I am a 33 year old who has been an investor in McDonald’s for more than 20 years.
A few years after I bought McDonald’s stock, the company became a major investor in a little-known Colorado burrito chain called Chipotle. The fast-casual Mexican restaurant has grown far beyond anyone’s wildest dreams, and now has more than 1,700 restaurants worldwide and a market cap of $US40 billion.
Unfortunately, McDonald’s fully divested the company in 2006, and missed out on its tremendous growth, choosing instead to pocket $US1.5 billion.
But now, McDonald’s has a chance to redeem itself: It should do whatever it takes to acquire Chipotle-style New York City-based indikitch.
Business Insider reached out to both indikitch and McDonald’s CEO Steve Easterbrook for comment, but neither responded.
Admittedly, Indian food is scary for the unsophisticated eater, and is still gaining traction here in the United States.
Another issue, according to the Washington Post, is that, “The cuisine is among the most labour intensive in the world. And yet Americans are unwilling to pay beyond a certain, and decidedly low, price point.”
Let’s address these two issues.
Before moving to New York in February, I had attempted to eat Indian food twice in my life. The first time I was terrified and psyched myself out before I even sat down at the table. The second time, I went in with an open mind and found myself intrigued by the combination of flavours and spices.
Then I began working at Business Insider and listened to my co-workers rave about this Chipotle-style Indian place, so I decided to give it a try. Now, I eat indikitch twice a week. Each time I go back to the restaurant I find myself worried more people are catching on, and that the line will be as long as the Chipotle down the street.
When I eat at the restaurant I always sit by the window. What do I observe? The countless number of people who walk past the restaurant and stare at this sign…
Admittedly, not everyone who stops to look comes in, but people are tempted. Several people stop and look only to walk away and come back a few minutes later to look at it again.
As for the price, the sign says it all.
Indikitch has a similar price tag to Chipotle, making it affordable for almost everyone. For $US12.75, I got a Feast with chicken, rice, chickpea, extra chickpea (I replaced the salad), garlic naan and a small fountain soda. This is what my delicious meal looked like.
Currently, there are only two locations, and both are in Manhattan.
However, indikitch has the potential to go global. Sitting at the window allows me to see every person that enters the restaurant. What I have found is the patrons are a mix of families, tourists, and New Yorkers of all ages.
A look at the 2013 US census shows there are 3,189,485 Indians living in America, which works out to 1.0% of population. This makes for a 37.5% increase from the 2005 census, and a compounded annual growth rate of 4.1%.
While I am by no means suggesting that only Indians would eat at indikitch, metropolitan areas with a large Indian population would be logical areas for indikitch to open its next set of restaurants.
Since the early 1990s, McDonald’s has seentremendous growth,making the iconic golden arches recognised by virtually everyone in faraway landslike China, India, Saudi Arabia and South Africa.
However, the world is only so big, and the company is struggling to find ways to grow. This is evidenced by the performance of McDonald’s stock, which has been range-bound for the past four years.
Here’sDeutsche Bank’sMay 8 note suggesting McDonald’s needs to buy stuff in order to grow:
Franchises will increase from 80 to 90 per cent of total stores freeing up balance sheet, possibly for acquisitions. There are plenty of potential targets. For example, if McDonald’s paid a 20 per cent premium and used two-fifths equity funding to buy Wendy’s it could boost earnings per share by four per cent by 2018 before synergies. The same parameters applied to Darden Restaurants or Starbucks could double that accretion while net debt would lie comfortably under three times EBITDA. The synonymy of the golden arches with the words “junk food” may force McDonald’s hand. If eaters’ preferences have changed for good, buying new brands may be the only option.
While Deutsche Bank suggests a couple of options, none of them are particularly interesting.
McDonald’s is already the most recognisable burger chain on the planet, and it probably doesn’t want to buy Wendy’s and risk turning it into another McDonald’s.
Darden Restaurants is an interesting option, but that would require entering the sit-down restaurant business as opposed to staying in the fast-food arena. And Starbucks has a market cap of $US76 billion, making it more than 80% the size of McDonald’s, and an expensive takeover.
If McDonald’s CEO Steve Easterbrook is serious about his turnaround plan, he should think outside the box and consider acquiring indikitch.
Business Insider’s Andy Kiersz contributed to this article.
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