Sunday, September 14, 2008

McDonald's Strategy: Meat, Potatoes and Coffee

"50th Anniversary McDonald's"
in River North, Chicago, IL


In a story appearing in today's Chicago Tribune, McDonald's CEO Jim Skinner reports that his biggest pet peeve is when a worker fills a cup of coffee directly from the drip dispenser instead of waiting for the pot to be filled.

"You don't get the best cup of coffee that way," he said.
Having myself worked at a McDonald's restaurant in the St. Louis area when Skinner was getting his start with the organization as a manager trainee in Carpentersville, Illinois in 1971, I had to chuckle. Like Skinner, most of my managers had come out of the U.S. military and they had taught me to "shortstop" the coffee machine when a customer was waiting for a cup. They had also taught me an elaborate set of operating procedures, as specific and detailed as any I have seen since, e.g.:

  • Get the milkshakes first because they will hold their temperature the longest and may need to thaw a bit before they are served. Then get soft drinks. Then milk and coffee.
  • You can pour two cups of cola simultaneously if you tilt the cups to the side; Diet Coke foams more than regular.
  • Throw away the burgers in the bin if they have been there more than thirty minutes; the fries don't last even half that long. Count and record the wrappers from the discarded food after the shift.
McDonald's has variously been characterized as a marketing company, a franchising company and property management company. It is certainly all of those things. However, under CEO Jim Skinner, McDonald's is once again, more than anything, a company focused on operations.

Skinner rose through the ranks of US restaurant operations until 1992, when he was tapped to lead restaurant development in the company's emerging markets of Central Europe, Middle East, Africa and India. At various times in subsequent years he had executive responsibility for every other part of the world and nearly every corporate function.

When Skinner ascended to the CEO position in 2004, McDonald's was preparing to celebrate its 50th anniversary. Planning had been underway to update the iconic "Rock and Roll McDonald's" in Chicago's River North entertainment district and prominent Chicago architects, including Helmut Jahn, Martin Wolf, and Dan Coffey were asked to submit designs.
Foreshadowing its "back-to-basics" approach, and to the apparent chagrin of at least one architectural critic, Skinner's team instead decided to build the "really big" McDonald's depicted above.

His first priority was to renew focus on customer service, cleanliness and food quality at the more than 30,000 locations. Setting aside the restaurant diversification program begun in the late 1990's by Jack Greenberg, he sold McDonald's interests in Boston Market, Chipotle Mexican Grill, and Fazoli's Italian restaurants. At the same time, the products, menu and the store formats were updated, broadening the chain's appeal to more sophisticated consumers. Better salads and chicken sandwiches were introduced. Chicken nuggets and, most especially coffee, were upgraded. If critics of style have not always been impressed, investors have been delighted. The stock that traded in the mid-$20 range when Skinner took charge now sells for $64; same-store sales have risen consistently.

One of his more innovative predecessors, Charlie Bell, had participated in the assault on Starbucks as early as 1993 when the McCafe format was introduced in his native Australia. While that format, a pub-like version of a coffee shop with offerings similar to Starbucks, has been test-marketed in the U.S., it has not been widely adopted. Instead, a series of coffee drinks were perfected and suppliers worked with McDonald's to develop machines that could mass-produce them.

A strategist might have moved more dramatically; an innovator might have hired craftsmen to experiment with drinks as restaurants were rolled out. Skinner, the operations master, perfected the drinks, the equipment, the operating procedures and the marketing message before he unleashed the roll out.

See also Brand, Menu and Store Design and Chain Restaurant Development.

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Michael Butler said...

Great article thank you. I would like to mention that now is the time for all hospitality and food service businesses to go back to basics. They need to stop relying on volume footfall to gain growth. Footfall will decrease as consumers cut back on spending and we all business will have to win every customer. Jim Skinner at MacDonald’s was absolutely right "to renew focus on customer service, cleanliness and food quality" for the 50th anniversary and I would suggest this focus and commitment should be at the forefront of every business right now. In the UK MacDonald’s has grown so fast that service and food quality has definitely suffered , In fact in the UK many MacDonald’s do not take coffee seriously , the number of times speciality coffees have been unavailable due to milk warming is amazing. One of the best commitments a company can give right now is to go back to basics and focus on their USP and product knowledge , it is quite frustrating when people don’t know what goes into your food or meal , yet they are selling you the experience !!!

Parag said...

It is indeed a minimum expectation at any food service establishment which Jim Skinner refocussed on "to renew focus on customer service, cleanliness and food quality". Somehow, we tend to overlook these basic aspects in order to make our products look better and classy. A case in point for McDonalds could be to have tea introduced for its customers in tea drinking nations. I began my hospitality career with McDonalds in India and certainly believe that tea could be a welcome addition on the menu for its patrons in tea drinking nations.

Joe said...

McDonald's is smart for adapting high-end coffee to a slow economy, but still, their McCafe coffees aren't a whole lot less than Starbucks