McDonalds and Starbucks in the Canadian Market

Current and Recent Economic Conditions

The Canadian economy is currently experiencing growth that had already surpassed, in some ways, the pre-pandemic period when there was a significant recession. It is evidenced by GDP and unemployment figures, which slightly exceed the values of January-February 2020 after a prolonged increase from May 2020 to today (Statistics Canada, 2022a; Statistics Canada, 2022b). These indicators indicate the return of production to pre-crisis levels, as well as the restoration of the purchasing power of citizens. However, several signals show negative changes in this situation in the economy. First, since the pandemics beginning, when inflation was even below zero, it has risen to almost 8%, hitting new all-time highs (Trading Economics, 2022a). The situation also required appropriate interventions from the authorities, who began to return the countrys key rate to the level of 2018 (Trading Economics, 2022b). These actions are caused by the threshold of a new economic crisis due to the complicated geopolitical situation in Eastern Europe.

It is very likely that against this background, GDP growth and unemployment may reach a plateau if the growth trend of the critical rate and inflation continues. High vital rates make it difficult to lend to households and businesses, which has caused, for example, housing construction and mortgage lending to sag significantly (Statistics Canada, 2022c). If, in the first quarter of each year, such a decrease is natural, then these trends are already noticeable during the year before and after that. Inflation and complicated lending significantly reduce the purchasing power of the population and, accordingly, business revenue. Thus, GDP growth, for now, is still recovering from the pandemic, adjusted for inflation. The future state of the Canadian economy is unlikely to boom, given the dynamics of these indicators. This paper analyzes two companies: McDonalds and Starbucks.

Political and Social Trends

The selected companies represent the food industry, implying establishments for visitors. Working with delivery aggregators is an essential step in business development dictated, among other things, by the pandemic trends. Due to the long-term consequences of the spread of the virus, political security trends are likely to remain in place even after the situation is brought under control. Therefore, these companies must increase operating costs to maintain stricter security conditions for customers on an ongoing basis. As the financial analysis shows, Starbucks significantly increased its long-term debt ahead of 2020, which proved to be a financial cushion as part of the store closures and crisis (Macrotrends, 2022a). At the same time, the company could significantly increase revenue even minus the cost of goods sold in 2021, which indicates the social trends of returning to everyday life and the value of such actions.

A similar trend is observed at McDonalds, although in smaller volumes in revenue, but in more enormous net profits, indicating efficiency. The only difference is that this companys assets/liabilities ratio did not experience significant jumps (Macrotrends, 2022b). Share prices sank in 2020 but began to recover quickly and rise by 2022, after which they began to decline again. Growth is likely due to adaptation to new political trends and changes and works with delivering food and drinks and the gradual return of visitors. A disruption in the supply chain most likely caused the fall due to the aggravated situation in the east of Europe, which created new political trends.

The Industry in Which Companies Operate

The restaurant industry, which includes McDonalds and Starbucks as separate representatives, has been experiencing significant difficulties since the pandemic lockdowns and partial bans. On the eve of the new year, 2021, legislation banned sales during a specific period, significantly hitting industries that stocked food for the holiday (Bundale, 2021). This ban affected Starbucks and McDonalds chain outlets less, but revenue was probably lost.

These companies directly participate in several trends at once. Starbucks may have lost share prices due to pay scandals, leading to the formation of workers unions in Canada, following the example of the United States (Subramaniam, 2022). On the other hand, the company pays for travel to places where abortion is legal for its employees (Chapman & Durbin, 2022). This balance at the social level creates unsustainable dynamics in stocks. In addition, both Starbucks and McDonalds have exited the Russian market, which will affect the companies revenue in 2022 financial statements (Reuters, 2022a; Reuters, 2022b). Accordingly, globally, companies are beginning to experience a crisis due to the exit from a large market and the disruption of supply chains, while in the Canadian market, they are also forced to adapt to security conditions due to the consequences of the pandemic, but they survive these obstacles much better.

Financial Statements

The Revenue/Sales Dollar Amounts and Net Income After-Tax Dollar Amounts

Table 1. Income Statements (Macrotrends, 2022a; Macrotrends, 2022b).

Company	2021	2020	2019
McDonalds revenue, mln $	23223	19207	21346
McDonalds Net Income, mln $	7545	4730	6025
Starbucks Revenue, mln $	29060	23518	26508
Starbucks Net Income, mln $	4199	928	3599

Financial Ratios

Table 2. Financial Ratios (Macrotrends, 2022a; Macrotrends, 2022b).

Company	2021	2020	2019
McDonalds Current Ratio	1.78	1.01	0.98
McDonalds Debt/Equity	-7.74	-4.78	-4.16
McDonalds Net Profit Margin	32.49	24.62	28.20
McDonalds Asset Turnover	0.43	0.36	0.45
McDonalds ROE	-163.99	-60.45	-73.39
Starbucks Current Ratio	1.20	1.06	0.91
Starbucks Debt/Equity	-2.75	-2.09	-1.79
Starbucks Net Profit Margin	14.45	3.94	13.57
Starbucks Asset Turnover	0.92	0.80	1.37
Starbucks ROE	-79.03	-11.85	-57.69

The Business/Product Cycle of the Companies

McDonalds adapts its dishes to different countries and offers various seasonal novelties, the best of which remain on the menu. However, there is no horizontal diversification in McDonalds products, while Starbucks enters the markets for retail coffee in packages. The companys increased expenses on the line expansion are noticeably reflected in the crisis year in the net profit margin. McDonalds, being a more financially efficient organization, generally has more robust liquidity and financial leverage, except for highly high long-term debt. Accordingly, Starbucks production cycles are expanding, and the supply chain is becoming more complex while covering a more expansive geography in logistics, including retail. McDonalds, like Starbucks, is a non-cyclical company, so one of the first to recover from the severe restrictions of the pandemic and showed significant growth in shares and revenue. However, current product sales are only growing, like those of competitors. At the same time, it is much more difficult for local networks to adapt and compete with the ability to deliver and maintain the market price of products with global companies.

The Risks That Apply to the Companies Stocks

Currently, the world is on the verge of a significant crisis due to complications in supply chains due to the geopolitical situation in Europe. Shares of non-cyclical companies during an economic downturn are protective for investors, but both organizations are deprived of a large market and, accordingly, financial resources to pay dividends. Participation in local scandals does not significantly impact the share price. The balance will be found through regular adaptation to new crisis challenges. It is worth noting that McDonalds survived the pandemic better than Starbucks, but Starbucks has diversified its business into new markets with a firm brand name. All negative factors are balanced to some extent by positive ones; therefore, it is worth evaluating possible risks precisely from a number of negatively influencing determinants. In addition, the companies are already showing a significant boom in growth, which is currently accompanied by a fall, which is likely to continue on a small scale until the situation in the global market stabilizes.