Better Call Pat: How Supermac made a killing and rattled the Golden Arches
Pat McDonagh came from humble beginnings to become Ireland's reigning fast food king. He speaks about his David v Goliath battle with McDonald's
'I still have to pay here," Pat McDonagh tells me, fishing into his wallet at the counter at Supermac's in Eyre Square, Galway, apparently setting a good example. The employees all know him here, but you might still give him a second look. For one thing, in the middle of the day on a Tuesday, he's the only person in the place wearing a suit. For another he's been all over the news in the week before we meet because of his legal battle with McDonald's over the right to use the Supermac's brand name in Europe and the US. The case is being pitched by McDonagh as a classic David v. Goliath battle - he went to Alicante himself where he hand-delivered the Supermac's response to opposition by McDonald's to the Galway fast food firm using its name across Europe.
The dispute has overtones of Better Call Saul, where the protagonist lawyer is banned from using his own name because it infringes the trademark of the huge partnership he works for; McDonagh was given the nickname 'Supermac' during his Gaelic football-playing days. But there are some who say that his battle to use the name is in fact all for cheap promo and that he has far too much business sense to attempt to sell Irish favourites like curried chips to the French and the Yanks.
There's a slight twinkle in McDonagh's eye when I put this to him. "Well, we have a very definite intention of moving into Australia where there is also an objection to our trademark from McDonald's. That is being delayed because of that. There is a great opportunity in England. Whether we do or we don't is immaterial, in fact. It's anti-competitive to try to stop us doing it. There is a principle involved. We will go there either way at the end of the day. I just got a notification yesterday that McDonalds have an opportunity now to respond to our submission." To the accusation that he's just rattling the multinational's cage in America, he concedes, "The billboard in Times Square was opportunist marketing, in fairness. One of our franchisees (with Claddagh Irish pubs, his business in the US) came up with the idea and it didn't cost an arm and a leg. When you have a limited marketing budget, you have to make better use of it."
McDonagh might be all McDonald's needs as it struggles to remain relevant in a market increasingly crowded with coffee shops and, more obviously, nutritious fast food; its net income for the third quarter fell 30pc to $1.07bn. Supermac's is necessarily a much nimbler operation with the advantage of being a local business in a market that increasingly values traceability. Still, the recession years have seen a dramatic change as the demographic of generation emigration turned out to feature a huge chunk of Supermac's customer base. "There has been a huge decline of the pub and the nightclub trade, the business just isn't there", he says. "The trade has shifted in the last five years from a predominantly night-time trade to a predominantly daytime trade. And, of course, emigration has taken its toll as well. Basically 350,000 of our customers went overseas."
McDonagh's response to this was to tweak the product and get leaner, closing a number of the 'Fresh Express' outlets in recent years and introducing new ideas, such as the Papa John's chain, which helped to retain customers, he says. "We are introducing fresh meat burgers which is a big change of direction for us," McDonagh says. "We are also looking to phase fresh chicken into all our chicken products. I think that's going to be the next big trend in fast food. Whether it's organic farming or whatever, people are prepared to pay that extra few cents if they know they're getting better quality food."
Things were made easier by the fact that he and his wife Una remained the sole shareholders in the business, meaning decisions could always be made quickly. The business did not expand too aggressively during the good years. Slow and steady wins the race though: it has increased its turnover in each of the last three years. "We are doing in excess of €100m turnover now," he says, smiling. "Profitability is in the region of €7m, and those figures will be for public viewing in the next few months."
Those figures include McDonagh's burgeoning hotel empire. In March of this year he added the Charleville Park Hotel in Limerick to the Castletroy Hotel which he purchased in 2012, and the Lough Rea Hotel and Spa in Galway. He's embarked on a "significant investment programme" to upgrade the facility of the Charleville Park and in excess of €1m will be spent on the upgrade. The Charleville purchase is thought to have been finalised for a sum close to €5m, and coincided with the McDonagh family opening the Barack Obama Plaza, a €7m-plus motorway petrol station at Moneygall on the Limerick to Dublin road. McDonagh says the predicted bumper year in tourism has helped him hit the ground running with the newest purchase. He said visitor numbers overall "are up by about 24pc - from the UK we're into double digits of an increase and from the continent it's up 14pc. One big thing is that we have a reputation for being safe, and for Americans particularly that's important and one of the reasons we're doing well."
