McDonald's

McDonald’s moat is multi‑layered: (1) Intangible assets/brand: among the world’s most valuable consumer brands, reinforced by consistent marketing and iconic equities (Big Mac, McNuggets) and now scaled loyalty.

Score 95. (2) Cost advantages: unmatched procurement, supply chain, marketing scale, and a franchising model that turns systemwide volume into high‑margin rent and royalty streams.

Score 90. (3) Efficient scale and real estate: a pervasive drive‑thru network with prime sites and long‑dated leases, often with landlord economics that deter direct competition at the best corners. Score 90. (4) Switching costs: historically low at the consumer level, but rising as loyalty and personalized offers capture frequency and data.

Score 75. (5) Network effects: indirect network benefits through brand, delivery marketplaces, and data flywheel, but weaker than pure platforms. Score 60. Weighted across importance (brand 35%, cost 30%, efficient scale 20%, switching 10%, network 5%), we derive a ~92 moat score.

Risks to durability include regulatory actions on wages or franchising, shifts in health preferences, geopolitical boycotts, and digital intermediaries.

The NLRB’s broader joint‑employer rule was vacated in 2024, reducing a key structural risk, though appeals remain possible; California’s fast‑food wage floor raises unit‑level pressure but corporate rent/royalty streams historically adapt through pricing and productivity.

At the consumer level, value perception caps price elasticity, particularly for lower‑income cohorts. 2024–2025 tactics leaned into national value offers to protect traffic.

Still, McDonald’s possesses notable corporate‑level pricing levers: (a) raising the North America royalty rate for new franchisees from 4% to 5% for the first time in nearly 30 years, and (b) contractual royalty step‑ups in major master franchise renewals (e.g., Arcos Dorados at 6.0–6.5% over time).

Mix upgrades via the Best Burger initiative and digital personalization also lift average check without blunt price increases. Risks: sustained consumer trade‑down or aggressive discounting could compress franchisee economics, and political scrutiny could constrain U.S. price actions.

Predictability is anchored by a predominantly franchised model that converts systemwide sales into rent and royalties. 2024 operating margin was ~45%, interest coverage ~7.8x, and the company reiterated mid‑to‑high‑40s operating margin expectations for 2025. While 2024 comps were pressured in certain regions (Middle East conflict, China softness), Q3 2025 returned to growth with global comparable sales +3.6% and systemwide sales up 8% for the quarter.

Digital and loyalty scale further stabilizes demand and improves marketing yield. Geographic diversity and a balanced segment mix mitigate country‑specific risk. Key unpredictability drivers are regulatory changes to wages, FX, and geopolitical shocks, yet the model has repeatedly demonstrated resilience.

Debt obligations were about $38.4 billion at year‑end 2024 with a weighted average interest rate of ~4.0% and long‑term ratings of BBB+/Baa1. Interest expense was ~$1.5 billion in 2024 versus operating income of ~$11.7 billion, implying interest coverage near 7.8x.

Cash from operations was $9.4 billion and free cash flow $6.7 billion in 2024; we estimate TTM FCF at roughly $7.4 billion through Q3 2025, with modest capex relative to system scale.

The balance sheet is intentionally leveraged to optimize returns, but the stability of rent/royalty cash flows and diversified currency exposures support ample coverage of dividends and repurchases. We score below 90 due to absolute leverage and rising interest expense.

Priorities remain: invest in growth (development, digital), then dividends, then buybacks. A new $15 billion repurchase authorization became effective in 2025, and the dividend was lifted 5% to $1.86 quarterly in Oct 2025, marking 49 consecutive annual increases. Share‑based comp is modest (~$172 million expense in 2024).

Management is accelerating openings toward 50,000 units by 2027, and has shown discipline by discontinuing the CosMc’s standalone test while porting successful beverage SKUs back into the core estate.

Risks: repurchases at elevated multiples, franchisee relations as fees and reinvestment asks rise, and development execution in higher‑wage jurisdictions.

Since 2019, CEO Chris Kempczinski and CFO Ian Borden have driven an execution‑focused strategy (Accelerating the Arches) centered on marketing, core menu, and the digital flywheel while maintaining a conservative balance between reinvestment and capital returns.

The team has navigated exits and restructurings, modernized ways of working, raised fees where appropriate, and expanded loyalty and development targets. This is not a founder‑led story, but it is an operating machine with measurable KPIs, transparent targets, and credible delivery.

Franchisee tensions and regulatory navigation remain ongoing leadership tests.