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Thursday, October 23, 2014

How Product Diversity and Cost-Cutting is Killing MacDonald's, and Possibly Your Business

Wow, I'm falling further and further behind on my wood-related blog posts every week, as I scramble to cover too many bases, and more and more of you send me great ideas to cover. Keep the suggestions coming in, I'll get caught up sooner or later.

But today, I'm going to divert off wood specifically to talk about the weird trends in our economy, and how I believe the signals are being misread by so many. In the news yesterday was McDonald's quarterly report revealing that their profits are off by 30% from the same time last year, on a 3% drop in sales. Watch the whole video below, the reporters' comments tell a lot about the companies issues.




As they mention, increasing raw material (food) and labor costs are hurting...but the meat of the story (sorry) is in the comment..."Is their food real?"

Sad to say, Mickey D's management hasn't realized their food quality problem, as they've been busy expanding their menu and tearing down old kid-friendly restaurants and building new, trendier hangouts that look more like Starbucks and Panera. It is a classical case of newly-minted executive MBA management not liking "the horse that brung 'em."

I noticed the same thing with Wendy's a few years ago when good old Dave passed away. You remember friendly old Dave, he was always on TV telling you how the quality of their food was the first principle of the business. And Wendy's undoubtedly sold some of the freshest food you could get in a fast-food chain. But within a month of Dave's passing, I noticed an odd thing in Wendy's burgers...the bun's started tasting like cardboard, the burgers no longer had crunchy lettuce and onions on them, and the fries were different. In fact, the new management, under the leadership of Dave's daughter as I recall, was taking them in a new direction, toward a more diverse menu. But in the process, the old reliable burgers and fries suffered.  And they are still that way today. I quit going to Wendy's.

Just this afternoon, I decided to test McDonald's once again, in order to make sure this post was spot on. As I pulled up to the drive-through window, I noticed how big the menu was. For years (decades!), up until a couple of years ago, I had simply ordered the Quarter-Pounder with Cheese Meal, super-sized the fries and drink, and added an apple pie if I was hungry. But today, I noticed myself weighing the options...would it be a salad, or a "Southern-style" (yeah, right) chicken sandwich, a McWrap, or something else? In all, their were sixteen "value meals" along with three other full boards of menu items, so many that I didn't even have time to scan them all. I decided to give the old stand-by a try.

Now before I go any further, let me digress a little. For years, when I spoke at short-courses and industry meetings on quality control, I usually included a little anecdote about McDonald's versus Burger King burgers. I actually like the taste of a well-prepared Whopper better than a Quarter-Pounder, but I had found out based on 10,000 or so personal test points that Whoppers are more variable...and the likelihood of getting a really dry or crappy Whoppper was fairly high, and depended on the attitude of the cooks that day. In contrast, McDonald's has always excelled in quality control...a Quarter-Pounder in California tastes exactly like a Quarter-Pounder in Pennsylvania, every day of the year. So, when I get ready to pull over, I have to make a mental decision...do I want a Quarter-Pounder that I can rely on, or take a chance that the Burger King isn't suffering from a hangover? Usually, I pulled into Mickey D's. A great tale on the value of quality control.

So, as to my lunch...well, to use the common vernacular, it sucked. The bun was dry and the texture of the meat was somewhat like...well, it was like nothing else that I can recall eating. I understand why folks are questioning whether the food is real, or not.

But the nub of this story is, that the declining quality of the Quarter-Pounders, Whoppers, and Wendy's Singles is not the price of great alternatives on their menus...rather, it is symptomatic of companies losing focus on what they do best, to try to do more, with the result being mediocre at it all.  Want to know why sales are down at these chains? It's not because they offer too little variety, or too few personal options as most commentators are suggesting...but it is because everything they offer in their new product strategies is mediocre.

