McDonald's: a turnaround story
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Yesterday, in a story titled "At McDonald’s, the Happiest Meal Is Hot Profits," the New York Times reported that McDonald's had increased global same-store sales in each of the last 55 months. It was one of only two companies among the Dow Jones Industrials whose price rose in 2008.
Wow. Just about six years ago I wrote a column titled, "When the passion is gone, the profits are over." The company was adding more stores, but the passion for a great customer experience seemed to have drained away.
Innovation had certainly ground to a halt. You had to look all the way back to 1979 for the last blockbuster addition to the menu. It was the Happy Meal.
Things have certainly changed. The question is, "How?"
The former exec they brought back, Jim Cantulpo, started things rolling with what the company now calls its "Plan to Win." In less than a page it describes necessary changes in people, products, price, place, and promotion.
That description makes it sound like typical corporate gobbledygook. But since it turned into action that became a turnaround, it's worth a look at what McDonald's actually did.
They changed the mission ever so slightly. It had been: "being the world's best quick-service restaurant." Now it's being "our customer's favorite place and way to eat." I love the change, from a corporate measure to a customer measure.
That change had a practical outcome, too. Before, the emphasis was on more and more and more stores. With the change in mission, the practical result was less emphasis on growth in number of stores and more on improving the customer experience.
There was also a return to basics, especially QSCV. That stands for Quality, Service, Cleanliness and Value. It was a core principle that guided the company until sometime after Ray Kroc died.
Kroc believed that if McDonald's delivered those things profits would follow. It worked then. It looks like it's working again.
There's been adaptation, too. McDonald's has modified operations with longer hours and better drive-through service. And, yes, there have been new products. Maybe not blockbusters like the Happy Meal, but products like quality coffee that bring people in and add to profit.
Turnarounds fascinate me because more of them seem to wind up like Wedgwood or Circuit City than like IBM or Gillette. It seems like the successful ones do a few similar things.
Successful turnarounds seem to start by simplifying and putting an emphasis on the basics.
Successful turnarounds seem to be created from a mix of existing strengths and new opportunities. They keep the bits of tradition and history that made the company successful and find ways to apply them in today's world.
Successful turnarounds don't spend a lot of time starting to prepare to begin to get ready to draw up a plan. Instead, they're action oriented.
When Jim Cantulpo took over at McDonalds he forecast average returns of 15 percent earnings growth per year. That didn't happen. But the stock has gone from twelve to sixty. And fifty-five straight months of sakes growth are pretty impressive.
Hi Wally:
While I normally find myself in agreement with most of your assertions, I think you missed it the first time around on this...Stating that McDonald's last innovation was in 1979 means you missed several things (Dollar Menu, Gourmet Coffee, Super-size it, etc.). You might be interested in my take on The Golden Arches which can be viewed here: http://www.n2growth.com/blog/mcdonalds-plays-brand-offense
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Thanks for that, Matt. In my defense, I was making that statement trying to say how things looked in 2003. Guess I didn't do so good.
The Super Size thing is interesting because it's a two edged sword. As a key word in the name of that documentary that portrayed McD as the cause of all obesity.
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Great post, thank you!
I agree successful turnarounds more often than not focus on simplicity and going back to the basics. They do not get stuck in paralysis through analysis.
In helping companies, I often find it disappointing how companies stray from a once brilliantly simplistic model that perfectly solved an unresolved market problem. Back to basics often entails the most basic step first which is reconnecting with your market, their unresolved problems, and solving them in a breakthrough way.
What occurs too often is the “founder’s dilemma.” The founder was so close to the market, he/ she could answer a customer’s question before they even asked it. Chances are they started their company because they saw this unresolved problem, and set out to solve it for the entire market.
So why the drift? Well, unfortunately leaders forget it was not their personal brilliance that created the fastest growing fast food restaurant, but it was their connectivity to the market and its problems.
Want to look brilliant again? Want to realize sales at least 2X that of competitors with at least 30% higher gross profit? Go back to basics; meet with your market. Want to have a turnaround? Stop assuming, after all we all know "it makes a @ss out of you and me.” Assuming the market is the same as when you used to meet one on one with customers….remember (often 10-15 years ago)?
For the leaders of most organizations, their time is spent in meetings and they lack the accurate market data to make good decisions…so they guess and assume.
Glad to see McDonalds is still listening!
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Thanks for that thoughtful reply. Ray Kroc's behavior underscores your comment about the "founder's dilemma." Ray Kroc retired in 1974, but he stayed active with the company until his death a decade later. One reason, he said, was that he wanted to be the "marketing conscience" of McDonalds. As long as Kroc was alive QSCV ruled. After he died standards started to slip.
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This may explain what happened to Wendy's?
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I think it was certainly a factor. The problems at Wendy's showed up faster than the ones at McDonald's did, mostly, I think, because of some awful decisions about advertising and the presence of Dave Thomas' family. There was a WSJ article on this last year titled: "How Wendy's Faltered." Here's the link.
http://online.wsj.com/article/SB118834529072611580.html
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