McDonald's Moat Intact, But Shrinking Appetites Threaten Sales

McDonald's (MCD) shares have dropped by 22% over the past year, despite the brand remaining intact and restaurants continuing to attract customers. The decline is largely attributed to a growing threat from GLP-1 drugs that reduce appetite and lead to smaller portions being sold at fast-food chains.

The company's competitive moat, built on its real estate, franchise structure, and 46% operating margin, remains strong against traditional competitors. However, the emerging challenge is not a rival chain but rather pharmacology, as people increasingly opt for lower-calorie options.

McDonald's business model relies heavily on fixed property costs, which makes it difficult to adapt to a decline in sales volume. As customers eat less, the company faces pressure from franchisees who struggle to cover their rent, potentially leading to renegotiations or restaurant closures.