Keeping the streak going
Under Skinner, McDonald's has become so successful that it now has a challenge only a few companies, such as Wal-Mart (WMT), face. How do you continue to grow a behemoth? Every day 64 million people in 118 countries (Bosnia was just added to the list) eat at its restaurants, which generate revenue that trumps Starbucks (SBUX), KFC, Pizza Hut, and Taco Bell (YUM) combined. From 2008 through 2010, McDonald's was responsible for 90% of the sales growth of the U.S. fast-food and fast-casual industry, according to research firm Technomic. Every month that the company ups its same-store-sales figures, which it has done for the past 99, the harder it is to lap its numbers year to year.
The fact that fast food is a somewhat cyclical business makes McDonald's sales streak all the more impressive. But Skinner doesn't think McDonald's should experience serious ups and downs based on seasons or swings in the economy. He's constantly telling shareholders and analysts that the company's success doesn't hinge on consumers trading down when times are tough; when customers have more to spend, they'll spend it at McDonald's, he says.
To entice consumers to buy more -- and more often -- McDonald's under Skinner has pursued what the fast-food industry calls "platforms" rather than one-hit wonders. (Chicken is a platform; McNuggets are the product.) McCafé, McDonald's beverage platform featuring coffee drinks and smoothies, has added about $125,000 in sales per store and is the company's biggest launch in 35 years. As McDonald's has put its major flops of the past far behind (ever try the McLean or the Arch Deluxe?), the company has gained permission from consumers to branch out into products you'd never expect to see on the menu board a decade ago -- oatmeal, for example. Geographical divisions have even gotten better at sharing ideas around the globe. McCafé originated in Australia, and now Chicken McBites, another Aussie staple, is being tested in the U.S.
Despite having more than 100 items on the menu, Skinner, perhaps more than anyone else at McDonald's, has never lost sight of the fact that the company's roots go back to the burger business. In the late 1990s and early 2000s McDonald's started acquiring stakes in brands like Chipotle (CMG). Those investments diversified the company but barely caused a blip in earnings. When Skinner became CEO, he sold them all off in their entirety in order to keep the focus on the core. "Because you're good with hamburgers, you think you can do pizzas or rental cars or an IT business or sell your know-how," says former executive Hennequin. McDonald's has been guilty of this too -- it once opened Golden Arch hotels in Switzerland. "Jim is always the guy that takes us back to 'What difference is this going to make for the hamburger business? Is that going to help? If that's not going to help, forget it.'"
Today McDonald's is better than ever at figuring out what will or won't work on the menu board, a testament to the discipline Skinner has instituted. Every new item that ends up on customers' trays has to have a strong business case that examines its profitability, the capital it requires, and how it can be built out nationally. McDonald's has about 40 products at different stages in the pipeline, and some, like the Angus Burger, can take over four years to hit the market. Products that meet the company's business-case requirements have a 90% chance of going national. During the testing phase, the company may even try out different prices by market to ensure a new launch is adding incremental sales rather than stealing share from an existing item.
