The British and International Franchising Exhibition, Richard Forte Speech

18 March 2011

Richard Forte, Chief Operations Officer talked to prospective franchisees about Why Franchise Owners Are Well-Placed To Weather The Economic Storm.

You’re more than likely here today because you’re interested in starting your own business. It’s a decision not to be taken lightly. Some would even go so far as to say it’s a bold move to be stepping out on your own now.

There is no doubt that we are still living in turbulent economic times and we’re doing business in one of the toughest trading environments we have ever encountered.  Consumer confidence is low and with the economy still suffering and pay freezes for many, consumers are likely to remain cautious for some time.

As a consequence, the UK High Street is taking a hit.

Shop closures, which were a steady stream during the last decade, have turned into a flood since the economy began to nosedive in 2008. Some 25 shops a day have closed in the last six months.

Traditional outlets and institutions have disappeared as they lose out to value for money brands and the rise of internet shopping. We’ve seen major high street players like Woolworths and Borders fall by the way side while the future of HMV and JJB are currently hanging in the balance.

According to a recent report, a record one in seven shops on the high street lies empty with 10,000 more set to shut down by the end of the year.

It’s the survival of the fittest out there. And to many it seems that there are more retail losers than winners.

Thankfully though, McDonald’s has not only weathered the storm but has been able to sail strongly through it to nineteen consecutive quarters of business growth.

We are outperforming both our immediate peers in quick service restaurants and the wider eating out sector.

And we’ve done this through finding opportunity in uncertainty.

We have stayed close to our customers, listened to what they are telling us, spotted trends and made sure we stay in tune with their needs. This in turn has helped us build loyalty. Customers who have less money to spend don’t want to take a risk on the unknown – there’s enough uncertainty in their life already. They want to spend money with brands they know and trust. So brands like ours, with strong reputations have done well – Brands that can deliver quality at affordable prices.

But the buck doesn’t stop there.

In partnership with our franchisees, over the last few years we have refocused on the fundamentals of our business and have set about a process of transformation which has built great momentum – the kind of momentum that’s long lasting and can propel you through a major recession.

We’ve not always had such a positive story to tell though. In the early 2000s the UK business was suffering. We’d taken our eye off the ball, had been too slow to embrace change and were not as close to our customers as we needed to be. Consequently, they began to vote with their feet - our confidence dropped and sales were dipping as a result.

We needed to reconnect with the British public and make changes that would disrupt people’s view of McDonald’s.

So, in 2005 the fight back began. Or the ‘McFightback’ as one national newspaper later called it!

We went back to basics and fixed the things that are absolutely core to a business like ours.

We refurbished our restaurants with soft furnishings and mood lighting and introduced a new, more contemporary colour scheme.

We refreshed our menu, bringing new options such as porridge and bagels to our breakfast range and salads and deli sandwiches to our main menu.

We even started encouraging our customers to spend longer in our restaurants by taking advantage of the new free WiFi we made available to them.

Riding the crest of a wave for the last 5 years has meant that the economic pressures of recent years have been an opportunity for us to further differentiate ourselves from the competition.

Through making substantial investments in the look and feel of our restaurants, the quality and choice we offer on our menu and the training of our people, we’ve kept our foot on the accelerator as things have got ugly on the High Street. And the result – an incredible period of growth.

Our franchising strategy has been critical to this success.

We have stayed true to our business plan and have continued to franchise more restaurants when other organisations may have been tempted to play it safe and stall their plans.

Currently just over 60% of our UK restaurants are franchised and we hope to raise this figure over the next few years.

Why? Because we believe franchising works hard for our business. We see strong sales, more customers through our doors and a significant improvement in customer service standards almost every time restaurant ownership moves over to a strong performing franchisee.

Growing our business through our strongest franchisees is good news for them, good news for our business and good news for our customers.

Our franchisees own, run and make decisions about their own businesses and we provide the strategic framework to put their investments into practice.

Take the extensive refurbishing programme I mentioned earlier as an example.

We appreciate that to refurbish restaurant considerable financial investment is required.  But, unlike many of our competitors, we put our money where our mouth is and support our franchisees financially as well as consult with them about the designs and help them with any planning permissions that may be necessary as part of the process.

With the help of our franchisees, to date 70% of our 1,200 UK restaurants have been updated with the new look and each of these has been subject to a sustained sales increase of 6% on average.

We have set the pace amongst our competitors and are now seeing other Quick Service Restaurant outlets and coffee shops planning similar store refurbishments.

I’m proud to say that our franchisees remain ambitious, supportive and prepared to invest to ensure our business stays at its best.

2010 may have seen the end of the recession, but 2011 is payback year – the real hangover from the financial crisis, as the public are asked to pick up the tab.

This means that we cannot, and will not, become complacent about our success. The need for both the company and its franchisees to keep pushing on and investing in the business is as great as ever before.

We need to make sure that together we are continuing to instil customer confidence in our brand.

