Saturday 1 October 2016

Supersize me; how McDonald's turned itself around in the UK

McDonald's in Britain is a big consumer of Irish cheese. Facing trouble just a few years ago, the chain has turned itself around in the UK, writes Graham Ruddick

Published 28/05/2015 | 02:30

McDonald's UK chief Jill McDonald,
McDonald's UK chief Jill McDonald,

McDonald's arrived in the UK just over 40 years ago, but arguably only in the past eight years has the fast-food chain made itself at home on Britain's high streets.

  • Go To

A decade ago, its sales were going backwards in the UK. McDonald's had been tarnished by the 'Super Size Me' documentary film and overexpansion. With doubts about the quality of its food and growing competition from rivals such as Pret a Manger, there were justifiable questions about the future prospects of the American company.

However, Jill McDonald, who joined McDonald's from British Airways in 2006 as chief marketing officer, has overseen 34 consecutive quarters of sales growth in the UK since then.

It is a turnaround akin to the achievements of Justin King at J Sainsbury or Carolyn McCall at EasyJet. It has been achieved despite tumultuous economic conditions, evolving food tastes, and now the parent company running into trouble in the US.

"The brand was under attack," says McDonald, who stepped up to the role of UK chief executive in 2010. "From our point of view, 'Super Size Me' wasn't a balanced view, but it was a bit of a wake-up call in terms of needing to do better about communicating to consumers the quality of our food and the truth about our food."

McDonald says that the key to the progress made by the company has been a step-up in customer research and investment in existing restaurants.

She says: "Certainly one thing I did when I joined the business in 2006 was to really dial up the investment in consumer insight. We had learned from previous times in the UK, 10 years ago or so, what happens when you move away from the customer."

"So absolutely number one is get closer to your customers and get superior insight, that's a real competitive advantage. Then, invest in what is going to make the difference to them and what is going to drive additional visits. We have been investing in both the restaurant experience, which started in 2006 and was completed in 2012 with the [London] Olympics, and in food quality, whether that is freedom food pork, free-range eggs or 100pc breast meat in chicken nuggets.

"The other thing we have done is balance investing in different foods - such as the introduction of wraps, blended ice and a number of other items - while still retaining the speed of service."

The value of these investments paid off when the horsemeat crisis shocked Britain in 2013. While supermarkets, restaurants and rival Burger King were dragged into the scandal, McDonald's was untouched. The company was able to boast that all its beef was sourced from Britain, unlike many leading UK supermarkets, and it was praised in the government report into the crisis.

"Horsemeat was something that you wouldn't want to happen," says McDonald. "It wasn't great for the industry and it wasn't great for Britain. However, we were in some ways pleased because it gave us an opportunity to demonstrate really tangibly what a strong and robust supply chain system McDonald's has.

"We were really pleased when the Elliott review called out McDonald's supply chain as being the best in class because of its simple, short nature and its transparency. It gave another reason for customers to trust us."

McDonald, whose surname is coincidental to her job, is in little doubt that McDonald's has now evolved beyond its American roots to become a staple of the British high street.

"The American roots piece is part of our heritage, but when you think of McDonald's, it's not what you think of. That's changed," she says. The reason for this is not simply the number of McDonald's stores in the UK - only now returning to the 1,250 of a decade ago after widespread closures - or its record market share in the casual eating-out market of almost 9pc.

It is also because McDonald's employs 97,000 people in the UK and has a unique franchise model.

Just over 70pc of McDonald's restaurants are franchises in the UK. The company has 150 franchise partners, who on average invest £1m and have four restaurants.

The McDonald's franchise model is unusual because it does not simply hand over its products for another business to sell. McDonald's recruits individuals through a rigorous recruitment process that can last a year.

It then asks them to sign 20-year licence agreements and invest £150,000 (€212,000) on average.

This long-term agreement means a franchisee can effectively become as much a part of the furniture in a town as a publican. McDonald's has also created millionaires this way. Mike Smith, for example, started working at 19 and now runs 10 restaurants.

"We get thousands and thousands of hits on our website," McDonald says of recruitment. "We would recruit maybe five or six a year in the UK, which is the highest it has been for some time. We want people who have experience, but it's also about attitude.

"It is a long-term partnership - they are with us for 20 years at least - so we want people who understand service and hospitality, who have the same values and beliefs about investing in people. They have also got to be able to have some free cash to invest in the business."

The franchisees are given the power to set the pricing in their restaurants. The menu and restaurant is designed by McDonald and the UK team - who are able to introduce new products and ask for items proving successful in McDonald's restaurants abroad - while the parent company sets the recipe for core items such as the Big Mac.

McDonald says this structure has been "fundamental" to the success of McDonald's in the UK. "We talk about three key constituents - suppliers, franchisees, and the company," she says. "We want our franchisees to be successful - if they are successful, they will invest in the businesses and that creates a virtuous circle."

However, despite McDonald's run of sales growth, challenges remain. The US business has fallen into decline amid fierce competition from rival chains - such as Five Guys - offering more upmarket burgers or different types of fast food, such as Taco Bell.

A key plank of McDonald's progress in the UK has been to broaden into breakfast and the late-night revellers market. Almost half of its restaurants are now open 24 hours.

But could the core business be threatened in the same way as McDonald's in the US?

"Knowing what we have got lined up over the next two, three, four years and the investments we are planning to make in the next generation of McDonald's, I think we will continue to keep step with customers," McDonald insists. "I would actually genuinely argue that the diversity of competition in the UK is as fierce, if not fiercer, than the US and it has been for many years.

"The UK has a lot more ethnic eating options then the US. I actually think more competition, which is obviously good for consumers, is good for business and keeps you on your toes.

"Our franchisees want to ensure that their business continues to grow and they don't want to see competitors taking customers away, so their appetite for investment is there."

A key part of McDonald's strategy will be "fast-following" new trends, its UK boss says.

"Look at what we have done with smoothies and frappes, which five or six years ago you wouldn't imagine that McDonald's would sell. What we are pretty good at is fast following. We see a trend and are able to democratise it - so give great quality, more convenience, and at better prices than the competition," she adds.

Based on that, look out for the McBurrito and a posh beefburger in McDonald's within the near future. (c) Daily Telegraph, London

Indo Business

Read More

Promoted articles

Editors Choice

Also in Business