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Some things never go out of style. Quality merchandise and low prices have been the keys to Costco Wholesale's (NASDAQ: COST) success for decades. That formula should continue to resonate with consumers, especially as inflation drives people to be more cost-conscious.
Costco further entices people to shop at its well-stocked warehouses by altering its selection of items for sale. This creates a treasure hunt-style shopping experience, which helps to drive repeat traffic to its stores.
Yet Costco's membership program might be its most powerful advantage over its rivals. Once someone pays to become a member, they're motivated to maximize their savings by shopping at Costco as often as they can. And by relying on membership fees as its primary source of profits, Costco can price its wares just slightly above its costs. That makes it hard for its competitors to match its low prices.
By providing its customers with a strong value proposition, Costco is also doing right by its shareholders. The retail titan has doubled the returns of the S&P 500 over the past five years.
Quality goods, affordable prices, and fun shopping experiences should have consumers flocking to Costco's stores in ever-growing numbers. Investors can therefore expect the discount retail leader's share price to climb further in the years ahead.
Like Costco, McDonald's(NYSE: MCD) benefits from its well-earned reputation for low prices. The restaurant giant's value-priced fare is proving particularly popular during the current inflationary economic environment, which is forcing many people to trade down to less expensive meals.
Tasty food served fast is another part of the restaurant giant's recipe for success. With consumers valuing speed and convenience in today's fast-paced world, McDonald's drive-thru lanes are experiencing steady traffic throughout the day.
Although it values its traditions -- burgers and fries are likely to remain staples on its menu -- McDonald's is embracing technological advancements. The aim is to serve more guests, reduce wait times, and deliver more personalized service. Examples include digital kiosks that help customers place their orders faster and a mobile app that integrates seamlessly with the company's MyMcDonald's Rewards program.
McDonald's is also experimenting with artificial intelligence-powered ordering systems and highly automated restaurant concepts. Although these new designs are not quite ready for prime time, the company's innovative approach allows it to stay at the cutting edge of the restaurant industry. As these technologies continue to improve, they could help to boost the profitability of its stores by increasing throughput and reducing costs.
McDonald's franchise-based business model is already highly lucrative. The fast-food king typically generates operating margins of over 40%. Management is clearly committed to passing these profits on to shareowners. McDonald's has raised its dividend for 46 consecutive years. Its shares currently yield a solid 2.1%.
With its restaurants set to crank out even higher sales and profits, McDonald's investors can safely expect their cash payouts to continue to grow steadily in the coming years.
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