McDonald’s Is A Great Example For The Times

14th July 2009
Commentary submission
By Kevin Moore, CEO CROSSMARK Asia Pacific
McDonald’s Is A Great Example For The Times

With McDonald’s announcing its 2008/09 performance last week, it’s clear that brands that reinvest in their stores and retail outlets can make clear-cut profits - even now.

McDonald’s Australia is now well into a refurbishment program that almost everybody who reads this will have experienced.

Since 2003 McDonald’s has embarked on a store refurbishment program while at the same time introducing new menu offers that reflect - and are reflected by - the new store formats. The aim has been to improve the shopper experience and therefore increase frequency of visit and average spend.

Those are always the two key and most easily measurable outputs of investment to improve shopper experience. The third and fourth are “linger time” and “post purchase experience.” These two are far more difficult to measure, and fodder for another discussion.

So how did McDonald’s fare in 2008/09?

Before you read on, think about your last few visits to a McDonald’s restaurant (in the last 36 months). Think like a shopper, like your non-working self. Don’t be a business person, marketer, retailer, sales executive or researcher.

Myself, I now stop at McDonald’s in the morning or mid-afternoon between meetings - or to have meetings. I drink high quality coffee, entertain clients with quality bakery items and huddle around a PC or PDA using free WiFi. Many of my clients are CXO level retailers and manufacturers and we are usually about to or just back from store visits. We are all comfortable now, sitting in McDonald’s and discussing business.

It’s a very different experience to what it was five years ago. The changes have increased my frequency and my average spend. My “linger time” would be up about 400 per cent, and if asked about my shopper experience on the way out I’d tick plenty of 10s on a research sheet. And I talk about it to friends and colleagues.

But let’s look at the numbers - the scoreboard, so to speak.

Operating profit at McDonald’s Australia this year was up 28.9 per cent. This growth has been driven via an outlet universe that has only grown 2.6 per cent year on year. McDonald’s has driven a higher frequency of bodies through its restaurants, seen customers spend a greater amount of money during each visit and it has significantly raised profit. It’s done this at a time when the world believes everybody’s trading down to lower priced offerings - in McDonald’s ’ case, the value pack.

Unfortunately for retail observers like me, McDonald’s doesn’t break down segment sales or market share, but my bet would be that high value and high margin specialty coffees, bakery items and sandwiches have increased considerably faster that value packs and burgers over the past 12 months, all driven by very happy shoppers having a great end-to-end experience.

McDonald’s is ahead of the curve here and, in fairness, is considerably more nimble than other larger format retailers, as McDonald’s outlets have smaller footprints, smaller staff numbers per outlet and the overall business is vertically integrated. They own and manage their own supply chain and product development.

In the year ahead, having proven they can improve the shopper experience in sites that may have been in the same location for up to a decade, McDonald’s will now take a great format into new sites. It will accelerate its store opening program to increase geographical reach.

This year’s result for the chain is probably the clearest example of how improved shopper experience, in an existing outlet universe, can drive extraordinary returns.

ENDS

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