It seems when you operate the world's most successful franchise, you become the target for every criticism or headline--59-year-old Don Gorske, already in the Guinness World Records 3 years earlier, just ate his 25,000th Big Mac; there was a movie 7 years ago called "Super Size Me"; the Nutrition Police are out to ban the clown Ronald McDonald; San Francisco has effectively banned the Happy Meal, by outlawing the distribution of free toys with child-size meals not meeting certain nutritional standards. And, of course, the modest wages for relatively low-skilled work have become a favorite target of progressive politicians pushing so-called "living wages" legislation.
My position with McDonald's is somewhat nuanced. First, I have owned a small number of shares for years in its direct investment program, but my position is not material relative to my portfolio and I have not actively traded my position in years. Second, my interest in McDonald's is sentimental for a couple of reasons. My dad was career-enlisted in the Air Force, with modest wages for raising a large Catholic family. My folks rarely had the budget for us to eat out regularly; a trip to McDonald's was a special treat, typically on special occasions like one of us kids having a First Communion or Confirmation.
Years later I was taking a capstone business strategy course in the MBA curriculum. The key team course project was to analyze a company and present a business strategy plan. I joined a team with 3 other people; two members of the team were passive, and so the third member and I took charge and started brainstorming possible companies. During small talk, it turned out before my colleague was married, he and his wife were working in cities about 150 miles apart, and on weekends they would date by meeting at a McDonald's about halfway between the cities. As soon as he uttered 'McDonald's', I knew we found our target company.
During the process of analyzing the company, I had to navigate past the Ray Kroc-isms (the legendary company founder, a milk-shake mixer salesman to the namesakes; see also here). There's a lot of standard management theory here (e.g., Taylor principles), basically in terms of simplified menus, consistent food preparation, etc. I'll never forget one laughably absurd Kroc-ism: did you ever note that McDonald's doesn't sell the all-American hot dog? Ray Kroc said, "There's only one way to cook a hamburger: you fry it. There are so many different ways to prepare a hot dog..." There is little wonder why Burger King constantly markets its burgers as flame-broiled and that you can prepare the burger the way you want vs. the standard McDonald's way... As for the hot dog: New York street vendors and baseball parks somehow manage to sell large volumes, and you have dedicated hot dog chains like Nathan's Famous. I still have a copy of our final team report, but one thing in particular I remember is that I had criticized the chain's very conservative business expansion plans. The reason this point sticks with me is I went to a local Walmart's about 2 or 3 years back and unexpectedly found a small-scale McDonald's operating in the store; in fact, there was a standalone McDonald's within a couple of blocks of the adjoining intersection. So clearly McDonald's has made some business strategy changes since my MBA project.
There is a lot to say about the legendary consistency of the McDonald's experience. I traveled to São Paulo, Brazil on a couple of business trips in 1995, one of them an extended visit for nearly 3 months. I ate out all the time, but one of the problems I found was that the restaurants had a hard time maintaining consistency because of chef turnovers. I was very happy sampling Brazilian cuisine during my extended stay, but every once in a while I just wanted a decent American burger and decided to go to the ubiquitous Golden Arches. I was stunned to find a line stretched out into the street--this in a lower-wage country where, at currency exchange rates, combo meals cost somewhere near $7. Other than have to speak Brazilian Portuguese to order (it's amazing how fast a hungry overweight American tourist can pick up enough Portuguese to get by), I found the experience no different than eating at a typical McDonald's back home--the place was clean, the food tasted the same, the service was quick, etc.
In many ways, business success can make company management both conservative and arrogant. It is conservative in the sense that what it is doing works; its customers buy a lot of food, and the company makes a lot of money. "If it ain't broke, don't fix it." [The following is not based on any interview from company management but is based on my interpretation of their perspective.] The corollary from company management is that the customer himself decides; it is providing what the public wants. If the customer doesn't want to buy, he or she won't. We don't need elitist food critics talking down to us; we have focus groups that test our products before we ever roll them out. And guess what--people don't buy the kinds of food the critics want us to sell. Their criticisms are misguided; what the critics really don't like the kinds of food Americans serve at their own homes: have you looked at the nutrition in mac 'n cheese, peanut-butter-and-jelly sandwiches, pizza, etc.? We are just a convenient scapegoat. Listen, if the preponderant numbers of our customers wanted the tofu burgers, we would sell tofu burgers: what we are really selling is fast, consistent, quality food at a competitive price, we offer busy parents a break where we take care of meal preparation and cleaning.
I mentioned a kind of arrogance. One of the problems, from my perspective, is that management can become unduly complacent. Until a few years ago, McDonald's sold salads in fairly unattractive packaging and sold a modest number. It decided to revamp its salads, and same-store sales exploded as professional women dramatically increased the frequency of their visits, with even syndicated talk show host Oprah Winfrey noting she liked McDonald's premium salads. There are a number of things that McDonald's could go to dramatically cut carbs, salt and other nutritional considerations with modest changes (if any) in taste.
