Special Report | May 2010 | By Peter Romeo

How Jim Skinner Beat the Recession

There are five P’s at the basis of McDonald’s recent success, and the company’s CEO says it’s not rocket science to figure out how to make a profit in this industry.

When a poster of McDonald’s Plan to Win was taken off a wall in corporate headquarters for a freshening-up, chief executive Jim Skinner personally intervened to get the strategy statement back in place ASAP.

“I told people, never, ever take the Plan to Win down and leave it down—do whatever it takes to replace it,” Skinner says. “People might see that and think, ‘Oh, Plan to Win’s down. There must be a change strategically.’”

A change in direction may well be the last thing wanted by McDonald’s management, stockholders, loyal franchisees, suppliers, and perhaps even customers. Studies have shown that Ronald McDonald is nearly as well known as Santa Claus. Awareness of the brand’s dominance in the U.S. restaurant market may be even higher.

McDonald’s U.S. sales topped $30 billion last year, outstripping the next-closest competitor, Subway, by $20 billion. If Subway were suddenly to merge with Burger King and Starbucks, McDonald’s would still rank No. 1 on QSR’s annual QSR 50 rankings, by a margin nearly equaling the systemwide sales of Dairy Queen.

Skinner Speaks Performance in the U.S. vs. the rest of the world:
“Everyone is talking about, ‘Well, what happened to the U.S.?’ Let’s just look from a realistic standpoint: Seven years of same-store sales growth [versus six years worldwide]. That’s an all-time record both for McDonald’s and I’m sure for anyone else in the industry.”

Skinner recently observed to investors that McDonald’s captured 11.3 percent of the “informal eating out market,” or more than $1.10 of every $10 that’s spent in a limited-service establishment. But the real poke in the eye for competitors is a sense that the brand is unstoppable, even by the Great Recession.

U.S. comparable store sales increased in 2008 and ’09, as they had for the five years before. The gains of 4 percent and 2.6 percent, respectively, came as overall industry sales were in significant decline. The biggest, some muttered, was getting even better at outperforming everyone else.

“They deserve a lot of credit in a very tough environment,” says Mark Kalinowski, an analyst who tracks McDonald’s and a number of other quick-service chains for Janney Montgomery Scott in New York City. “Out of all the national and the big regional chains, McDonald’s is putting up the best numbers of any of them.”

The underlying factor, according to Skinner, is the Plan to Win, the credo that was implemented seven years ago after a rare and nearly disastrous period of drift for the chain. At its heart are the general areas of focus known in every nook and cranny of the organization as the Five P’s—People, Products, Place, Price, and Promotion. Also stated are such goals as serving more customers more often in ways that enhance brand loyalty and profitability.

The Plan was conceived as a way of governing the strategy to keep Brand McDonald’s on course regardless of how the business climate or marketplace might shift. Efforts to improve the business would be guard-railed within the Five P’s, as would investment. In that way, McDonald’s bet, the system would stay fixated on better serving customers and improving operations, with only the how’s left as variables.

Skinner acknowledges the content of the Plan is less important than its role as a touchstone for an enormous, multifaceted company with diverse operations around the globe. Every team in every market in every nation has its own adaptation of the Plan, setting out its responsibilities in what rolls up into one grand strategy, hopefully aligning everyone from crewmembers to Skinner himself.

“We use the Plan to Win to set up our business plan for each of our units, so it goes all the way down to the individual restaurant,” says Susan Chrisman, a six-store franchisee in Louisiana.

Skinner Speaks Good economy vs. bad economy:
“We perform better in a robust economy than in a cheap economy. There’s a lot of bad information out there about us being ‘cheap eats’—‘Oh, what’s McDonald’s going to do now that the economy is coming back?’ We increased market share last year and the year before that, and we will be getting our fair share if we get more traffic and more spending from consumers.”

“We could have put any nine things up there—‘Best place to eat, drink,’ whatever the platitudes,” Skinner says during an interview with QSR at McDonald’s Oak Brook, Illinois, headquarters. The “key to the enlightenment of the organization” was “the focus on the customer and the restaurants, and the absolutely relentless focus on improving existing restaurants.”

The results are plainly reflected in McDonald’s standout financial results, Kalinowski says. “Their marketing is working (read Promotion and Products), they’re offering value (those P’s again, plus Price), and they’re executing well at the restaurant level.”

But what do the P’s foretell for the future? As Kalinowski says, “It’s always a struggle to remain relevant to the consumer.”

Skinner stresses that the Plan isn’t some Ouija board that indicates operators should add a new Snack Wrap today and flat-screen TVs next month. Rather, he asserts, it ensures the organization will spot the next big thing because it keeps the focus on customers and what they want.

Skinner Speaks Performance in the U.S. vs. the rest of the world:
“There are a lot of articles being written saying if all our restaurants looked the way they looked in Europe, we’d all be fat and happy. Fact is, many of our restaurants here are contemporary and fresh-looking, and we’ve refurbished about half our portfolio.”

“One of my big concerns for the organization, when it sort of thought the business was rocket science, was, could we get back to where we’d realize it was not rocket science?” Skinner says. “We didn’t need a lot of people with intellectual fiber to figure out that faster service, hotter food, greater value, in a relevant environment that our customers loved and wanted to come back to, is the answer to any question you have about the restaurant business.”

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