What does one do to sustain a business in the midst of an economic slowdown when consumers and business confidence is low and costs are steadily rising? Greg Solomon, CEO of McDonald’s South Africa told delegates to the FNB Franchise Leadership Summit that “you concentrate on top line growth through innovation”.
Supporting that advice, he explained how McDonald’s globally had increased profitability notwithstanding difficult trading conditions worldwide. McDonald’s is built on long-standing, deep partnerships, with most of its approximately 40 franchisees in South Africa being multi-franchise holders. Its 235 outlets will grow to 244 by year-end, and eight million customers – half the working population of South Africa – eat a McDonald’s meal each month.
With input costs increasing by 5-6% a year and Gross Domestic Product growth languishing at just over 1%, Solomon observed this was not a sustainable model for profitability unless business owners create a culture of innovation from the bottom up in their businesses. “Business leaders cannot be expected to come up with all the innovation in a business, but what they can do is create the right culture for ordinary staff to innovate, and then be prepared to execute on viable ideas.” He noted that most of the ideas that had ensured McDonald’s growth had come from franchisees and staff – innovations such as the Egg McMuffin (now 11% of global turnover) and its espresso coffee bar, which had been voted the ‘second coolest’ coffee brand.
He outlined the company’s successful strategy.
Relationships are core, with an emphasis not just on having happy partners but partners who are ‘equally happy’, as imbalances in the happiness quotient can otherwise develop. “Our relationships, whether with suppliers or franchisees, are based on inter-dependence and strategic partnerships”.
“It is the depth of these partnerships that keeps franchisees motivated even in the current environment of slow GDP growth. In a culture of complete transparency, franchisees know exactly where they stand and what they’re in for during the coming six to 12 months. For instance, McDonald’s had a tough last six months of 2014 and an equally tough six months at the start of 2015, but our franchisees were kept fully aware that we’re in this together. By concentrating on the top line, innovating and managing the costs, we came through and business growth has turned the corner. The last six month period has been a great one,” said Solomon.
Sustainable success, he said, stems from having a long-term strategy covering five or preferably 10 years, thereby enabling the business to plan beyond periodic and short-term downturns with contingency plans already designed to cover any type of emergency. “Having such a series of contingency plans is what gives a business nimbleness to react instantly to changing economic conditions, as well as the capability to expand the business when conditions are more favourable.”
He noted that businesses require a different type of leader for different phases of its development and growth, and each leader therefore needs to perform some introspection on his/her own capability in this respect, so as not to hold back the business. “Our own founder Ray Kroc had the vision and capability to take the business from one to 100 stores, but thereafter it needed a bolder leader with the vision to take it to 1,000 stores with its requisite corporate culture. It is rare to find a single leader capable of leading an organisation for 35 years through multiple phases of expansion,” said Solomon.
“A business needs to maintain intense focus on what it is good at – and a business owner should hammer into every employee what those are. In a hospitality business like McDonald’s it is Quality, Service, Cleanliness and Value, among other things, and to retain that focus we view ourselves as a learning institution as much as a restaurant business. If you want to destroy a brand, then the easiest way to accomplish that is by not delivering on the business’ promises and by destroying trust in it.”
With staff having an average age of 25 years, McDonald’s inevitably experiences some 20% churn of staff each year, but is not concerned regarding this as all these ex-staff become ambassadors for the brand, said Solomon.
“Though McDonald’s is a hard working operation, as indeed is any food outlet, it is important to never lose sight of the core culture of an organisation or that the little things can make a big difference,” he said.