I'll give a couple of examples from my own perspective. I happen to prefer the Big & Tasty burger, the healthier version of McDonald's burgers. McDonald's has had a love-hate relationship with the Big & Tasty. They complain that it doesn't sell well. Well, let me clue management in on my experience: every time I order the Big & Tasty, it takes at least four times longer to get my order than normal. If one of the reasons you go to a McDonald's is quick service, that's not good. So I may order a different sandwich, particularly if I'm pressed for time, say, I have a 1PM team meeting. It doesn't mean I really wanted that Big Mac... At least if I'm at home, I can fire up my Foreman grill, stick a low-fat grass-fed beef burger on it, season with a little sea salt, whole wheat bread, a slice of onion, some romaine lettuce or spinach, sliced tomatoes, maybe some peppers and/or salsa. I know McDonald's is never going to serve that, but it could do better...
The second point is when I'm on business travel, I like the idea of being able to get a quality, healthier fast meal on the fly; McDonald's simply doesn't provide that option, and its website is utterly unusable for the average dieter. You have to thread your way through their menu: what lower-carb entrées or salad dressings are there? Can I get extra virgin olive oil? A whole-grain bun? A side-salad or soup instead of fries? Are there non-fried fish or chicken items without higher-carb breading? Can I get my meal bundle with bottled water? What McDonald's doesn't seem to realize is that it loses a lot of opportunity sales by refusing to acknowledge the market, just like they earlier refused to see the value in offering premium salads.
I remember when comfort food chain Boston Chicken/Market had over-expanded and made some business mistakes (e.g., going into sandwiches which cannibalized its higher-revenue entrée meals), McDonald's bought them for a song, primarily for underlying real estate, e.g., for future McDonald's stores. They suddenly discovered some of these locations were actually making a lot of money... My entrepreneurial dreams were on steroids; okay, so maybe McDonald's stumbled by accident into a gold mine, but surely not all corporate managers were blockheads: they had to see the possibilities: I could see McDonald's drive-throughs selling rotisserie chickens to working parents on their way home from work; I could see McDonald's offering new premium sandwich combos; I could see combination outlets where parents could sit down to a real meal of a quarter-chicken, turkey, meatloaf or beef brisket with sides, like its trademark mashed potatoes, steamed vegetables, dressing, or (child-pleasing) macaroni and cheese, while kids enjoyed their Happy Meals. I'm sure that McDonald's pencil-pushers had a million excuses why these concepts would never work, while they scratched their heads trying to figure out how to attract more business in the evenings when most people aren't satisfied with sandwich/nugget combo meals... (McDonald's sold off their Boston Market stores some time back.)
When I started researching a lower-carb lifestyle back in 2003-2004, I remember writing a long letter of suggestions to McDonald's; maybe I forgot mentioning I was a shareholder. I got back a response from one of their lawyers whom went out of his way to explain not a single McDonald's manager saw a single word I wrote, that the company doesn't want any unsolicited advice (and if they needed any good business advice, they would get it through the management consulting company of their choice). I suspect that the real reason is they are afraid if they admit to listening to what their owners/customers have to say, those people may try to sue them for the market value of their suggestions...
I won't reprint my original letter here, but let me list some revamped recommendations:
In many ways, business success can make company management both conservative and arrogant. It is conservative in the sense that what it is doing works; its customers buy a lot of food, and the company makes a lot of money. "If it ain't broke, don't fix it." [The following is not based on any interview from company management but is based on my interpretation of their perspective.] The corollary from company management is that the customer himself decides; it is providing what the public wants. If the customer doesn't want to buy, he or she won't. We don't need elitist food critics talking down to us; we have focus groups that test our products before we ever roll them out. And guess what--people don't buy the kinds of food the critics want us to sell. Their criticisms are misguided; what the critics really don't like the kinds of food Americans serve at their own homes: have you looked at the nutrition in mac 'n cheese, peanut-butter-and-jelly sandwiches, pizza, etc.? We are just a convenient scapegoat. Listen, if the preponderant numbers of our customers wanted the tofu burgers, we would sell tofu burgers: what we are really selling is fast, consistent, quality food at a competitive price, we offer busy parents a break where we take care of meal preparation and cleaning.
I mentioned a kind of arrogance. One of the problems, from my perspective, is that management can become unduly complacent. Until a few years ago, McDonald's sold salads in fairly unattractive packaging and sold a modest number. It decided to revamp its salads, and same-store sales exploded as professional women dramatically increased the frequency of their visits, with even syndicated talk show host Oprah Winfrey noting she liked McDonald's premium salads. There are a number of things that McDonald's could go to dramatically cut carbs, salt and other nutritional considerations with modest changes (if any) in taste.
I'll give a couple of examples from my own perspective. I happen to prefer the Big & Tasty burger, the healthier version of McDonald's burgers. McDonald's has had a love-hate relationship with the Big & Tasty. They complain that it doesn't sell well. Well, let me clue management in on my experience: every time I order the Big & Tasty, it takes at least four times longer to get my order than normal. If one of the reasons you go to a McDonald's is quick service, that's not good. So I may order a different sandwich, particularly if I'm pressed for time, say, I have a 1PM team meeting. It doesn't mean I really wanted that Big Mac... At least if I'm at home, I can fire up my Foreman grill, stick a low-fat grass-fed beef burger on it, season with a little sea salt, whole wheat bread, a slice of onion, some romaine lettuce or spinach, sliced tomatoes, maybe some peppers and/or salsa. I know McDonald's is never going to serve that, but it could do better...
