Coalition of Franchisee Associations

December 10, 2023

Acceleration Can Cause a Wreck

Growth is the magic word in any business, large or small. For most of McDonald’s history, convincing investors of the company’s growth potential was no problem. However, in the late 1990s, McDonald’s management decided to hype the growth potential of the company. Management announced the “Convenience Strategy”. A plan to build thousands of new stores worldwide. An acceleration of 300% over the sensible growth rate of the 1970s and 1980s.

But something went wrong; at least in the United States, there wasn’t room for that many new McDonald’s stores. To compound the problem, the corporate real estate department had a tendency to locate new stores in all the wrong places.

But even when the new stores meet their projected sales volume, much of those sales come from surrounding McDonald’s stores. Cannibalization became the word of the era.

Same-store sales suffered nationally, and Wall Street became very concerned. The question went out, “What’s wrong with McDonald’s?” Management was trapped. They couldn’t admit the truth - that even though the USA only had 10,000 McDonald’s stores, there wasn’t room for all those new stores. After all, this was still supposed to be a growth company. 

The media and Wall Street types begin blaming the food: “American tastes are changing.”

Being trapped, management bought into “the food” problem. Oak Brook staff spent several years bashing McDonald’s food. New store growth was slowed, and the Made For You cooking system was publicly introduced - before it was fully developed. 

The complete implementation of MFY was generally completed by the close of 1999. But, Oops! Management was trapped again. Everywhere MFY was introduced, service slowed to a crawl, lines formed, and same-store sales suffered another hit.

Now management was in an absolute panic, and of course, their only answer was discounting. Oak Brook began to push the concept of a Dollar Menu on Ower/Operators. It took a lot of field meetings and a lot of corporate cash, but the Dollar Menu was introduced in mid-2002 with poor results. The Dollar Menu didn’t catch on with American customers until mid-2003. By that time, Jim Cantalupo was the new CEO, and the domestic McDonald’s system had pretty much recovered from the damage done by the “Convenience Strategy.”

So reckless new store growth in the form of the Convenience Strategy brought Made For You, and Made For You brought the Dollar Menu.

Is McHistory repeating itself?


Richard Adams said...

A story repeated many times in the 1990s - McDonald’s looks at a small town and deems it too small to support a store. A year later, the “Convenience Strategy” kicked in. The corporate folks come around again. The population of the town hasn’t grown by a single person. Because the real estate department is shooting for numbers, not quality, the town is now ready for a store. The store opens, does great for 30 days, and then sales fall off a cliff. Most of the new, high-rent store's sales come from the McDonald’s stores (8.5 or 9.0% rent stores) in adjacent towns.

Richard Adams said...

There's an important similarity between yesterday and today. When the Convenience strategy was announced it was after a period of slow unit growth for McDonald's USA. Owner/Operators were kind of starved for growth and were excited to hear about all these new stores. They weren't all that particular. At that time the occasion of a new store doing poorly was pretty rare. A new store was something to fight for.

Anonymous said...

All true. I lived it.

Anonymous said...

This is a fantastic and accurate synopsis of so many publicly traded restaurant brands.
Lurch from one srtategy to another without regard to the underlying value of the brand

Anonymous said...

Cash Flow can be restored only through increased transactions. The system is in decline due to senior management's focus on Shareholders, not Stakeholders.

Anonymous said...

“Cash flow can be restored only through increased transactions” is certainly not true in the short run on our end of the ledger. I am in one of mine nearly every single day and I have grown my bottom line considerably over the last three years while losing transactions to higher average checks.

I agree that we need transaction growth for long term sustainable cash flow growth, but the SLT and operating system are the problems.

If this bunch would get out of their own way and think for a minute- they could CUT rent or whatever they call service fees, let me add that back to labor and we’d all win. The problem is that they see this business as for them to win someone has to lose, to grow their bottom line they’ve got to take it from me. If we replaced the SLT with competent Owner Operators this thing would blow up and everyone would win, including stockholders.

I’d do what Chic Filet does in DT but I’ve got a problem that they don’t have- they don’t have a franchisor who is actively working to take all that they can out of the money I earn while contributing nothing of value. I simply can’t afford the labor cost to run more through DT so I’m stuck. I’d need about $85/hr to get it done and the upside is tremendous.

There is an answer and if a CEO and SLT would come along with true vision, interested in sustainable growth for all, they’d see that loading me up with expenses puts me on defense and doesn’t allow me to staff for growth. You’d think that they learned this during covid but they were too busy squeezing everyone else to sacrifice while making sure that there was no break in their income.

Their asinine zero sum game focus is what is holding the system back.