Scam Science: Welcome to Good Burger

In honor of Edmundo's superlative "Scam Science" series (http://tinyurl.com/2wbedot), I have decided to shed some light on a racket that is nearly as profitable as Wall Street and has been generating increasing public opposition in spite of being at the heart of our economy: the fast-food industry.

While anyone could list off an endless series of virtually indistinguishable chains, there is one that stands above the others. They are more than the Goldman/McKinsey/KKR of the fast-food industry, they truly stand alone: McDonalds. In my exposé, I will be focusing on McDonalds, much like Matt Taibbi concentrated his efforts on the vampire squid. Make no mistake, I am not advocating that McDonalds is evil, far from it. Just giving you monkeys an idea of what you're dealing with here.

                                                         Some Numbers

According to the Restaurants & Institutions survey from 2009 (http://tinyurl.com/36p4fnh), McDonalds had the highest sales of any restaurant chain in the world in 2008, clocking in at over $70 Billion in sales. Not-so close second KFC reported $17.8 Billion the same year. What accounts for this? McDonalds had 31,967 restaurants in 2008, over twice as many as KFC, and an average volume of $2.4 Million per restaurant, over 2.5 times the average KFC's sales. For comparison purposes, that's the same amount of money the average Hooters clears. No fast-food restaurant comes in remotely close. Furthermore, Subway, who now has more outlets than McDonalds, is making one-sixth the revenue. Suffice to say, McDonalds is a dominant player in a way Goldman Sachs can only dream of, and their dominance comes with its share of scams as well.

                                                   Foundations of a Scam

McDonalds is a leader in the science of scam innovation and you can be sure its competitors will try to copy these strategies if they are not already:

• Squeezing the fries box - This is rather conventional, but it bears mentioning. Food workers, the analysts if you will, frequently squeeze the box they are about to pour fries in, in order to reduce the amount of delicious french fries you get for your buck. This method has been sighted at fast food outlets other than McDonalds so be on the lookout for it. According to the former Managing Director of an extremely successful McDonalds branch, establishing eye contact with the food worker and putting on an intimidating snarl while the fries are being poured can loosen their grip on the box of fries, yielding a lower fry valuation for you, the buyer.

• "City Rates" - While this practice isn't exclusive to McDonalds, our market leaders take this practice to its most egregious. The value meal at urban McDonalds' locations is now comprised almost entirely of items costing more than a dollar. While the Double Cheeseburger was an excellent deal at drive-throughs across America, city dwellers are now forced to pay premium rates for McDoubles (double cheeseburgers with only one slice of cheese). The idea that these items present any "value" is increasingly questionable. These rates are a form of lobbying with local authorities. Indeed premium rates drive away homeless customers, or in banking parlance, retail clientele. Furthermore, the corresponding depression in demand could be linked to lower rates of obesity, a concern in certain localities, but not on the federal level, not unlike the excessive financialization of America.

• The move upmarket - While this is a recent phenomenon, it is where McDonalds is showing the clearest signs of leadership. Certain McDonalds locations in large cities have recently been renovated and are now outfitted with leather sofas and modern art. This type of innovation is unlikely to reach rural McDonalds anytime soon as the rationale behind this move is to attract a more sophisticated client base and reassure customers about the contents of the food they are eating (Beating Wendy's 'You know when it's real' at its' own game.) One could compare this to early efforts by banks to cater to hedge funds and sophisticated institutions, a strategy that paid off spectacularly for Goldman Sachs. Unfortunately for the rest of the fast food industry, average sales are not sufficient to justify this sort of capital spending and the perception of McDonalds' superiority is likely to keep attracting top talent, from the food worker level to the C-suite, and a wealthier clientele relatively speaking.

Like it or not, McDonalds will continue to significantly affect the world's eating habits. The average monkey can do little to combat these scams short of boycotting McDonalds entirely. But who could live without those salty, crisp french fries, free refills of Coca-Cola, and the two apple pies for one dollar? Not this author. The only recourse therefore is to make sure you keep an eye on food workers and pay less than 7x TBITDA (T is for tasty) on your fries.

Stay hungry my friends.