Back to basics – a great business model from McDonald’s
The other weekend I went for a hike with a couple of friends. We enjoyed a 10 mile trek along the Peak Forest canal and back along the River Tame. When we returned to our cars we were ready for a coffee. Unfortunately lockdown 2 meant the closure of most cafes. After a brief debate we decided to call at a nearby McDonald’s. We arrived at the restaurant and were put off by a long queue of cars circling the building. We needn’t have worried. The queue broke into two streams and in no time we placed our order and were served with Americanos and cappuccinos. From order to delivery it took no more than three or four minutes.
This impressive experience prompted me to research the recent McDonald’s story. It quickly became clear that our positive review was not unique to our local restaurant. Last year McDonald’s hit global revenues of more than $100 billion and achieved an eye watering operating margin of 43%. Since 2015 its stock market value has almost doubled to $160 billion.
Our interest at B2B Frameworks is in business models and I was intrigued as to how McDonald’s has achieved its stellar performance. Prior to 2015 McDonald’s fabric was looking a tad tired. The rejuvenation strategy has in many respects involved very little magic. It made a simple decision to go back to basics. It pared back its menu and focused on the two things that are important to customers – value for money and quality. Core menu items such as the Big Mac, Quarter Pounder, and Chicken McNuggets represent the heart of the business, making up 70% of food sales across its top markets. Demand for these familiar, comforting, classics are really important in times of economic stress. Our visit didn’t involve these tasty morsels but we were impressed with the “gold standard” cups of coffee. It is part of the strategy to build sales through “coffee driven visits”.
The pandemic provided McDonald’s with an opportunity to improve the look of its outlets with a roll out of digital menu boards and twin channel drive through initiatives that make the dining experience so quick and easy for us.
This back to basics framework is always worth thinking about. Every company can look at its core values and think about how they can be improved. It’s much easier to drive growth and profitability in this way than to move into new markets with new products.
Our legs were tired but we were refreshed by our McDonald’s experience. Only later did I learn that the company’s CEO, Chris Kempczinski, is a marathon runner who eats a McDonald’s meal twice a day, five days a week. I Googled him and he looks as skinny as an alley cat. I suppose he would be if he runs marathons and trains 50 miles a week. He also confirms another important business principle and that is to partake in what he sells to his customers. He is effectively a key quality controller. There is no doubt that his diet and his business model is working for the company and it doesn’t appear to be doing him any harm either. We should take note.