Not that it's all been plain sailing. Red tape has often slowed his progress and planning permission has been a particular sticking point. Since the inception of Supermac's in 1978 - it was in fact a 'plan B', his original vision of a pool hall having been refused - McDonagh has grappled with the authorities. "There are always legal delays," he sighs. He points out that any property transactions involving the sale of rented property must be approved by the Competition Authority where the Irish turnover of the parties involved exceeds €3m. "This, in my opinion, is totally unnecessary in rural Ireland. This was designed so bigger companies wouldn't swallow up smaller businesses and ruin choice for the consumer, but that isn't the situation (with the hotels). Planning objections have also stagnated the city of Galway for a long time."
It's a different story in America, he says, where he has a house - in Cleveland, Ohio - and a chain of Irish pubs: "In America there is a lot less red tape. You can have all your licences within a month. In one of the recent applications here we've been asked to do a survey on bats, which I couldn't see happening there. Overall the business there is doing okay. We are making about 5pc profit on turnover which is about half a million a year."
I wonder if particular parts of that business are under-performing and how he decides when to cut loose. "The 80/20 factor applies to everything in business," he tells me. You need to have it 80pc right - that's a given. The 20pc might be going wrong because of any number of factors; competitive advantage, the wrong people in charge, a new bypass. You might have to cut hours of operation or staff. In two [US] cases we pulled out because of rent increases."
McDonagh grew up in Galway the son of a guard and school teacher. "We were a very civil service-oriented family. I was the youngest of five and my siblings were much brighter than I was going to school. After first year in secondary school my results were bad and I was sent off to a boarding school in Moate. I repeated first year. One great thing about boarding school was that it taught you discipline." He trained to be a secondary school teacher at Mary Immaculate College in Limerick. "The great advantage was that there were 400 students and about 350 of those were female, so for a young guy that was something great. I had wanted to be a pilot but failed the eyesight test."
His decision to try to make it as an entrepreneur was driven, he says, "maybe by a hunger for material success but also to show those who wouldn't believe in you that they were wrong and to prove to yourself, above all, that you can do it." He felt the business was going to be "either a furniture outlet, a nightclub or a fast food outlet. There were two other furniture shops in town so I figured that was enough. So without any knowledge of catering or anything like that I decided that fast food it was. I think there is a lesson for entrepreneurs there: don't be deliberating too long on the whys and the wherefores. You can get advice forever but at the end of the day you have to look in the mirror and say, 'can I make this work?'" He recalls "calling in every favour I could at the time" to get Supermac's off the ground. Within 10 years it was the largest indigenous fast-food chain in the country.
He says that the biggest crisis in the history of the businesses involved the multiple insurance scams that almost closed Supermac's 15 years ago. "After a few occasions of that happening I said this has to stop." One of the claims had more Better Call Saul overtones: it was an outright scam. "I'll always remember it. A couple of guys threw water on the floor and then 'slipped' on it. They even did a few trial runs beforehand. Next thing one of them goes in and calls the manager out. The ambulance had to come and he was brought off to hospital. Afterward we looked at the video and saw what they did. Sure enough, a couple of weeks later the solicitor's letter came in. The proceedings went ahead. We never told them we had a video." The case came to court and McDonagh was told that it was to be withdrawn at the last minute, meaning that the scam could not be highlighted. McDonagh stood up in the court of his own volition and he mentioned the video to the judge." This ensured that the case got national media attention - as he had intended - and McDonagh went on the Late Late to talk about it. After that many of the spurious claims disappeared, although McDonagh mentions that there are still serious insurance issues in the industry. "Within the next 12 months you will see a lot of small businesses not being able to afford insurance."
He says he thinks he has "another four or five years" left in the business. And after that? "Well, we'll see. I can see myself doing some charity work. I've been to Africa with Trocaire and I'd like to go back there. I was in a school where there was 700 kids and no running water and I think trying to improve something for people like that I could get excited by. One thing is for sure; I won't be idle."
And that's why I believe in having two banks
If could give my younger self any advice I'd say: When you’re young the world is your oyster and you don’t see the pitfalls and I think that’s a good thing; you can’t have too great a fear of failure. I’d basically say give it everything and self-sacrifice has to be at the heart of it if you want to succeed.
The biggest thing I’ve missed because of business was: Well, we cut the honeymoon short. I can’t remember exactly what it was for but it was something to do with the business.
My greatest extravagance is: Well, I love a nice car. I drive an Audi A8.
The most broke I’ve ever been was: I remember buying a place and we hadn’t arranged it with the bank beforehand and I thought they were on my side but they told me they wouldn’t back me. I was pretty broke then. And that’s why I believe in having two banks.
The most memorable trip I took recently was: To Zimbabwe with Trocaire last November. It was once called the bread basket of Africa, it’s sad to see what it’s become.
Sunday Indo Business