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The Honolulu Advertiser
Posted on: Monday, November 9, 2009

McDonald's plans faster food


By Courtney Dentch
Bloomberg News Service

Hawaii news photo - The Honolulu Advertiser

After another strong quarter, McDonald's is not resting on its arches. The company's Innovation Center is cooking up new ways to get meals to customers quicker, including warming trays that hold more burgers.

BLOOMBERG NEWS SERVICE FILE PHOTO | April 2009

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At a McDonald's Corp. test kitchen in an unmarked Illinois warehouse, next year's menu plan for the U.K. has hit a snag. When the visiting British team adds wrap sandwiches, service slows.

"This is the place to find out," said Jeff Stratton, McDonald's chief restaurant officer, as he considered the wrap's fate, which will be decided by U.K. executives. It's among dozens of new products being tested at the Innovation Center to make sure service isn't disrupted. "We will probably not recommend they add this one until the bugs are worked out," he said.

Speed is increasingly the focus, as McDonald's tries to increase customer satisfaction and gain market share amid an economic slowdown that's driving people to eat at home. It's banking on innovations tested at the center, including warming trays that hold 50 percent more burgers and software that streamlines ordering, to shave seconds off food delivery times.

Those time savings are part of a plan to get food to customers quicker and ultimately keep increasing a base that McDonald's won in the recession. Last quarter, earnings rose 5.9 percent to $1.26 billion, or $1.15 a share, as sales at restaurants open at least 13 months climbed 3.8 percent, more than analysts projected.

"They need to be seen as the best choice in their space to keep the customers coming in," said Michael Yoshikami, chief investment strategist at YCMNet Advisors. The firm, based in Walnut Creek, Calif., manages about $850 million, including McDonald's shares. "McDonald's is a mass-scale product, but they have to operate as though they're a premium product to keep gaining market share."

'MORE SAFETY'

YCMNet increased its McDonald's holdings in the past two quarters, according to regulatory filings. McDonald's was one of only two Dow stocks to post a gain in 2008, alongside Walmart Stores Inc. Burger King Holdings Inc. had lost 25 percent this year through yesterday.

Thirteen analysts advise buying McDonald's shares, 10 recommend holding and none say sell, based on ratings compiled by Bloomberg.

"Customer satisfaction is more important than ever today," Chief Executive Officer James Skinner said at an event at Boston College last week. "Customers continue to be in a routine mode. What they're looking for is less sizzle, more safety."

COFFEES, BURGERS

The chain won customers in the past two years with its new McCafe coffees, larger burgers and $1 chicken sandwiches. A decade ago, it was last among the top 10 fast-food chains on the American Customer Satisfaction Index, which tracks preferences among some 80,000 U.S. households. It's now ranked eighth, ahead of Burger King and Yum! Brands Inc.'s KFC.

Still, the world's largest restaurant company lags behind third-place Wendy's, owned by the Wendy's/Arby's Group Inc., and Yum's Taco Bell at No. 7, both of which have improved their lower-priced offerings, said Claes Fornell, who founded the index.

"It's improved more than any other fast-food company we cover," Fornell said. "McDonald's primary selling point is convenience, price and consistency, and it's doing that better now than it has in the past decade."

On most other measures, McDonald's is in the industry vanguard. Since 2006, revenue increased 13 percent, to $23.5 billion last year, and net income climbed 22 percent to $4.13 billion. McDonald's ranks first among fast-food chains in U.S. sales, garnering about 16 percent of the $193.3 billion market last year, according to Technomic Inc., a Chicago-based restaurant consulting firm.

SHORT-CIRCUITING LINES

At the Innovation Center, 20 miles southwest of McDonald's Oak Brook, Ill., headquarters, a crew spent years testing and incorporating into the workflow an automated soda fountain that fills cups as soon as an order is placed, said Stratton, 54. They added refrigerated storage below the McCafe coffee makers after realizing that drinks would require more milk.

The team is now experimenting with handheld devices that would allow workers to come from behind the counter to short-circuit long lines. A self-serve kiosk, on trial in Europe, may prove popular with diners seeking to customize meals; the turnoff may be the time needed to read screens of choices.

New software would update the complicated abbreviations of the touch-screen register with simply labeled, icon-like pictures of food. The system, which is in about 5,000 restaurants out of the company's 32,000 locations, is easy to learn and may cut as many as 10 seconds off workflow, said Laurie Gilbert, the center's director.

REPEAT BUSINESS

That saved time may squeeze another five cars in the drive-through lane per hour, said Darren Tristano, executive vice president at Technomic. McDonald's currently aims to serve most customers within 90 seconds of taking their order.

"It's going to enhance repeat business, improve loyalty and push more people through the lines faster," Tristano said. "People expect convenience and demand it, and if restaurants don't deliver against it, then they're failing."

Behind the counter, a redesigned assembly area has three sides for workers to pack food into bags, while a new, shorter preparation table promises to be more energy efficient: It holds 50 percent more cooked burgers and chicken breasts, and it lifts a bread steamer, used for Filet-O-Fish sandwiches, to hip level so workers need not bend over for each order.

REAL-WORLD TESTS

Groups from 14 countries representing about 26,000 McDonald's stores have logged in at the center this year, Stratton said. The staff of 35, as well as about 70 restaurant employees, spend weeks gathering order, productivity and performance data to ensure that tests mimic the real world as closely as possible, he said.

Workers posing as customers are given receipts with their order already on it, along with a barcode. That allows staff to track the food and see where slowdowns occur. Videos also are used to spot bottlenecks. The system builds in a 5- to 10-second delay to create the time actual customers take to decide and place their orders.

"The moment of truth comes in the transaction," Stratton said. "We have to get better at that moment of truth."