And the impact of that could be, if you do the math for the next 3 years, as much as 3% annually on revenue. And that's quite a massive hit.

And uh this has happened in the past. I mean, roughly every 10 to 15 years, McDonald's will basically admit that their restaurants have gone stale and uh they'll force a big reinvestment cycle.

I've I've seen it happen a few times now in my life, 2003, 2015, and and now 2026.

under his accelerating the arches strategy which was the name in 2020 for basically their the new initiative going out for the next couple of years the core was you know marketing um focusing more on one base menu pretty much you know as we talked about in the in the early beginnings of McDonald's and then going digital having delivery having you know drive-throughs all that sort of stuff and McDonald's added about $40 billion of systemwide sales over that time frame and over $3 billion of operating income.

So that's definitely a strong result. And also if you look at that and you compare to the comps in the industry, it's definitely way better performance than most of those companies.

Yes, he does not own a lot of stock and that's close to impossible. as you just said when he joined a company that is as old as McDonald's, but he's still doing fine. I mean, he was paid $20.5 million last year and the vast majority of that actually 15 to $60 million was long-term equity.

So 50% of that is performance-based, you know, it's based on EPS growth, where I think the target is 6% a year, which is not a lot, but um it's better than nothing. He's also incentivized on return on invested capital and the total shareholder return versus the S&P 500.

Although out of those three factors, the EPS part is about 70% of the factor for this compensation and the other 50% is stock options. So I think it's a decent incentive program due to the EPS factor.

It's very likely that they will continue to do buybacks because it's way easier at that point to achieve the 6% even if the business is not performing that well. And I also personally like that he's incentivized on return on invested capital, especially now that we just talked about them investing $8. 5 billion on remodeling some of the restaurants.

And what is a bit more of a political matter is that the CEO is paid significant amounts of money compared to the median employee. So, while 20 million is not uncommon for a company the size of McDonald's, what is uncommon is to have the CEO get paid more than 1,000 times the median employees salary, which, you know, it's one of the biggest ratios in the S&P 500.

Well, I would assume that it does probably look that way at a lot of fast food chains. And, you know, in the end, those are jobs that you usually don't do for long, but typically to to start a career or work while you're studying.

So h how does capital allocation look though? I mean you already mentioned that McDonald's is is well known for its dividend and that Kimchensky is incentivized to buy back shares to hit the earnings per share target more easily.

McDonald's just became a dividend king. So in September they raised it for the 50th consecutive year every year since 1976. So it's uh $7.72 a year now which is about a 3.3% dividend yield at the current price.

And that's basically the highest the stock has had since 2020. And they also bought back $2.1 billion of stock last year. And if you add up buybacks and the dividend, they essentially gave back 100% of free cash flow to shareholders.

Okay. Well, pretty good. Uh how about uh valuation time then? Let's let's see what McDonald's is worth to, you know, a long-term value investor. we have McDonald's trading about 30% from its 52- week high.

And uh that's a PE of 18, which sounds pretty low for such a high margin business with arguably one of the strongest brands in the world.

And the average PE over the last decade has been between 24 and 25 times. You certainly at a cheaper point in time right now. And when I built the model um you know just for information because you can always download them and then change the numbers.

I ignored the systemwide sales because you know they matter to see what the underlying franchises are doing or whether they're healthy and that's an important metric but McDonald's itself is only having revenue of about $27 billion and that's the revenue they get from royalties and rent than the self-managed stores which are not a lot compared to all the franchise ones.

So rather than modeling geographic segments like you know US or Europe I also built the model around the streams of income that they have. So you know the ones that actually hit McDonald's P&L and the first and by far the biggest one is franchise revenue.

So the rent and royalties that we talked about 100 times today and that's about $16.5 billion in 2025. So over 60% of revenue and it's extraordinarily profitable as we said you know after subtracting the occupancy cost of McDonald's and you know the carries as a landlord the margin on that stream is almost 85%.

And then you have the second stream which is roughly 2,000 restaurants of McDonald's that they operate themselves. And those generated close to $10 billion of sales in 2025. But again, the margin on that has only been about 15% which compared to the other coms is pretty good, but way lower than the other part of the business because McDonald's here is paying for all the cost.

You're talking beef, you talk chicken, the crew, electricity, and all of that stuff itself.

