McDonald’s is a great example for the times

This blog has reported on many “retail makeovers” in Australia and internationally in the past year. Many are a few months old – or up to a year, in the case of Australia’s Woolworths and the UK’s Morrisons – but it’s been difficult in these short timeframes to compare results to see whether the “improved shopper experience” has driven profitability. So with McDonald’s announcing its 2008/09 performance this week, we can now make comment.

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

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

Those are always the two key, and most easily measurable, outputs from improved shopper experience. The third and fourth are ‘linger time’ and ‘post purchase experience’. These are far more difficult to measure, and I will cover them off in a separate blog.

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 walk stores. We are all comfortable sitting in McDonald’s, 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%, and if asked about my shopper experience on the way out, I’d tick plenty of 10s on a research sheet. Oh, and I talk about it to friends and colleagues.

I wonder what your experiences are like…

So let’s look at the numbers – the scoreboard in business.

Operating profit at McDonald’s Australia this year was up 28.9%. This growth has been driven via an outlet universe that has only grown 2.6% 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 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 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 is probably the clearest example of how improved shopper experience, in an existing outlet universe, can drive extraordinary returns.

In his role as CEO of CROSSMARK, Kevin Moore looks at the world of retailing from grocery to pharmacy, bottle shops to car dealers, corner store to department stores. In this insightful blog, Kevin covers retail news, ideas, companies and emerging opportunities in Australia, NZ, the US and Europe. His international career in sales and marketing has seen him responsible for business in over 40 countries, which has earned him grey hair and a wealth of expertise in international retailers and brands. CROSSMARK Asia Pacific is Australasia’s largest provider of retail marketing services, consulting to and servicing some of Australasia’s biggest retailers and manufacturers.

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