Lunch Crunch Stymies McDonald’s Growth

January 11, 2012

Lunch Crunch
Lunch crunch stymies McD’s growth

McDonald’s Corp. has the same problem as Chicago’s notorious Circle Interchange: rush-hour bottlenecks.

Sales volume at the Oak Brook-based chain has peaked in its two most critical hours: the busiest 60 minutes at breakfast and lunch. Much the way highway builders ease congestion with automatic tolls and more pavement, the company is installing a new computer system and extra drive-through lanes to increase capacity. It also wants to expand restaurant crews and to add more expensive sandwiches to boost revenue.

Average yearly sales across McDonald’s 14,000 U.S. restaurants have increased by 54%, or $875,000, to $2.5 million per restaurant since the company started its turnaround nine years ago. But Jim Johannesen, executive vice-president and chief operating officer of McDonald’s USA, told analysts this month: The growth has “been in all day parts, except we haven’t been able to realize that same benefit during the peak lunch hour or the peak breakfast hour.”

The busiest hours vary by market but are typically from 8 to 9 a.m. and from noon to 1 p.m., according to analysts and industry executives. The company said in an internal memo last year that capacity for the lunch rush had been stalled for five years at 75 orders at the drive-up window and 55 at the counter. A McDonald’s spokeswoman declines to comment on what she calls proprietary information.

As with the company’s nationwide remodeling program, which has cost an average of $600,000 per location, franchisees will pay much of the bill for the peak-hour fixes. And, based on results at already-upgraded restaurants, it will take a year or more for them to be paid back in higher sales.

McDonald’s new POS 6.5 computer and sales system will make it easier for the crew to fill orders quickly and accurately even as the burger chain adds more menu items, Mr. Johannesen told analysts. The new system also enables restaurants to use handheld units, now employed in 1,000 locations, to process more orders and take cash outside. The company is testing handhelds at the front counter and mobile ordering from smartphones.

The computer system costs $12,000 to $17,000 for an upgrade on newer systems to $40,000 to $46,000 for a new installation, according to company documents. McDonald’s hasn’t said whether it will subsidize these tech purchases, but franchisees have been footing the bill for more than half of the remodeling costs, which typically include a second drive-through lane.

Though McDonald’s executives haven’t said how much more capacity the technology will yield, reducing drive-through service times by 10 seconds “equals 1% in same-store sales growth,” says Andy Barish, a San Francisco-based restaurant analyst at Jeffries & Co., relaying a statistic McDonald’s has used over the years.

To handle more traffic-two-thirds of U.S. business comes from car orders-McDonald’s also needs to redo more restaurants. To date, 36% of traditional freestanding locations have more than one drive-through lane, and the company aims to add them to 8,600 more over the next several years, according to Milwaukee-based Robert W. Baird & Co.

Sales at remodeled locations after nine months have been about 6.5 percentage points higher than the company’s overall gains, Mr. Johannesen told analysts. Same-store sales in the U.S. were up 4.1% through October this year.

Putting more employees behind the counter and in the kitchen at peak hours would enable McDonald’s to serve more customers, too, company President and Chief Operating Officer Don Thompson told analysts.

And if restaurants still can’t hustle through that many more orders, there’s always another remedy to the rush-hour bind: pricier products. This year, the company has raised prices by 2.4%. It’s also testing several premium items for 2012, including large chicken McWraps, which have sold well in Europe and Australia but haven’t done as well here, and an English pub burger.

“If they’re not selling $9 burgers, it’s not likely that they can get to a higher level of unit volume,” says Darren Tristano, executive vice-president at Chicago-based food retail consultant Technomic Inc.

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McDonald’s Keeps the Happy in Happy Meals

January 11, 2012

McDonald's

McDonald’s keeps the happy in Happy Meals

Kai Ryssdal: And now, our Marketplace business word of the day: McSmarter.

