While we don't know all the details about the aforementioned McDonald's site in Southhaven, MS., it brings back memories of the "Cannibalization Strategy" from the 1990s. In brief, the corporation was eager to build as many stores as possible as quickly as possible. It was not uncommon for the McDonald's real estate department to have taken the position that a particular town or locality was not ready for a new McDonald's store. But, a year later, with no significant changes or population growth, the corporate guys would announce the area was now ready for a new store. Just to get one more in the ground.
We all know how such deals worked out for the Owner/Operator.
6 comments:
McD management can NOT be trusted. They have announced an ABSURD store growth goal, and will implement it at the owners expense (and detriment). JUST SAY NO !
This is a repeat of the 1990s “Convenience Strategy”, Oak Brook fell on their face trying it back then. And that was when the corporation was staffed with experienced, knowledgeable people.
Yes, they were experienced, knowledgeable people who were judged by the success of the sites they developed. But once the new strategy kicked in (mid-1990s)they were judged on quantity, not quality. In other words, the regions were given quotas to reach, and opening sales were a secondary consideration. During the earlier growth years of McDonald's the regions developed a list of possible new sites but only built the best prospects (based on sales projections and eventual rent factors). During "acceleration" they attempted to build everything on their list of possibilities. Those experienced, knowledgeable people just had to close their eyes and cross their fingers.
Another reason to recruit a bunch of eager Register Applicants.
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What do registered applicants have to do with this?
There will be stores with such low volume projections and such high rents and royalties that no expereinced O/O will touch.
I sat next to a 3-4yr RA who had recently opened his second store, think it was existing already but of course they had raised the rent and royalty to something like 18%. He has always wanted to be an owner and he was truly exciting for him to finally reach his dream. If it matters, he was a minority and I failed to ask him whether he was a recipient of the $200m commitment that the company had told everyone who would listen that they had committed to invest in helping select groups achieve the American dream of business ownership and entrepreneurship.
My guess is that they gave nobody anything- my guess is that while they “gave” this group the ability to buy a store or two, I’m all but certain that every dollar would return to the company at a minimum of a 15% annualized return- likely through either permanent or escalating rent commitments. (Can anyone confirm how this program really worked?)
He was absolutely deflated. He was in debt up to his eyeballs, saw no way to overcome the never ending debt cycle and felt like he’d never see the profit he was sold on.
What they’re doing isn’t just wrong- it’s cruel. MBA’s design these programs to appear great and markets it as some sort of benevolent action when the truth is that the only party that benefits is the company.
This can’t survive for long but they don’t seem to look past a few months or years- those are problems for future leadership to deal with.
This business has been reduced to a profit machine with one winner, and it isn’t him.
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