Socially Responsible Investing: CMG vs MCD
I'm super excited for the official posting of my TEDx Talk from November 14, but in the meantime I thought I would provide some details and examples to get you all intrigued about socially responsible investing (SRI). If you'd like a refresher on the subject matter, please click here!
In the meantime, many of you have said that SRI is a novel concept but does it really work? What does this look like in the form of a stock? I like using food companies to provide an example because they are very easy to understand. In this case, I talk about a stock everyone knows: McDonalds' (MCD) and its foil: Chipotle Mexican Grill (CMG). For those of you unfamiliar with this chain, it is a sustainability-focused, GMO-free fast-casual restaurant chain that incidentally was a subsidiary of McDonalds from 1998 to 2006. At the time, McDonalds said they were dropping Chipotle to focus on improving its core restaurants. In reality, McDonald’s management was frustrated that Chipotle would not adhere to its franchise and general restaurant practices – namely when it came to food preparation. They just wanted a way to compete with Taco Bell.
McDonalds originally invested $360 million to buy Chipotle and ended up divesting the company for $1.5 billion. A nice profit right? Well today Chipotle on its own is now valued at $23.1 billion – that’s nearly a third of the value of McDonalds.
However, at a third of its value, Chipotle’s stock is just shy of $750 per share, while McDonalds can’t break above $100. Why? Consumers believe in the values Chipotle is conveying and are willing to shell out $9 for a burrito. Have you seen McDonalds’ recent campaign to be “more transparent” about their food? They didn’t understand why this campaign wasn’t working. The point was people already know what goes into your food, and they don’t like it. In the last few months, McDonalds made a few baby steps in the right direction, announcing it would stop feeding its chickens antibiotic grains and growth hormones. Not a solution, but it’s a start.
Consumers are putting their dollars into the socially superior company, so imagine what would happen if investors did the same? You have the ability and the responsibility to align your retirement savings with companies that reflect your values. If you really like a company, buy their stock, if you don’t like what they’re doing, boycott them AND tell shareholders to sell the stock.