McDonald's new growth drivers

For the quick-service chain, growth is not just about adding stores; it’s also about optimising existing ones by adding business channels.

Gopal, a driver with a Delhi-based travel firm often drives tourists from Delhi to Jaipur in his Toyota Innova. Most of his guests prefer to start early to beat the traffic and reach early. Most stop by for breakfast at a McDonald’s outlet in Manesar or simply use the drive-through counters at the store to grab a bite.

It’s not known whether the outlet is the envy of rivals, but it certainly is the owner’s pride: industry insiders say it does roaring business in the morning for breakfast; McDonalds says breakfast at this outlet already contributes 20 per cent of its store sales. The other element of this outlet is its drive-through, which is also helping sales. No wonder, McDonalds has opened similar outlets at Dausa (on Jaipur highway) and Khatauli (Delhi-Haridwar highway).

Even as some quick service restaurants (QSRs) like Dominos aggressively add outlets, McDonald’s is focusing on a host of new business channels – home delivery, kiosks, breakfast, extended hours and drive-throughs – to boost sales. Consider the potential: home delivery can lift store sales by 14-16 per cent, drive throughs by 40-50 per cent.

McDonald’s wants to focus on these new business channels, which can add 50-60 per cent to store sales; already many restaurants have seen a spike of 30-35 per cent in sales. It’s not that McDonalds isn’t expanding. It will add 60 stores this year, and 100 next year. ‘‘Many people think we are slow. If we are doubling our turnover every three years, we are happy,’’ says Vikram Bakshi, MD, McDonald’s India (North & East).

Its strategy is to improve both penetration and frequency of purchase: it expects 50 per cent of incremental sales to come from existing stores, and 50 per cent of incremental sales to come from new stores and new consumers. ‘‘You don’t grow sales only by having large restaurants, you increase sales through new business channels, by building capacity in restaurants and by setting up new restaurants,” says Bakshi.

McDonald’s is fairly young in new business channels, but wants to scale them up and so there’s far greater focus on them. For instance, at the Ambience Mall in Gurgaon, it has two kiosks on two floors, something it would have never considered earlier. Similarly, in some restaurants like the ones in Noida Sector 15, Agra or Delhi’s Shahdara, it has settled for attached drive throughs which is as good or effective as a traditional drive throughs.

‘‘Drive-throughs can add up to 40-50 per cent to a restaurant’s sales. It’s great USP for us. Nobody has been able to make drive-throughs as successful as we have been able to do. We are supposed to be quick in a QSR. Now, we are even quicker when you are outside, and we are able to deliver in four minutes. Drive-throughs work very well if we can deliver in two minutes,’’ says Bakshi. Around 15 per cent of its outlets have drive throughs; in future, it would like 30 per cent of outlets to have drive-throughs.

McDonalds offers breakfast at over a quarter of its outlets, which have added 7 per cent to restaurant sales. Instead of 9 in the morning, the restaurants now open at 7 am. In some markets like Delhi, it has managed to convince the local government to let it remain open till 1 am. So, instead of closing shop at 11 pm, the stores are now open till 1 am wherever there’s potential for business. There are special locations like airports and railway stations, where the restaurants are open 24 hours a day.

Similarly, the company is trying to develop kiosks as a new business channel. These could be attached (to a restaurant), detached (100-200 metres away) or independent kiosks. For instance, in Delhi’s Ambience Mall in Vasant Kunj, it has a restaurant on the third floor, but a kiosk on the ground floor. The kiosks are placed in areas of high footfalls like malls or metro stations and only sell its range of desserts and drinks.

While new business channels like breakfast, home delivery, kiosks and drive-throughs can add 30-50 per cent to store sales, they also bring with them additional challenges and complexities that may soon be taken up as a case study by an eminent b-school.

For drive-throughs, it needs people with a different kind of training: one window takes the order and the other window delivers. While technology helps in coordination, people manning the drive-throughs have to go through a different training module.

Similarly, in kiosks, it has to ensure that people are quick as these are located in areas with high footfalls. McDonalds also needs to plan its delivery cycles or look for bigger storage areas—on national holidays like August 15, many stores often take deliveries twice a day—to ensure that its backend is able to respond to the spike in sales.

Clearly, growth is not about rapid expansion, it can also come by flogging your existing assets.