Burgers and Data: McDonalds 4D Growth Strategy [Business Breakdown - Episode 3]

[Music] What's up everybody and welcome back to another episode of the Bad Podcast. I'm your host Ethan Edwards and today we're going to be talking McDonald's. I think we all know what it is. We all know it's one of the top brands in the world and really quick I'm just going to spit out some quick facts for you guys. Let's set the stage for how big McDonald's really is. So in total there are 69 million customers served every single day at a location. There are 17 menu items that are worth a billion dollars. Let's say for example the Big Mac brand. If you were to sell that name to someone else it'd be worth more than a billion dollars, which is just absolutely insane. And every single moment there are 55,000 orders across the globe. And finally there are 150 million active users on the McDonald's app. So you clearly can see this is the top food chain in the entire world. And there's no doubt about that. And I'm just going to go through a little quick history behind this successful food chain. So it all started with the founders Richard and Maurice McDonald as they found the first restaurant in San Bernardino, California in 1940. And this is a pretty normal burger drill. But then they quickly became a fast follower of white castle. And basically what this means is they would be doing similar things as white castle. But they would be doing their processes quicker and better after white castles implementation process. And so an example of this is white castle was looking to get their burgers out quicker than everyone else. And so McDonald's quickly showed up with their speedy service system in 1948. So after that Ray Croc joined the company in 1955 and pushed to become a franchise. Then it finally became a public stock on the stock market in 1965. This is a pretty successful business from 1965. And the biggest turning point I would say is in 2004. This was when a new CEO came into town, Jim Skinner. And he really turned this business and upscaled it to new levels revenue from 2004 to 2013 rose by $10 billion. However, it fell back down to a total of $19 billion by 2020. It rose in this steep incline and decline. It rose because of great popularity and leadership from Jim Skinner. But it did fall due to bad media about the fast food. Everyone's going on a health crave. And so McDonald's really felt during that time period from 2013 to 2020. In the last five years, their stock has nearly doubled. Which means they are getting a lot better media and their earnings per share have gone up. Media definitely influences how well a stock is doing. And for McDonald's stock to double in the last five years, means that there's a lot of decent media about McDonald in that time period. And now they have great leadership again in Chris Kupinski, getting the company out of a rut of that bad media, but really turning the company around since that time period of decline in revenue. And so we can clearly see through its history that strong leadership has and will influence the success of this global franchise. Recently, they came out with a 4D plan is what they call it. It's like a strategy plan for how they will really upscale and grow their business to new heights than it already is. And so I'll be explaining the four elements of their 4D strategy plan. So there's four Ds of their business that they're trying to grow. These are digital delivery drive-through and development of restaurants. Those are the four categories that they're going to try and upscale and that will be taking a little deep dive into right here on this episode. So first we have the digital strategy. And this is from the McDonald's website. I quote, we are building on our digital foundation by enhancing our digital platform, providing more personal, more convenient and better experiences for our customers. We'll introduce my McDonald's, a unified suite of compelling offerings that provide our customers multiple complimentary reasons to engage with us digitally, whether through mobile ordering payments, delivery rewards or deals. What immediately jumps out to me through this passage is better experiences for our customers. I feel like that's what everyone wants in their business is for their customers to have a great experience and then retain that customer and bring them great experiences over and over again and have increased loyalty. And especially through a digital platform, such as an app, you can really have loyal users on this platform. And we said earlier that there are 150 million active users on the app. So you're really getting a strong fan base through a digital platform. Also in the passage, there will be a lot more convenience for the user. One's nowadays is using a digital platform for everything. So McDonald's is really trying to put the customer first through their digital plan and people love deals and discounts. So might as well take advantage of this as a customer and have loyalty and great deals as well. The next D in the strategy plan is delivery. And from the website again, it states, we aim to be the global leader in food delivery. We have a strong starting point and momentum in delivery and our prioritizing key actions to continue growth, including integrating delivery into our global mobile app. And so once again, they are just trying to create more convenience for the user and the customers. However, I feel like recently since COVID, the whole delivery industry has just really excelled and accelerated because people weren't able to be able to go into restaurants and order food in person. So apps like DoorDash, UberEats, etc. have really made the convenience for the customer to reach every restaurant besides fast food. Fast food was doing pretty good during the pandemic. But for those other restaurants, they really had to implement some sort of food delivery. Comparing normal restaurants to a fast food, you'd really want a normal restaurant's food. And so it doesn't really make sense how you want to be the global leader in the food delivery service when your food quality is lower than others who are doing the exact same service. Maybe there's a price difference. It doesn't really make sense to me. But another part of this delivery portion of the plan is that you can only really deliver through the app. And so once again, you're navigating your customers to the app and that will increase oil users of your products. The next part of the plan is drive through. And from the McDonald's website again, it states, "We will define the future of drive through an area where we already have a significant advantage as nearly 65% of our global restaurants have a drive through. We plan to extend this leadership by continuing to make the customer experience even faster, testing new concepts and technology, and having nearly all of new U.S. and IOM restaurants fully