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Archive for the ‘Fast Food’ Category

The Wall Street Journal had an excellent article on the trend to increase variety at McDonald’s and its perils (“On McDonald’s Menu: Variety, Caution“).

Since early 2003, McDonald’s has posted 30 straight quarters of same-store sales increases.  But at the same time, the chain’s peak lunch-hour business has been flat for several years, according to an email reviewed by The Wall Street Journal. How do they do it?

An increasingly diverse menu, with some items priced at a dollar and others as high as almost $5, has lured more cost-conscious customers while preserving profit margins. That’s a departure from the days when McDonald’s largely catered to so-called heavy users—customers who queue up to eat fast-food several times in a week… The new menu choices are so plentiful that the Oak Brook, Ill., company has been running ads to remind customers that it still sells Big Macs and Quarter Pounders.

This is only one side of the story. As the sales increase, there are of course costs associated with these products. Furthermore, since 90% of the stores are franchised, the costs are incurred by small businesses that are trying to justify the investments required to add these products:

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The Wall Street Journal has an article today on the recent changes in the coffee making process in Starbucks: (“At Starbucks, Baristas Told No More Than Two Drinks“, October 2010)

Starbucks baristas are being told to stop making multiple drinks at the same time and focus instead on no more than two drinks at a time—starting a second one while finishing the first, according to company documents reviewed recently by The Wall Street Journal. Baristas are also supposed to steam milk for each drink rather than steaming an entire pitcher to be used for several beverages. Other instructions include rinsing pitchers after each use; staying at the espresso bar instead of moving around; and using only one espresso machine instead of two, according to the documents.

The baristas are leery of the improvement and claim that these will clearly reduce their throughput, increasing the waiting times, which Starbucks have been trying to improve for a while (see earlier posts):

Tyler Swain, a barista in Omaha, Neb., who is also a member of the union, worries how he will keep up with volume if he can only complete one drink at a time. “While I’m blending a frappuccino, it doesn’t make sense to stand there and wait for the blender to finish running, because I could be making an iced tea at the same time,” he says. His store has yet to adopt the changes.

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It’s hard to imagine a firm asking its sales force to reign in sales of a new product for which it has high hopes, but that is effectively what McDonald’s is doing with franchisees and its new smoothie offering (McDonald’s Cuts Aggressive Smoothie Promos Ahead of U.S. Launch, Jul 2, Wall Street Journal). Here’s the scoop: The Golden Arches are launching a new smoothie product with the official coming out party scheduled for July 13th.  Expect lots of ads. However, before the advertising blitz, they need to load up the supply chain.  That means, the stores have the stuff and are capable of selling it. And they may well be excited about selling it because drinks generally have fatter margins and the whole point of this product is to drive traffic at otherwise slow times of the day. But having stores jump the gun is messing up McDonald’s launch plans.

McDonald’s is trying to rein in sales in the two weeks before the company throws the full weight of its national marketing machine behind the product, according to internal company documents. McDonald’s has ordered some stores in the South and Midwest to stop offering free samples in stores and to cut down on tasting events, where trucks offer samples at sporting and other gatherings. Some Southern markets are being told to take down posters and other in-store signage promoting Smoothies, unless they have a “Coming Soon” tag.

Smoothies supplies are “flying out too fast and the supply chain was predicting a catastrophe if they didn’t reel it in some,” said one McDonald’s franchisee who declined to be named because the company forbids store operators from discussing internal matters. …

“In an effort to gear up for the national launch and make sure we’re all aligned and have sufficient supply for our national marketing efforts, we have scaled back a bit on some of the local efforts,” [McDonald’s spokeswoman Danya] Proud said.

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Two fun articles in today’s Wall Street Journal. The first deals with how the recession has led firms to manage their cash more aggressively (Big Firms Are Quick to Collect, Slow to Pay). Specifically, many firms are trying to stretch out the time they take to pay their suppliers while simultaneously collecting from their buyers sooner. Float is always a good thing but tight credit puts working capital at a premium and “borrowing” for free from suppliers become particularly attractive. As the article’s title suggests, not all firms are created equal on this front; it pays to be big and have some bargaining leverage over your smaller supply chain partners. The graph below shows that large firms have been the big winners here while smaller firms have gotten the short end of the stick. (more…)

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There is an interesting article on the front page of today’s Wall Street Journal (“Latest Starbucks Buzzword: ‘Lean’ Japanese Techniques,” Aug 4, 2009).  It concerns Starbucks’ efforts to improve in-store operations by implementing lean techniques.  The article describes how a team of lean experts is visiting stores, observing how the staff carries out its tasks and then restructures work to avoid unnecessary movement and other non-value added tasks.  If you have an account for the online version of the Journal, they have a spiffy interactive graphic that shows a number of the resulting changes at one store.  These are all aimed at increasing speed and (to some extent) the quality of the customer interaction.  They do not change the actual production of the product per se.  For example, the urns holding brewed coffee (as opposed to your espresso products) are moved to the front counter.  Thus the barista does not have to walk or turn his/her back to the customer in order to fill the order. (more…)

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When we think about processes (for example, purchasing food in the fast food restaurant or calling a call center) we usually think about the cost of waiting, the fact that customers may leave the line without being served or may choose not to remain loyal to a specific firm due to poor service, but I am not familiar with models that consider the following behavior:

Cop accused of pulling gun while waiting for food: A Denver police officer has been charged with felony menacing for allegedly brandishing his gun at a McDonald’s restaurant after getting tired of waiting for his food.(San Francisco Chronicles, July 22nd. Hat tip to Margaret Pierson for sending it).

While this may seem anecdotal, I would like to refer to a larger study done on the drivers for consumer rage in the service sector, the “Rage Study”. Among other things, the survey studies how people that experienced poor service expressed their displeasure. Apparently, the responses vary between sharing the story with a friend (84%), yelling and raising a voice (24%-33%) to using profanity (9%-16%). In a different study, Prof. Anat Rafaeli from the Technion (The Effects of Angry Customers) studies the impact of angry responses on the performance of agents in a call center. The conclusion from her work is that the service provider’s need to deal with anger expressed by the customer may hurt his performance. So, next time you tell the call center agent on the phone how frustrated you are with the long wait and poor service, you should know that you may be making matters even worse.

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