These days there is a lot of focus on companies being disrupted and the new companies challenging the status quo with cutting edge technology and ideas. The warning to the old companies is ‘adapt or die’. There are many examples of companies that haven’t from Kodak to Blockbuster. It’s easy for investors to see the shiny new technology companies and look down their nose at large companies to see who is going to be disrupted next. But not all the incumbents are slow moving laggards.
In fact, there are many outstanding businesses that have been around for 50-100 years that continue to reinvent themselves decade after decade. They may not have the appeal of the new tech companies, but they have an enviable track record of delivering results and tremendous brand loyalty and pricing power (important inflation hedge). These are companies that are easy to ignore and label as boring companies. But the way they continue to embrace change they are clearly leveraging the most exciting technological trends emerging in the world today. Here are a few standouts:
McDonalds (founded 1942) In 10 years I don’t think McDonalds will employ nearly as many young workers as they do today. Stores will be fully automated. We are already starting to see this in stores as they move to automate customer ordering. This is a business that will be able to automate every aspect of its business. From ordering to preparation and cooking to delivery of orders. Incredible brand loyalty is evidenced by McDonalds recently raising prices in the US by 6% due to inflationary pressures and have reported that these increases have been implemented without issue across the business. They have pricing power and will be able to protect their margins as they can pass on increased costs.
Caterpillar (founded 1925) Caterpillar is fast transitioning from an old school machinery company to a robotics and automation company. They have a reputation for making extremely high-quality products and have built very strong customer loyalty over time. From a branding perspective whenever you see a company that can sell their own branded clothing and boots at a premium price you know they have a market leading brand and customer loyalty. They also have hundreds of autonomous trucks operating on mines around the world. Many of these machines each cost millions of dollars. This is not an operation that is easily replicated due to their scale, quality, and brand loyalty.
Walt Disney (founded 1923) In an era where content is king there probably isn’t a company with a better suite of entertainment brands than Disney. Beyond the Disney banner, over the years they have acquired a stunning collection of the world’s most popular franchises, from Star Wars to Pixar to Marvel. To leverage this content and monetise it 2 years ago Disney started Disney+ their own version of Netflix but built on the back of the Disney catalogue and content library. In just 2 years since the launch Disney+ have reached over 118m subscribers and created a new recurring revenue stream worth billions of dollars out of nowhere. For comparison Netflix has 200m subscribers. Both are forecast to hit over 300m subscribers in the next 5 years or so which is extraordinary.
Walmart (founded 1962) Their size and scale provide them with access to an unprecedented ability to leverage the revolution in automation and robotics across almost every aspect of the business. Walmart may not have the pricing power of the others on this list but almost every aspect of the supply chain for supply markets is being reinvented by automation and tech. From the way the products are made and grown, to the way they are sourced and delivered to the store, the way the shelves are stacked to the way their products are bought, paid for, and even delivered to the customer. There are just so many costs and inefficiencies being removed from the supply chain. It’s going to equate to lower prices and higher profits. They have been using autonomous trucks in the USA for the past few months.
The demise of companies often isn’t really that difficult to predict. They have a product or service that was popular but fail to change as new products or services emerge. In many ways, it’s the same with the rising companies riding the wave of new technological trends. Relatively easy to spot as they provide a better product or service using the latest technology. But for long term investors that is only a part of the equation because both are on the same product or business cycle, just at different stages. The great companies are those that are able to sustain success over a very long period of time and have a proven track record of navigating change and technology over the course of decades, not just years.
General Advice Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.