drive through enabled." "Fully drive through enabled." That means there will be no people taking orders at the counter. There will be no people greeting you. It's just going to be a bunch of workers in the back making the food. And I don't know how much of a great strategy this is because you're losing any sort of human connection. Now to be granted, you're not really going to McDonald's for a connection. But what this does for McDonald is more efficiency and speed. And also lower labor costs as you won't need to have people taking orders. But really quick, I do want to touch on the balance that you need for a big franchise like this to have operational efficiency and great customer service. I feel like you're never really going to get the best of both worlds in this technology-advancing landscape, especially in business. I feel like, and even the growth of AI in general, you're not going to have as much human connection. It's tough for a customer to really have a great experience without any sort of human connection. But it's just a new landscape that we are growing into. And so it might be something every customer is used to. However, if you look at a similar chain, not as global, but Chick-fil-A has a great human connection, great customer service. I'm going to go there in replacement of McDonald's because of the human connection, even though the price is a little higher at Chick-fil-A. So I think it's a little sad that McDonald's is trying to focus on drive-through, fully automatic enabled service. But the customers get what they want. They'll get a faster, more efficient service for their drive-through food. The last element of the plan is the development of restaurants. And I would say this is more global restaurants, not necessarily US, because there are 40,000 locations worldwide. wide, but there's only 14,000 in the USA, which makes this the biggest franchise in the world. And there are goals to have 50,000 locations by the end of 2027. And from the McDonald's website, their statement on their development of restaurants is that we will accelerate the pace of our restaurant openings to fully capture the increased demand we have driven over past few years. We see opportunity for further growth in many of our major markets and to explore new formats that show up under the brand McDonald's. So what this means is more locations and more innovations. We'll get to that in a minute. But recent news on March 4th, 2024, McDonald's buys 225 Israeli franchise restaurants. So this is an untapped market from four McDonald's in that eastern region. And you can really see them try and grow to every country and just expand locations upon more locations. Speaking of the future, they are going to be implementing some new innovations here. I have three different aspects of their business that they're going to try and implement. And the first innovation is a new restaurant that they're testing right now called Cosmics. Basically, this is their form of a Starbucks where they will have a variety of drinks and a couple menu items like baked goods and breakfast sandwiches. And if this is successful, you could see these cosmic stores pop up everywhere. And the reason why it's called Cosmic is because it has a space theme with some of their drinks. All they're trying to do is just get a little piece of the pie, let's say, of this huge industry of beverages. Should large businesses and large franchises innovate in such a way? My answer is if they can, yeah, they should. However, I feel like the market of McDonald's won't really buy into this type of industry. As McDonald's is known for being a reputation of being quick and cheap fast food, I don't know if the same market of Starbucks would switch to a place like Cosmics, unless the price is really low and the quality is the same. McDonald's saw Starbucks increasing a rate of 11.46% in revenue each year. And in 2023, Starbucks had $11 billion more in revenue than McDonald's. But I do like this idea for McDonald's is very forward thinking for a big company. Another new innovation is Krispy Kreme is partnering with McDonald's. And by the end of 2026, you should see delivered donuts to every McDonald's location, which is, I believe, a very smart idea. McDonald's instead of making their own donut and trying to compete with Dunkin' Donuts and other franchises of the breakfast food, they're going to partner with Krispy Kreme and try and really expand their outreach of this very popular donut company. I believe they're testing right now in 160 locations. And I really hope this does work because I believe it can really drive a lot of growth for Krispy Kreme and McDonald's. And finally, they're going to integrate Google AI with their system. I kind of draw this back to the drive through aspect of the 40 plan with replacing human connection and trying to fully automate the drive through experience. Google AI will have better information storage and really fast computing power for McDonald's. Really, they're just trying to get unmatched convenience and value out of both their software and their hardware systems. So I believe this will be a great addition to the McDonald's system and we'll really make it faster and more convenient for the franchise. However, I will say, on the last note, there have been some recent price struggles with McDonald's. All the prices have doubled since 2014. Part of it doing to inflation, but I feel like if they really want to see a huge change in revenue, you got to take a risk and lower the prices. McDonald's not known for high quality food, which means that if I buy food at an alternative place for cheaper and it's the same quality, I'm going to go to the cheaper place all day long. But right now, they don't have many high quality foods or they really need to add like low cost menu items as well, engage in that sort of sense. But people don't get excited to go to McDonald's because there are other fast food items on and other alternatives for the same price. That'll do it with my business breakdown for McDonald's. You see all the 4D strategy plan of this franchise trying to grow their digital delivery drive through a development of restaurants in the next 4 to 5 years. And we also saw some future innovations such as Cosmix, Krispy Kreme, Partner, and Google AI being integrated with the McDonald's system. I hope you enjoyed this business breakdown. Thank you for listening and I hope you enjoyed this episode of the Bad Podcast. I would greatly appreciate if you follow or subscribe depending on which platform you're watching this on. This will add the podcast to your library for new episodes. Connect with me on LinkedIn to get updates on new episodes as well. Send me any questions or topics you would like me to discuss with a data context as my email is in the about section on the home page. I'm Ethan Edwards and thank you for tuning in to the Bad Podcast.