McDonald’s stay ahead of the competition by adapting with the times

Its demise has been repeatedly forecast but each time, McDonalds fights back by adapting quickly to changing times. It’s the Madonna of the food industry says Jonathan deBurca Butler

EARLIER this week, newly appointed McDonald’s chief executive Steve Easterbrook announced that his company had a “turnaround blueprint” for the restaurant chain. In an online address that lasted over 20 minutes, Easterbrook admitted the company’s “recent performance has been poor”, adding that “the numbers don’t lie”.

The chain celebrates the 75th anniversary of the opening of its first restaurant next Friday in something of a gloomier position than it had hoped. Company profits are down 15% from last year. From an April 2013 share price high of $103.59, the last two years have seen the company share price meander up and down between the $90 and $100 mark. The current share price sits at $96.13.

Customer visits in the United States are on the decline. In Asia the company has suffered reputational damage after an incident involving a supplier. Some European customers are also visiting less frequently; a situation that is not helped by some cultural own goals on the part of the chain.

Back in April McDonald’s in Italy launched an advertisment featuring a boy in a Pizzeria asking a waiter for a ‘Happy Meal’. It lead to an animated response from Napoli’s pizzeria association, who said the ad was a “dishonourable attack against one of the symbols of the Mediterranean Diet”.

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So does the latest bad news spell crisis for the chain?

“It’s not a crisis yet,” says Dr Richard George, Professor of Food Marketing at Saint Joseph’s University Philadelphia. “It is a serious wake up call however. Swift, decisive action is needed sooner rather than later. Other competitors are taking meaningful market share. The rise of better burger options, such as Five Guys, and the growth of innovative fast casual options, like Chipotle with its emphasis on fresh, makes for a challenge to McDonald’s as well as the other traditional fast food operators.”

While the board of McD’s might not be lovin’ it as much as they had hoped, it’s worth remembering that in its 75 years of trade it has faced many hurdles. Just 12 years ago, on the back of some negative publicity, the company’s share price hit a low of just $12.82. They managed to turn things around. Who is to say they won’t do it again?

“McDonald’s are so strong and so powerful, they just don’t stand still,” says Jim Ronayne, owner operator of three McDonald’s restaurants in Cork (see panel). “They challenge us and they challenge the market every day of the week. But most importantly they challenge themselves.”

From the very beginning McDonald’s has adapted. The restaurant was founded by two brothers, Richard and Maurice (Dick and Mac) McDonald, on May 15, 1940, in San Bernadino — a small non-descript town an hour from Los Angeles. In that endeavour they were unremarkable. At the time, the United States was awash with burger and barbecue joints where chirpy, gum-chewing waitresses sold Uncle Sam’s staple snack to an increasingly affluent suburbia.

The Brothers Mc were not innovators. They were modifiers and modernisers and above all they were observers. Dick and Mac watched, noted and improved. In 1948 they tore the project up and started again.

Now instead of waiters coming to the customer, the customer came to them. The brothers laid out the kitchen so that they knew exactly how many steps it took to get from the stove to the counter and back. This, they calculated, meant that every customer would be served within 50 seconds and they would sell burgers and only burgers — quickly and cheaply.

The “speedy-service system” turned their kitchen into an efficient machine. It was a system that worked and one that made them very wealthy indeed.

THOUGH McDonald’s had its beginnings in the sunny climes of the American west coast it was a businessman from Chicago, Ray Kroc, who turned the restaurant into the global phenomenon we know today. He first came across the restaurant in 1954 when he stopped by to pitch some milk shake machines to the brothers. He liked what he saw and eventually persuaded them to let him open a franchise in Illinois.

In 1961 he bought the entire firm, for $2.7m, having expanded the business to over 100 outlets across the country. His success was his insistence on uniformity but he was not afraid to change.

When Big Boy restaurants, another chain, introduced its Big Boy sandwich, the Big Mac followed close behind. Today, the McDonald’s drive-thru makes up for almost 50% of the company’s profits but it was a rival, In and Out, who came up with the original idea.