Evidently, you're not expecting a ton of growth in the coming years. I mean, revenue is only growing at 1.6% 6% and I I assume because of the cost of the next strategy that as mentioned is not accounted for as capex or cost of goods sold but instead comes as reduced revenue and it's essentially a form of rent relief if you see that as as being uh part of the explanatory factor for that.

Absolutely. I mean that will definitely be a pretty significant impact um on revenue in the next couple of years. it shouldn't be that much of an impact on operating income which I still expect to grow in the mid-s singledigit range because you know the selling of these self-operated stores which is part of the strategy makes the business more profitable but it's yet another reason for lower revenue growth so you have the next strategy and then you also have the idea of selling more of your stores which again good for margins bad for revenue so overall I expect mids single digit DPS growth for the next 5 years then you add to that 3% dividend yield and some buybacks and I personally get to a fair value here today at about $220 per share.

And with a margin of safety, that would be lower. Usually, we add 20%. But, you know, you could also say you have such a massive real estate portfolio that part of the margin of safety is already included in McDonald's.

And all of this is on an estimated PE or an exit multiple of 20. If you would, for example, use a PE of 25, you would get to a significantly higher value of about $260 per share.

So it sounds like a fairly valued um return expectation would be about 10% for the stock. But for more than that uh either the multiple needs to move up or the next strategy needs to work out better than expected and uh would actually be causing more growth instead of just basically defending their current positioning.

Yes. But you could also turn around and say if the GLP1 situation were, you know, to get closer to a 10% decline scenario, you also have quite some downside left. You know, I only modeled basically assuming you would get low singledigit sales declines, if even.

If that's not the case and GLP1 is hitting the, you know, business way more than we expect, at least right now, um, you would definitely have a bare case here.

Well, I sent you a video the other day that apparently you had already stumbled across in your research, but just for the listener, it was all about GLP-1 peptides and how specifically the technology around weight loss peptides is already dramatically improving.

And so, really, my takeaway is that the first generation of weight loss products, so think Ompic when combined with exercise and and other lifestyle changes could be expected to drive maybe a 15% reduction in body fat.

But for the next generation of peptides, the results in some of the early studies are apparently about twice as good with people losing nearly 30% of their excess body fat. And so we haven't even seen the first generation of drugs make their way around the world.

But now there are even more promising versions popping up. And so it just seems like it is really starting to accelerate. And that's why I said earlier that we may be on a better trajectory than ever to effectively abolish obesity, at least for those who are willing to opt into drug-based treatment and and pair that with some other modest lifestyle changes.

And I think the ripple effects of that over the next few decades, I'm sure that'll be huge. And really, the most obvious victim is is fast food. So maybe there's some wishful thinking on my end about society getting healthier, but this is far from being wildly speculative either.

Because of that, I I just don't see how I could sleep at night owning shares in McDonald's. I mean, for starters, there's sort of the moral concerns, but bigger than that, in my view, is the terminal value concerns where we just simply don't have a ton of confidence that on an inflation adjusted basis.

McDonald's addressable market and their business will be bigger in the US and most of their developed markets in in a decade or so from now. And if that is the case, I mean, I won't say it's impossible for them to deliver decent returns to shareholders, but the odds are very much going to be stacked against you and it's going to be very hard uh unless you get an incredibly good price for the investment to work out well.

I think McDonald's because of its real estate portfolio, it definitely has a margin of safety somewhere, right? So if you want a stable company that you know perhaps gives you high singledigit returns and that includes dividends and buybacks for a pretty long time I think McDonald's is a good opportunity um but given the uncertainty around you know GP1 drugs and the fact that it's still a competitive industry after all I mean we looked at some other big companies I sort of made the analogy to Nike I don't think they will end up in the same sort of you know scenario as Nike is currently in but still those are companies that you look at and the brand is so strong so you think there's nothing that can happen to them But then you look at GLP once and you also look at the generally bad perception of McDonald's.

And if you combine those two, the fact that you can now suddenly change what your body is craving for, plus the bad, you know, rep that McDonald's had for quite some time, I think it can cause problems that, you know, to me at least, I don't feel like getting sufficiently compensated at today's prices for that risk.

So I think I agree that you know despite the real estate portfolio and you know McDonald's just being a fun one to research because you still have a lot of memories of how you used to used to consume it as a kid um it's not an investment that currently either of us are is very excited about I would say.