We will continue to make progressive moves on our menu – through new meal options we develop; the quality of ingredients we use and the standards we set in animal welfare and sustainability.

We will keep driving the investment we make in our people so that they can serve more customers, consistently providing a high level of customer experience.

And we will continue to offer affordable food at the times of the day that is convenient for our customers.

In our mind a tough economic environment is no excuse to cut corners

And our franchisees will be with us every step of the way…..

That’s why it’s so important for us to find the right individuals to become McDonald’s franchisees.

We don’t expect potential franchisees to come from a set background or career. On the contrary our franchisees bring a very diverse set of experience. We’ve got accountants, pharmacists, dentists, farmers and teachers to name but a few.

Meet McDonald’s franchisee - Cherry Lewis-Taylor…

On leaving the Army after more than 20 years in Service, Major Cherry Lewis Taylor quickly realised she wanted to run her own business and, after taking an Advanced Management Appreciation Course at Manchester Business School, decided to explore franchising.

A former colleague then happened to mention to her about the opportunities for franchising at McDonald’s so she set about doing her homework on what it’s like working for the Golden Arches – even taking on an hourly paid role as a dining hostess in one of our restaurants!

Her thorough research and hard work paid off though. After completing our rigorous selection process and training programme she was successfully on her way to a second career as a McDonald’s franchisee.

These days she is responsible for three restaurants and 230 employees in the Braintree area of Essex.

Don’t get me wrong though -  not all our franchisees are external hires. We’ve got some franchisees whose association with McDonald’s began way before they ever entertained the idea of setting up their own business.

Take Nigel Dunnington….

Nigel has worked with the brand in some shape or form for 26 years, having started as a trainee manager in London after from graduating from university with a degree in hotel and catering management.

From there, he rose through the company ranks and after a stint working in our Global Head Office in Chicago he became a valued member of the senior management team responsible for restaurant operations across Europe.

Nowadays, he owns five restaurants in Lancashire, employs around 280 people and since taking on the franchises he has grown sales by almost £1million.

We feel confident that having such a unique mix of franchisees brings great reward and benefit to the company as a whole.

The franchisees that have worked their way up within the company can share first-rate hands on experience of working for the brand through the years.

Whilst our externally hired franchisees bring with them a variety of expertise from a whole host of different professions.

So, as you hopefully can now see, there is no set formula to the type of franchisee we work with.

We do, however, expect a lot from each and every one of them.

And so we take great time and care over our selection of franchisees. It’s essential for us that they have complete commitment to our business plan and to what we’re trying to achieve.

Amongst other things, we look for potential business owners who can display a solid record of business success, can lead and motivate a team of staff and can demonstrate that they have a genuine interest in the McDonald’s business.

As far as we’re concerned our franchisees are the cream of the crop. They are not only shrewd business people, but they are also as passionate about delivering outstanding customer service and are as highly driven towards success as we are.

They are creative thinkers who have a positive outlook and are un-phased by going that extra mile.

They are businessmen and women, rather than investment companies, and can be in charge of anything from a single restaurant to 30 or more! On average though, a McDonald’s franchisee in the UK runs four to five restaurants.

Recruiting a new franchisee is not something we take lightly – and you shouldn’t either. It is a serious commitment.

We insist that our franchisees are as serious about our business as we are and that’s reflected in the nine month unpaid training we ask each and every one of our successful applicants to do before being given ownership of their restaurant.

It’s also worth noting that we franchise to individuals, rather than couples or business partners, and for each restaurant, these people commit to a twenty year franchise term. That way, they set down roots in the area. They put their first and best efforts into running our restaurants. And we in turn get the benefit of their long-term commitment. 

50 years ago we established the three-legged stool as the foundation of our global business model. Suppliers, franchisees and company personnel working together to make up the three legs of the stool.

It’s this culture of partnership and collaboration that has become a fundamental principal for our business.

Whilst it is our company management team that sets the overall strategy and keeps control in the areas that matter, our franchisees play an integral role in shaping the strategic thinking. We don’t issue instructions. We view them as business partners rather than employees.

They sit on each of our main business working groups and committees and are frequently consulted by our Executive Team to ensure we always have a joined up approach to major business moves that can contribute to the future success of the business.

At times our franchisees, in a positive way, challenge our strategy, direction and execution and this keeps us on our game.

We believe that working together constructively in this way is a real driver of growth in itself and makes us a stronger force to be reckoned with.

So, what will the rest of 2011 and beyond bring for our business and franchisees?

Without a crystal ball, who’s to know for certain?

One thing is for sure though…. McDonald’s business momentum is strong and we aren’t taking that for granted – complacency is not within our business culture.

We won’t be taking our foot off the accelerator any time soon. We will continue to invest and make bold, progressive moves which will continue to drive growth for our business and our franchisees.

And we will continue to recruit more of these exceptional, highly motivated individuals to help us on this journey.

If you are interested in finding our more about franchising with McDonald’s, please drop in and see us at stand G40. We’d be happy to talk further.