A CFO’s perspective on growth in the QSR segment McDonalds Case Study

Think Tank: McKinsey & Company – Report summarized by : Bummary

Introduction

In this Bummary, we bring you the Key insights from CFO Kevin Ozan’s interview with McKinsey’s Senior Partner Greg Kelly. McDonald’s was struggling through years of continuous decline in market share and dwindling growth when Kevin Ozan took over as the CFO. Here’s how the management team built an agile growth model on the pillars of growth, digitization and exceptional customer experience that led to 13 straight quarters of same-store sales growth.

Key Insights

McDonalds in 2015 was a company slowly moving towards mediocrity

A prolonged slump in sales, dwindling customer loyalty, and Competitors eating away the firm’s market share were some of the problems McDonaldsonalds was facing back in 2015. The new management team led by Steve Easterbrook as CEO, and Kevin Ozan as CFO went on to build a turnaround plan and in just 2 years have put the company on the growth trajectory.

The result: 2018 saw the firm with $20 billion in annual revenues and operations across 100 countries register 13 straight quarters of same-store sales growth.

Key challenges facing the company:

  • Declining US customer footfall
  • Operational hiccups in restaurant remodel
  • Intensely competitive talent market

Here are the key insights from the Interview conducted by McKinsey Sr. Partner Greg Kelly with CFO Kevin Ozan about the company’s growth to date, how to sustain it, and his role in making it all happen. (The CFO perspective)

Part one – McDonald’s three-part growth framework – Retain, regain and convert customers

The framework comes from an extensive research exercise undertaken by McDonald’s in the 10 largest markets where they operate. The research answered key questions like what consumers want, and why they come to McDonald’s. The results showed that customers had more things in common than different whether it’s Germany, Japan or the United States.

This allowed McDonald’s to have a global strategy, and at the same time allowing the country leadership to create customized local customer experiences.

Regain

The initial focus of this strategy was ‘Regain’. Before the research, the management was under the impression that they were losing market share to other verticals like fast-casual or upscale dining. However, research showed that McDonald’s was actually losing customers to other direct QSR competitors.

The revelation brought both frustration and satisfaction to the top management. The frustration stemmed from losing customers to competition, and satisfaction because they believed it was possible to win them back.

Knowing people still want QSR, the firm started to focus on enhancing convenience, introduce new value platforms and improve customer experience.

The result: Rising market share as more and more people started hitting their nearest McDonalds in search of their on-the-go meals.

Retain

‘Retain’ focused on further strengthening the relationship and the loyalty they have enjoyed with a set of consumers. These include people who love the early morning breakfast at McDonald’s and families with young children.

Doing multiple things successfully is one of the key challenges for a large organization. In a Kid’s football game we usually see all the players run to wherever the ball goes, the growth framework helps McDonald’s fight off that instinct.

For years, McDonald’s did no innovation or paid much attention to market breakfast meals. The result, negative traffic during breakfast hours consecutively over the past couple of years. Thus, retain is now a crucial component for growth as capitalizing on your key strengths should be an area of critical focus for growth.

Convert

‘Convert’ is about adding new customers and is the key component of the growth framework. This includes differentiated offerings like coffee and snacks. McCafe is their attempt to capture growth in this market and Kevin says they are making progress on this front.

The ‘new elements’ added to the growth framework

EOTF or Experience of the future is McDonalds’s attempt to reinvigorate growth and build a channel for strong, consistent and sustainable growth.

McDonalds has identified Delivery, digital and Store remodeling as the key components of EOTF, and the levers of growth for the company.

Delivery: McDonalds’s CEO Steve Easterbrook and Kevin Ozan visited some countries where delivery is a thriving business opportunity and a clear growth opportunity. They setup a ‘fast action’ team bringing together some of the brightest minds from multiple business units and geographies to focus on just one thing, getting the delivery business model sorted and build momentum as quickly as possible.

3 months later, McDonalds launched its McDonalds delivery service, which is an incredible amount of speed for a company like McDonalds which, previously would’ve tested it out in one market, then moved to another at a snail’s pace.

McDonalds now has a tie-up with Uber Eats in most countries allowing them to access the wide delivery network and the scale needed to reach a mass group of customers quickly.

Greg Kelly – So, Uber Eats and not McDonalds are taking customer orders and making deliveries – meaning McDonalds has no access to customer data?

So far, it’s Uber Eats which has access to detailed customer data and McDonalds gets access to summary reports providing information like time of day and location. However, realizing the value of data to create personalized customer experiences, McDonalds is now integrating delivery into their mobile app. This will help McDonalds have access to the insights they need to provide a personalized customer experience.

Delivery has quickly provided new opportunities. One, it helps the firm move forward on the ‘convert’ element of their strategy.  It skews to a younger generation, higher check sizes, orders are more during evening times when restaurants have more capacity, and it is a high rate of return business.

Optimizing the delivery model is also critical for McDonalds and they’re focusing to answer the following questions to build optimization into operations:

How to grow brand awareness?

How to improve packaging for items like fries and drinks?

How to make operations more efficient?

Digital: The McDonalds mobile app, and the 2nd pillar of the EOTF

At McDonalds agility is now the new buzzword. The app needn’t be perfect on day one with all the features loaded and working. Improving customer experiences incrementally and on the go is the new mantra for ‘going digital’.

If digital only adds another layer and creates no incremental convenience, it’s an inconvenient hassle that’s better avoidable. For instance, just allowing the customer to order food from the app and then making him wait at the drive-thru counter is no convenience at all, however, the curbside service allows McDonalds customers to buy what they need and then wait at a designated parking spot outside the restaurant where the food is delivered to their car.

Store remodeling and enhancing hospitality is the next vertical for growth

EOTF is about creating convenience and giving customers choices in what they eat, how they order, and provide a consistent and convenient experience marrying the digital with the physical.

Remodeling stores and putting in the digital infrastructure to support the new store operations is capital intensive but the global launch of EOTF in countries like Australia and Canada allowed McDonalds to increase sales by 4 to 6 percent. The company is spending $1 billion to re-model all their US stores and have set a target of 1,000 outlets per quarter. Speed is the key because customers who once visit a re-modeled store will expect a similar experience no matter where they go.

Final summary

Kevin Ozan’s discussion with Greg Kelly shows how a legacy company can not only turnaround but also tread on the path to long term business profitability. Moving on the growth framework of Regain, retain and convert is a solid base benchmark for McDonalds. However, the arrival of digital, delivery and the EOTF are potentially game changers that are starting to show positive results and could well turn to become profitable strategic initiatives for McDonalds in the long run.

 

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