C5-1: McDonalds and Buffalo Wild Wings: Comparing two restaurant chains.

McDonalds Corporation franchises and operates more than 30,000 fast-service restaurants in 119 countries. Buffalo Wild Wings franchises and operates more than 500 restaurants in the United States. Buffalo Wild Wings features chicken wings and a full bar in its restaurants.

Financial information for each company follows. EBI denotes after-tax earnings before interest expense.

Selected Financial Data

Buffalo Wild Wings

2007 2008 2009 2010 2011

# Of stores operating at year end: 161 197 232 259 319

Company-owned 332 363 420 473 498

Franchised

Revenues ($ in millions):

Company-owned stores 379.7 488.7 555.2 717.4

Franchise fees 42.7 50.2 58.1 67.1

Total: 422.4 538.9 613.3 784.5

McDonalds

2007 2008 2009 2010 2011

# Of stores operating at year end:

Company-owned 6,906 6,502 6,262 6,399 6,435

Franchised 24,471 25,465 26,216 26,338 27,075

Revenues ($ in millions):

Company-owned stores 16,560.9 15,458.5 16,233.3 18,292.8

Franchise fees 6,961.5 7,286.2 7,841.3 8,713.2

Total: 23,522.4 22,744.7 24,074.6 27,006

Requirements:

(1) Determine the amounts of sales revenue per company-owned store and franchise fees per franchised store for each year and each company. In these computations, use the average number of stores open during the year.

(2) Assume that for both companies sales at company-owned stores are the same (on a per store basis) as sales for the same companys franchised stores. Estimate each companys franchise fee rate, which is stated as a percentage of each franchisees sale revenue.

(3) Perform a cause-of-change analysis from 2008 to 2011 for each company to disaggregate the increase in revenues from company-owned stores between growth in the average number of average stores open and growth in revenues per store.

(4) Perform a similar analysis for franchise fee revenues.

(5) What do your analyses from requirements 4 and 5 tell you about the companies growth strategies?