The second point is when I'm on business travel, I like the idea of being able to get a quality, healthier fast meal on the fly; McDonald's simply doesn't provide that option, and its website is utterly unusable for the average dieter. You have to thread your way through their menu: what lower-carb entrées or salad dressings are there? Can I get extra virgin olive oil? A whole-grain bun? A side-salad or soup instead of fries? Are there non-fried fish or chicken items without higher-carb breading? Can I get my meal bundle with bottled water? What McDonald's doesn't seem to realize is that it loses a lot of opportunity sales by refusing to acknowledge the market, just like they earlier refused to see the value in offering premium salads.
I remember when comfort food chain Boston Chicken/Market had over-expanded and made some business mistakes (e.g., going into sandwiches which cannibalized its higher-revenue entrée meals), McDonald's bought them for a song, primarily for underlying real estate, e.g., for future McDonald's stores. They suddenly discovered some of these locations were actually making a lot of money... My entrepreneurial dreams were on steroids; okay, so maybe McDonald's stumbled by accident into a gold mine, but surely not all corporate managers were blockheads: they had to see the possibilities: I could see McDonald's drive-throughs selling rotisserie chickens to working parents on their way home from work; I could see McDonald's offering new premium sandwich combos; I could see combination outlets where parents could sit down to a real meal of a quarter-chicken, turkey, meatloaf or beef brisket with sides, like its trademark mashed potatoes, steamed vegetables, dressing, or (child-pleasing) macaroni and cheese, while kids enjoyed their Happy Meals. I'm sure that McDonald's pencil-pushers had a million excuses why these concepts would never work, while they scratched their heads trying to figure out how to attract more business in the evenings when most people aren't satisfied with sandwich/nugget combo meals... (McDonald's sold off their Boston Market stores some time back.)
When I started researching a lower-carb lifestyle back in 2003-2004, I remember writing a long letter of suggestions to McDonald's; maybe I forgot mentioning I was a shareholder. I got back a response from one of their lawyers whom went out of his way to explain not a single McDonald's manager saw a single word I wrote, that the company doesn't want any unsolicited advice (and if they needed any good business advice, they would get it through the management consulting company of their choice). I suspect that the real reason is they are afraid if they admit to listening to what their owners/customers have to say, those people may try to sue them for the market value of their suggestions...
I won't reprint my original letter here, but let me list some revamped recommendations:
- Provide healthier/dieter meal combo options: McDonald's needs to improve its website and menu options to quickly identify and simplify ordering of lower-calorie/fat/carb food bundles (including side-salads or fresh vegetable cups and non-carbonated/low calorie beverages); improve offerings of salad dressings, including extra-virgin olive oil and no-sugar salad dressings; improve lower-calorie beverage selections/options, including skim milk, bottled water, and zero-calorie iced tea; improve availability of fresh fruits; provide whole-grain alternatives (e.g., buns or tortillas)
- Initiate soup-and-sandwich bundles. Soup can be nourishing, especially for dieters. Soup choices might include chicken noodle, beef vegetable, clam chowder, or minestrone.
- Improve non-fried menu options: Breaded poultry or fish items are a no-no for lower-carb dieters. Consider options like lower-fat chicken/tuna/salmon salad wraps using whole-grain tortillas.
- Introduce premium meal options: upscale burgers (say, grass-fed or low-fat) with fresh-baked buns and a fixings bar, similar to Fuddruckers; foot-long kosher hot dogs; sirloin steaks; comfort-food entrées, e.g., roast poultry, meat loaf, or pot roast.
- Offer economically-priced family/picnic/party bundles. Offer sales discounts correlated with order totals.
- Implement a special of the day concept. Specially-priced menu bundles may attract bargain customers, drive repeat business, and/or provide an incentive to try new or seasonal menu items. There are other ideas that could work as well. For example, I once did a gig at a television station in San Francisco. I think twice a week a local convenience store/deli would roast a turkey, and people would line up to buy a fresh roasted turkey sandwich. You could easily extend this concept to, say, carving beef or ham.
- Initiate a classic kids menu. I have enough siblings, nieces and nephews to know there are food items kids love--maybe it's old fashioned peanut butter and jelly, macaroni and cheese, hot dogs, grilled cheese, BLT's, etc. (I'm sure mothers can think of others.) Why sell something Moms already make at home? Maybe that's the point...
- Establish a frequent customer program. Imagine if you could earn a meal combo coupon for your child at college or donate it to a local charity. Or perhaps working parents could earn points towards a McDonald's wishbook item (or donate them to Toys For Tots or similar charity). Alternatively, McDonald's could introduce discounted, refillable customer cards.
