McDonalds Corp (MCD)

[Paule]

McDonald's Sees Profits in Simplified Products, Promotions


Apr 02, 2001 (Chicago Tribune - Knight Ridder/Tribune Business News via COMTEX)
-- Think there are too many sandwiches and sizes to choose from on McDonald's
menu? Too many promotions? Too much clutter in its restaurants?

If you do, you're not alone: So, apparently, does McDonald's Corp.

Acknowledging that its business is too complex, a high-level task force at the
Oak Brook-based fast-food giant is urging drastic changes in the way McDonald's
operates as part of a plan to double its U.S. business during the next five
years.

Detailed in an internal five-year plan obtained by the Tribune, the task force
recommends changing everything from how many sizes of drinks customers can order
to reducing promotional material and signs in the restaurants.

The goal, according to more than one McDonald's source, is an aggressive move to
sharply increase the average store's sales by focusing customer attention more
on core products.

It is believed to be the company's first detailed five-year plan. Sources say
that McDonald's typically wouldn't plan beyond two years.

McDonald's didn't respond when asked to comment on the report, which was first
unveiled to staff in January.

The overarching goal, according to the plan, is to simplify the operation at all
levels so that consumers are less likely to be confused or bombarded with
promotions when they walk into a McDonald's. The chain also wants customers to
spend more.

Although McDonald's just expanded its menu with a "New Tastes" system of
rotating options, one of the report's recommendations is testing a "consolidated
core menu." It suggests eliminating some menu items, like apple bran muffins and
strawberry sundaes, and reducing the number of sizes offered for fries and
drinks.

The proposal also suggests a test to replace its cookies with fresh-baked ones.

The company also plans to reduce the number of game promotions and premium
giveaways as part of its "food as co-star transition." The company may also
introduce a frequent buyers program, called "McRewards."

The report says that the number of messages its customers are hit with in the
stores is "getting worse." It found the number of messages presented to
consumers soared 112 percent from 1997 to 1999, but a test in a store with far
fewer messages resulted in higher sales and average checks.

Also top of mind in the report is how to slash high turnover costs. Sources
estimate that some restaurants experience 100 percent turnover in six months.

Among the proposals to retain staff, the report urges substantially improved pay
for managers and upgraded benefits for crew members, including free meals rather
than half-priced ones. The switch to free meals is estimated to cost each store
roughly $2,400 a year.

But McDonald's estimates turnover costs are $400 for a part-time crew member and
$8,000 for a management trainee. The company estimates that a 10 percentage
point drop in turnover is worth $1,500 to $2,500 per restaurant, depending on
its crew size.

Perhaps the costliest proposal calls for implementing a new, enhanced computer
system in its restaurants. It would cost an estimated $38 million to $145
million to change by 2005, depending on the system.


By Jim Kirk
To see more of the Chicago Tribune, or to subscribe to the newspaper, go to http://www.chicago.tribune.com/

(c) 2001, Chicago Tribune. Distributed by Knight Ridder/Tribune Business News.