Last year, San Francisco passed a law meant to give the Happy Meal a body blow. It bans fast food restaurants from including toys in kids’ meals that don’t meet certain nutritional guidelines. Free toys, I should say.

That is where the McSmarter comes in. The no-free-toys law takes effect tomorrow, the same day McDonald’s in San Francisco will start charging a dime to include a toy with those mini bags of fries and chicken nuggets. Marketplace’s Jennifer Collins reports.

——————————————————————————–

Jennifer Collins: You could say McDonald’s found a loophole big enough to drive a burger-mobile through.

Sara Senatore is a restaurant analyst with Sanford Bernstein in New York, as you’ll hear.

Sara Senatore: McDonald’s is masterful at evolving with not only the customer demand, but also the operating environment.

Rajiv Bhatia is with the San Francisco Health Department. He’s looking at McDonald’s shrewd stepping of the law as a teachable moment.

Rajiv Bhatia: We need to learn from how industry reacts to it to revisit it and get it to achieve its purpose.

Bhatia says didn’t put a price tag on passing and implementing the law. Darren Tristano is with food industry consultant Technomic.

Darren Tristano: You know, it could have been tens of thousands in research just to try to understand the impact.

As for the impact on McDonald’s, there won’t be one — it’s donating the toy money to the Ronald McDonald House.

I’m Jennifer Collins for Marketplace.

View the full article on Marketplace Life


Burger King Introduces Thicker Fries with Less Sodium

January 11, 2012

McDonald's

Burger King introduces thicker fries with less sodium

Burger King Corp, the second largest hamburger chain, has changed its french fry recipe for the first time since 1998 as competition from upstarts and traditional fast-food rivals mounts.

Burger King said it made the new fries thicker, reduced sodium and added a coating that makes them crisper and keeps them hotter longer.

The fries, now a bit wider in diameter than a No. 2 pencil, will be available in its more than 7,000 North American Burger King restaurants by Dec. 5. Prices remain the same.

“We’re always trying to have the best menu possible. French fries are a big seller for us and we want to make sure we’re always improving,” said Leo Leon, vice president of innovation.

Leon said Burger King tested the new fries against other options.

“This, by far, was the winner,” he added.

Burger King’s move comes a little over a year after rival Wendy’s Co introduced thinner “natural cut” fries that leave some skin and are sprinkled with sea salt.

McDonald’s Corp’s french fries often take the top spot in customer surveys, but independents such as Five Guys Burgers and Fries, Smashburger and In-N-Out Burger have been dialing up the pressure.

“The competition to have good quality french fries is heating up,” said Darren Tristano, executive vice president at consulting firm Technomic, who recently tried the new Burger King fries.

“Making them thicker certainly makes them easier to eat, and since many of them are consumed in the car with one hand on the steering wheel, that’s probably not a bad idea.”

Burger King said the new fries have 20% less sodium than their predecessors.

The smallest, $1 portion has 330 mg of sodium and 240 calories. The fries are cooked in trans fat-free vegetable oil and do not contain animal products, Burger King said.

On Dec. 16 Burger King is promoting its new fries by giving away $1 “value” portions for free. The new fries will be available outside the United States in 2012.

The trend in french fries is toward more “natural” offerings. That includes fries that are or appear to be made from fresh-cut potatoes and topped with “artisan” toppings such sea salt.

“The term natural seems to resonate (with diners), even though there isn’t a great definition of natural,” Tristano said.
In-N-Out cuts its french fries in its restaurants every day and cooks them in cholesterol-free vegetable oil.

Five Guys cooks its fries in peanut oil and gives customers the option of having them “cajun style.”

Smashburger seasons its regular fries with sea salt. It also offers fries made from potatoes or sweet potatoes that are ”toasted with rosemary, olive oil and garlic.”

McDonald’s lately has attempted to reinforce its position as the top french fry seller by promoting its fries, Tristano said.
Investment firm 3G Capital bought Burger King last year and took it private in a $3.3 billion deal. Burger King has 12,400 restaurants around the world.

View the full article on National Post