When McDonald’s earlier this week reported yet another strong period of same-store growth — up 7 percent in July — I thought of one person: Bill Ackman.
No, Bill is not the CEO. And he doesn’t even own shares of the fast food giant (although as of the most recent filing, he owned stakes in Yum Brands and Landry’s Restaurants).
Rather, I could only think back to 2005-2006, when the activist hedge fund manager, who founded Pershing Square Capital Management in 2003, began urging the then-stodgy company to make radical changes to jump start its stock.
Oh sure, the stock had already more than doubled from its low less than three years earlier. And the company did not wind up doing all of the things Ackman agitated for.
However, it did make some serious moves in response to the hedge fund manager.
It bought back some stock and hiked its dividend, sold nearly 1,600 Latin and Caribbean stores, and spun off Chipotle Mexican Grill, which has since become one of the most successful fast food chains.
There was also an intangible benefit. It is not coincidental that since around the time Ackman pushed for change, the company has become much more innovative.
People who would not touch its Big Macs and other fattening foods now go there for its revamped salads and its high-end coffee offerings aimed to compete with Starbucks. (I personally go there for the $1 ice-cream cone or sundae).
Since then it introduced lattes, cappuccinos and iced brews.
In fact, in announcing its strong July sales, McDonald’s said top contributors were beverages, including the recently launched McCafe Real Fruit Smoothies and Frappes, its latest blockbuster offerings.
In fact, Smoothies are so popular the company recently cancelled plans to offer them free for a day because it feared it would not have enough supplies to meet anticipated demand.
The upshot: As much as activist investors are demonized by management, many lawyers and others as opportunists looking to make a quick buck from one-time dividends, stock buybacks, and outright sales — which is also true — many of them also serve as the kick in the butt for management to rediscover their inner innovator and aggressively lead the company into new markets.
