McD shouldn't reinvent the wheel to drive sales; rev up performance, and customers will buy food

Nation's Restaurant News, Sept 15, 2003 by Conor Cunneen

Between 1996 and 2000, the chairman's letter in the McDonald's Corp. Annual Report only once referenced the "customer experience." That from an

organization whose vision proudly proclaimed it wanted "to be the world's best quick-service restaurant experience."

The 2001 report, published March 2002, showed a dramatic change in attitude. "First and foremost, we plan to improve the customer's experience.... We have rededicated ourselves to giving customers ... an outstanding experience," wrote departed chairman and chief executive Jack Greenberg.

Much of the burger giant's woes can be traced to the above attitude--or lack of it--in relation to the customer experience.

The best thing that McDonald's has going for it right now is just how poorly it has performed in recent years. If we sum up the situation in car industry parlance, the Oakbrook, Ill.-based giant is similar to the Ford Focus--a value-oriented, everyday car with few pretensions. The McDonald's version of the Focus, though, was one with flat tires, a dirty windshield and a very poorly maintained engine.

Today the new driver of that model, chairman and chief executive Jim Cantalupo, has demanded a major service tune-up and is providing a clear road map. In the first conference call following his appointment on Jan. 16, Cantalupo, in a stinging indictment of what he felt was going on, said, "Clean bathrooms in every restaurant and hot fresh food served quickly in every restaurant would be a change."

McDonald's previous strategy was predicated on new-store openings, a strategy that in a few years' time likely will pay dividends for the corporation once it gets its act together. But it has paid a substantial price in the interim.

Possibly the greatest indictment of McDonald's restaurant growth strategy can be garnered from comparing the average sales of a McDonald's unit with those of a Wendy's unit between 1990 and 2002. In 1990 the average Wendy's unit was generating just 55 percent of the revenue of the average McDonald's unit. Today a Wendy's unit does almost 80 percent of the turnover of its largest competitor.

Some other key business metrics also have shown astonishing declines in McDonald's performance during the past decade. Store margins have fallen from 19 percent to a current 12 percent. That compares with current margins of 15 percent for Wendy's and, while not in the same segment, 19 percent for the Red Robin Gourmet Hamburgers chain.

QSR Magazine's annual drive-thru time study shows the McDonald's average drive-thru speed is 35 seconds slower than that of the fastest in the industry --Wendy's. For those customers waiting 10th in line, that can feel like a lifetime. Conversely, for the Wendy's restaurant unit, that speedier service conservatively can generate an extra $50,000 per year.

Wendy's published some data, which, while they may be somewhat serf-serving, suggest that the Dublin, Ohio-based corporation outperforms McDonald's on 42 out of 45 metrics, primarily in relation to food and operations. A more aggressive customer-focused McDonald's certainly will improve on that dismal performance.

Greenberg's "retirement" may have been a blessing in disguise. Today there is a different sense of urgency in the McDonald's organization. That urgency is based on a clear understanding that it is the customer experience with all its associated components that will drive return business to McDonald's restaurants.

Charlie Bell, McDonald's recently installed president and chief operating officer, speaks about customer relevance with almost religious fervor. It is ironic that the relevant product message the major hamburger chains arc promoting at the moment is about salads. I doubt that Ray Kroc or Dave Thomas could have envisaged it, but they surely would have agreed that a product strategy that is relevant and just as important for the bottom line should not impact significantly on restaurant operations.

McDonald's has been hiding one of its greatest assets in recent years. Ronald McDonald is the world's second-most-recognized icon after Santa Claus, but the mascot has not been utilized efficiently in recent years. Company officials recently announced that Ronald McDonald will have a higher profile going forward.

Bell and Cantalupo also understand the No. 1 rule about running restaurants: Be brilliant at the basics. That is something they are trying to reinculcate into the organization. A disciplined grading process for restaurants will force franchisees and corporate-owned stores to upgrade overall quality. With more than 30,000 restaurants worldwide, that will take time to achieve.

Cantalupo has to be given much credit for generating new energy and direction in his company. Given his start point, he may well have completed the easiest part of a long and difficult journey.

Conor Cunneen is president of GROW Foodservice Profit LLC, a Naperville, Ill.-based consulting group. He has worked in Ireland, the United Kingdom and the United States. He can be contacted at cc@growfoodserviceprofit.com.