Who will be tomorrow's king?
30 years from now, will Wal-Mart still rule the bargain retail industry? McDonald's the fast food industry?
I say that only one (1) of them will: McDonald's. The answer lays in the corporate layout of their management..and the way they grow.
Let's look at each.
Today, both are great companies.
Wal-Mart: Business Approach
Wal-Mart is the undisputed leader in getting just about everything at affordable prices. Target is very good, too, but Target is well known. Wal-Mart, however, is used as a household name; it is synonymous with "the biggest and baddest" of its industry. "You can't out-Wal-Mart Wal-Mart."
It is the standard bearer.
It also has a great business plan. It buys land in the outskirts of small towns, which are undeveloped and cheap. They attract many customers, and other businesses build around them to capture some of this increased customer traffic flow. So the land that Wal-Mart buys becomes more valuable.
They also have a great business plan for its operations. They are the biggest, and they can get the greatest prices from volume discounts. So they can sell their products cheaper at retail than many other places can buy them at wholesale. They carry nearly everything, and they usually include one or two popular places to eat within the store. Many of them have an automotive center, too. Another words, they provide plenty of reasons for people to go there to spend money.
They also recognize the opportunities around the world. They are expanding into China and many other places, and they are wise enough to adjust what the sell at each store to appeal to the local market base.
McDonald's: Business Approach
McDonald's finds an intersection where there is a lot of traffic but not a lot of business. Once they open business, they attract customers to stop, and other business begin building there (often other restaurants). Then their property's value increases.
Their business plan for their operations is the standard bearer for standardization. No matter where in the country you go, a hamburger in California will taste the same as it does in New York. You know what to expect, because the implement the same system in every location. Their repeatable operations reduce the required skill level to create the meal that you eat so that a 16-year-old can prepare it. Even the way they clean their equipment and restaurant is standardized.
Other places try to emulate their consistency, if not the taste of their food.
The Difference: Wal-Mart vs. McDonald's
I began this post stating that only one (1) of these two (2) business behemoths will still be king of their respective industry 30 years from now.
I said that it will be McDonald's, and I said that management explained the biggest difference between which will survive "King of the Mountain."
Wal-Mart is terrific. Its top level managers are almost certainly brilliant. At least, they probably are more intelligent than this author.
McDonald's corporate level managers are almost certainly excellent, too.
I'm not really comparing THESE people.
Who am I comparing?
I'm comparing the top level person AT EACH STORE.
Sam Walton was a bright person with an awesome idea, and he saw to it that Wal-Mart became what he envisioned.
Ray Kroc was a visionary who saw a busy business in one of his customers (when he was a shake machine salesman), and he decided to figure what it was that made them so successful--and DUPLICATE it, many times over.
Both of these people have awesome qualities, and they both built tremendously powerful businesses.
If we made a clone of Sam Walton without telling anyone, this person might not reach the management level of his own company.
If we made a clone of Ray Kroc, it is very likely that he would duplicate his own success.
How do I figure this?
Sam was a brilliant entrepreneur. Entrepreneurs do not always work well within other people's companies. They often do well, because they do things DIFFERENTLY than other people. This type of behavior is seldom rewarded within companies. Hence, Sam might not get very far within it.
Ray, on the other hand, could use his entrepreneurial approach to buy more and more franchises. He would have to work within the franchise guidelines, but he could better control how far he ascends, because he doesn't need another manager's approval to do this.
An entrepreneur thrives within McDonald's. He or she would not within Wal-Mart.
Wal-Mart is run by managers.
McDonald's might have managers in the corporate offices, but they are run by entrepreneurs. That's the same thing that built McDonald's.
Managers did not build Wal-Mart.
What does this have to do with stocks or investing?
So when evaluating potential stocks to buy (or sell), we should consider whether the management is good or bad. It is just as important, though, to consider how the company really grows...today and tomorrow, especially if you plan to invest for the long-term.
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