One company that hasn't yet fallen for this siren call is Chick-Fil-A. Sure, they've added a couple of salads for those grazers who have to sit with their chicken-sandwich-loving friends and relatives. But the Chick-Fil-A menu is still basically...chicken. And it's good. And that fact is related in the company's profits. Look at the last column of the chart below, and notice how much higher the sales-per-store figure is for Chick-Fil-A than their competitors.
Source: http://www.qsrmagazine.com/reports/qsr50-2013-top-50-chart


Chick-Fil-A's success is the result of focus on what their company does best. And they generate those numbers in six-days-a-week, instead of their competitor's seven. A pretty good business model.

So, what has this got to do with the wood industry? I suspect you're way ahead of me by this point, but let's click it off one point at a time.


  1. The necessity economy.  While the government data-crunchers continue to tell us of the solid growth in the economy, they mean that sectors supported by public spending are doing well. Businesses selling real goods know that practically every other sector is soft. And companies that are selling to the middle class, the engine of our economy, are finding that costs are swelling much faster than customers' appetites for new floors, cabinets, or furniture. Fast food chains and Wal-Mart are struggling not because people want more selection, and only marginally because the internet is offering that selection, but because generally, people are getting used to a family budgeting paradigm of less spending on prepared food, clothes, and furniture. Utilities, insurance, higher mortgages and rents, and taxes are taking much larger shares of everyone's wallets these days, so demand for non-essentials is soft with no real surge in sight.
  2. Customer focus on quality. With that reduced budget for non-essentials, people are being more selective with their purchasing decisions. Here in the western world, we have so much stuff that we've reached the point that we don't need more of the same old same old...but we will buy better. Kitchens will be upgraded, but the upgrades will provide value for the dollar spent. Homes will be built, but quality features will be the selling point over generic size. Furniture buyers are looking for that unique piece to complement their room, not a full suite of new, mass-produced sameness. Customers have the tools at their disposal to comparison-shop like never before...and they will find and purchase value. Slick salesmanship of extra inventory won't work nearly as well as it used to.
  3. Producer focus on what the company does best. The companies that prosper in the coming tough years will be those that understand what their best product is, and shift more resources to that product line. More sales, marketing, purchasing expertise, and manufacturing technology will be committed to becoming the best in the world at making that product, instead of diluting those resources over a too-broad product line. Focus on improving that line, and the options it is offered in, but don't try to offer so many different lines that customers get distracted from their purchasing intent. Nowadays, when people walk into a showroom, they are looking for a specific product, and they are looking for the best they can get. If you make it, they will buy from you...but if your competition makes a better one, they'll figure it out and buy from them. You're better off not to make a mediocre product, and lose their business, than to make it, and lose it anyway.
  4. Continuous improvement in the face of competition. No market ever stands still, and companies must be committed to continuous improvement of their products, services, and processes to deliver them. Managers must be fully committed to hiring and keeping only the best employees, and investing time and money into them. Ideas must be encouraged, and implementation of great ideas must be fanatical. Have you ever had a great idea, only to see a competitor come out with it while your company is still talking about it? Don't let that happen again.
  5. Avoid the "all things to all people" syndrome. It doesn't work.
Which brings me back to McDonald's. Their sales are declining even as they rebuild chic new restaurants and serve tofu burgers and organic mocha latte.  Why? Because those people, the folks who frequent Starbuck's and Panera, were never their biggest fans, and never will be. Management of McDonald's may like those hipsters better than the moms and dads with carloads of noisy, messy three-year-olds, and good-old-boys in pickups with a hankering for a heavy dose of carbs, protein, and sugar, but those are the folks that made McDonald's what it is, and they will stay away from the new, toned-down, quiet shrines of mediocre food. They want Ronald, and climbing structures, and inexpensive, good food. If management of McDonald's wants to really be successful, they'll re-focus on that model and figure out how to deliver it in a clean, healthy, bright, format. And the business will come flooding back.

And please, bring back those fried apple pies! The baked ones taste like the cardboard they come in. I Go Wood in almost everything, but I draw the line at chewing cellulose in my dessert.





1 comment:

Anonymous said...

Great post! And to point out the obvious; Chick-fil-A has figured out it is not just the quality of the product but the quality of the service.

Jay