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    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.

    Yet at McDonald’s level of performance, even simple issues like serving speed or order accuracy can entail considerable sophistication, at costs not exactly at the “aw, shucks” level, either. The chain is being reminded of that now with the planned roll out of a next-generation point-of-sale system.

    The new registers will use images on the keyboard to designate items in their various forms. Instead of hunting for three keys to indicate the customer wants a smoothie in a certain flavor and size, the crewmember would hit a single key bearing a depiction of that precise order.

    The format promises to cut service times, boost order accuracy, and allow stores to handle more customers during crunch periods. In the paradigm of Plan to Win, it looks like a slam dunk in the People area, improving the experiences of harried crewmembers, hurried customers, and multitasking managers. Operations enhanced? Customer experience improved? Check and check.

    But some franchisees aren’t lovin’ it, says Dick Adams, a frequent critic and former franchisee of McDonald’s who now works as a franchise-relations consultant.

    “They just installed a new POS system in 1999,” Adams says. The cost of replacing that technology, after investing six figures per store to provide the McCafé beverages lineup, has many franchisees grousing about their cash flow, he says.

    It’s not that the owner-operators object to the Plan to Win or the focus it’s yielded, Adams says. “I can’t say they’re unhappy because they’ve enjoyed six years of sales increases,” but “they don’t feel as if they’ve shared in those increases in terms of profits or cash flow.”

    Skinner Speaks Franchisees vs. corporate:
    “I’ve never had any one of them call me and say, ‘Jim, we’re going the wrong way, we have all kinds of crises.’ Cash flow is at an all-time high here in the U.S. We’ve always had a good relationship with our franchisees, but it’s always better when the results are better.”

    And, he adds, those capital-intensive initiatives came in an environment where tighter consumer spending was already dampening profits.

    Besides being upset by the new technology investment, they’re not turning cartwheels about the new breakfast Dollar Menu, either, Adams says. “It’s still early, but there’s a feeling you’re discounting to the same customer you’d get anyway,” he says.

    Skinner allows that the breakfast bargains are likely to increase the percentage of transactions involving a deal, a proportion that virtually hadn’t changed while a Dollar Menu was offered only at lunch and dinner. But he stresses the need for McDonald’s to boost traffic as well as sales at breakfast, a meal it’s dominated by pulling market share from everyone else.

    And he insists there’s no opposition from franchisees to the new morning array or any of the other major initiatives that have been undertaken as part of the Plan.

    That includes McDonald’s ambitious, multistage beverage program, which progressed beyond the McCafé coffee phase to the introduction of frappés and smoothies. Sure, there’s been a lot of press about dissension in the ranks, but some reporters just like to “pick off” a disgruntled franchisee here or there, Skinner says.

    “Any time you’re embarking on a billion-dollar project and implementing something in 14,000 stores, 85 percent of them managed by franchisees, you’re going to have a difference of opinion on how to implement that,” he says.

    But “I’ve never had any one of them call me and say, ‘Jim, we’re going the wrong way, we have all kinds of crises,’” Skinner says. “Cash flow is at an all-time high here in the U.S. We’ve always had a good relationship with our franchisees, but it’s always better when the results are better.”

    “There’s plenty of debate leading into a decision,” says Don Armstrong, a 13-unit franchisee in Portland, Oregon, and chairman of the National Leadership Council (NLC), McDonald’s franchisee advisory group. “But once the decision is made, there’s no more need for debate.”

    The new POS system, the breakfast Dollar Menu, the beverage program—Armstrong says he favors them all, as does the NLC.

    “It’s always tough to make investments in difficult times,” he says. “It would’ve been easier for us to have suspended the McCafé roll out because of the bad economy. But because we didn’t, now we can operate from a position of strength.”

    Skinner Speaks Operations vs. marketing:
    “We spend millions of dollars on marketing, but when I screw up your order at the front counter or the drive thru, it’s all lost, because you don’t care how good our last commercial was. All you care is, Did I get my coffee and did I get it hot and did I get it fast and did I get it at a great price?”

    With an investment on the scale of the POS changeover, “it’s never easy, but you do it because it’s the right thing,” Armstrong says. “It’s pretty much understood in the field that our technology needed to be upgraded.”

    Chrisman says she volunteered her units as test sites and the new system is working “beautifully.” She says it’s been particularly appreciated by the crewmembers because it makes their tasks easier.