In 1967, the company went international, opening its first overseas restaurant in Canada. It came to Britain in 1974 and three years later it opened in Grafton Street, Dublin. Everywhere it goes, it adapts (or at least gives a nod) to the local culture. In the Middle East it sells kebabs along with its McFlurry’s.

In Israel, milk shakes are not available due to kosher law that prevents dairy and meat preparation in the same kitchen. Perhaps its most notable foreign venture is France where it has over 1,000 branches selling Pulp Fiction’s Vincent Vega’s famous “Royale with cheese”. Such is the restaurants popularity, that last year, residents of Saint-Pol-sur-Ternois near Lille took to the streets when the local council reversed a decision to build a McDonald’s in their town.

OVER the years, there have been many critics. Books such as Eric Schlosser’s Fast Food Nation (2001) raised questions over the company’s operation and played no small part in the early millennium slump. And who can forget watching Morgan Spurlock gorge himself to sickness in Super Size Me (2004) — something that might well have happened had it been done in any other restaurant. It has given us the term McLibel, and the rather creepy Ronald McDonald but all the while it has adapted. In recent years, it has taken on a greener, cleaner, more caring image. Its coffee is sourced from sustainable growers and of course its beef is 100% Irish (or French or German depending where you’re from). A visit to the toilet informs you that its waterless urinals save thousands of litres of water every year.

For a time the changes worked but Easterbrook has now admitted, it’s time to go back to the drawing board.

“I do think Steve Easterbrook deserves more time,” says Professor George. “It appears that his initial focus, reorganisation and selling 3,500 units to franchises, will save millions of dollars. But I think McDonald’s needs to simplify its menu — the first McD’s had three choices. They also need to address a change in consumer behaviour which now sees many people having five smaller meals in place of the three traditional day-parts. The McDonald’s 75-year legacy of innovation and reinvention needs to move front-and-centre if real growth in sales and profits are to return.”

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RIGOROUS TRAINING FOR FRANCHISEES

Jim Ronayne owns and operates McDonald’s in Mallow and Blackpool Shopping Centre. He also runs the Blackpool drive-thru and later this year he opens a new franchise in Musgrave Park. He opened his first franchise in 1998.

“I had a number of restaurants trading that were going nowhere fast,” he explains. “There wasn’t really a strong brand name associated with them. So I decided to look at options for the long term. I was working with a consultant on it and his view was you go with the best you can and McDonald’s was obviously top of the pile. It’s the biggest restaurant in the world by far, it’s got massive purchasing power and marketing, so we started investigating it and we worked with McDonald’s over a period of two years to open the first store in Mallow.”

As Jim explains, becoming a McDonald’s franchisee “doesn’t happen overnight”. After a panel interview, where the company reviews and assesses your suitability, a candidate goes through a rigorous training programme which lasts 12 months.

“It’s in the UK,” says Jim, “and I had to fund it myself, no salary. Back then Ryanair wasn’t as prevalent so going over and back was £300 a pop. I had three young children at the time and another one on the way. You have to go in on the ground, learn the whole business and learn each station. I’d say the whole thing cost me about £20,000-25,000 just to get the training. It was a huge commitment and it wasn’t easy but it has paid off for me.”

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DID YOU KNOW?

- The chain feeds 68 million people per day, that’s about 1 percent of the world’s population.

- The first European drive thru McDonalds was at Nutgrove Shopping Centre in Dublin.

- There’s no such thing as beefburgers at McDonalds in India as cows are sacred in their culture. Instead you can pick up a lamb Maharaja Mac instead.

- Sharon Stone worked at McDonald’s before she was famous. So did Shania Twain, Jay Leno, Rachel McAdams and Pink.

- The first Ronald McDonald, Willard Scott, was fired for being too fat.

- A person would need to walk for seven hours to burn off a supersized coke, fries and Big Mac.

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