McDonald's Streamlines Menu to Accommodate Minimum Wage Hike

The good news about McDonald's is an answer to demands for wage justice, as well as an answer to franchise owners who want change.

In fact, new company CEO Steve Easterbrook plans for United States McDonald's to become 90% franchises by early 2018, up from about 80%. he also wants to eliminate wasted dollars in bureaucracy. I know that a streamlined menu also helps.

Columbus, Ohio units all became franchises in the 1990s - 2000s and saved the company from closing down in this area. Nationwide, the company is losing a large amount of profits and current and new franchises may be the answer. The franchise owners often have the answers that McDonald's needs and they can lead the way to better food, service, and wages.

Since the beginning of April 2015, I have noticed that employees of the McDonald's units close to my neighborhood have all become very much more friendly, positive, and eager to show a sense of urgency in customer service. It is refreshing!

A long-time theory of casual and fast food dining in America since the 1950s is that a chain or a single restaurant like a "burger joint" begins with simple offerings and operations, adds menu items, upgrades uniforms and décor, pays for fancy landscaping, remodels, and adds many other elements - and then cannot afford to stay open any longer.

McDonald's had "saturated" America in the late 1990s, with the number of restaurants having reached the maximum possible (and still turn a profit) for the population of the United States. Tear-downs and expensive rebuilds began across the nation and fancier menu items were added in a campaign to capture customer dollars away from other food chains - including grocery stores. In fact, TV news programs in the late 2000s showed families comparing groceries to McDonald's Dollar and Dollar-Plus Menus and finding the groceries for a 4-person meal to be the more expensive.

In 2015, McD HQ saw what franchise owners knew for 10 years - fancier, higher food- and paper cost items that are labor intensive and require special equipment costly too much money to allow them to meet profit projections or to allow them to pay adequate wages to workers.

Many customers are also weary of the excess on the bloated 100+-item menu boards -- And for older folks, who are the fastest growing population in America, so many items are crammed onto the board that they cannot read them. This is a function of the aging human visual system in most individuals.

McDonald's resorted to having separate digital menu board inside and at the Drive Thru for breakfast and lunch/dinner, at a high expense. It was time to streamline menus and operations, just as had been trained in two management training programs!

Three major areas in which we can cut costs quickly include, in order of money to be saved:

1. Labor Costs – This includes wage rates, the cost of the number of people scheduled per day part, health and medical insurance provided, Unemployment Insurance and Workers’ Comp premiums (both paid totally by the company), employer’s half of Social Security deduction (employee pays half out of paycheck, company pays half) benefits provided (vacation days, holidays, free/discounted meals for workers and family members, number of uniforms per person, sick days, and some others). Team Managers are included in Labor Cost, so their rates of annual pay have been closely scrutinized. In some lower revenue units, managers have been denied the right to, for example, attend Hamburger University, which issues actual college credit.
2. Food Costs – Best practices include increasing BREAKFAST SALES and eliminating some menu items, which reduces food cost and reduces any dedicated equipment used only for those items. Some of our local franchise owners now offer breakfast all night at the Drive Thru; it is a smart thing to do. Some units offer breakfast all day long, joining such restaurants as Bob Evans in this campaign.
3. Drive Thru – Increase DT sales. In some stores, guests notice that the Drive Thru is serviced before the inside counter is tended. In one store here, out ST was equipped with an actual KLAXON that went off after each driver sat at the window for 15 seconds. That was unreasonable and the company removed the alarm. Many stores keep the DT-only service all night long (much smarter than the alarm), which increases revenue and cuts food- and labor costs. On some major interstates, you will find DT-only stores with no indoor service at all. This is efficient for the highway and the menu is sometimes more simple than standalone full service units.

Here are examples of just some of the costs with which I struggled as a unit manager, most of them unknown to the public:

Rent and utilities account for a sizable portion of monthly costs in a McDonald's. Interest on the business (mortgage type) and equipment loans is another expense.

I wish we could save Insurance Costs, such as liability, property, theft/burglary, inventory loss through refrigeration malfunction, Unemployment, Workers Compensation, etc., but this is Difficult. Premiums are negotiated and set by the company or by the franchise group, while UI and WK are set by the government regs and number of employees. Managers can train their crews and managers to avoid accidents, but hail and high winds will damage roofs, windows, landscaping, and signs, to name a few victims.

Group health/medical insurance for fast food employees has been sky high here. In the early 1980s, our local market area McDonald's eliminated health insurance for all crew people. The backlash was enormous.

Monthly established legal fees take part of the profits.

Signage is expensive and requires monthly maintenance contracts in many markets. Landscaping contracts might be eliminated, however, if managers and crew can handle the work. HVAC and refrigeration contracts cannot be eliminated.

Three or four line items for monthly Advertising Costs/support of the Franchise Co-op (even taken from company-owned stores' profits) are fixed. This includes the costs of putting coupons online, in newspapers, and in door hangers, etc. On top of this is probably a separate representation contract with the local advertising agency.

How about depreciation and maintenance/service contracts on machines, equipment, and electronic cash registers? - No, these costs are fixed. Many costs are not within an individual manager or franchiser's control - like franchise fees, co-op fees, local or county property taxes, and some others.

Costs in my area are so high, that a franchise owner in my city who began with two small units that he purchased for about half-a-million dollars each (land, building, and equipment) experienced such losses after a decade, that the two restaurants together (land, building, play-lands, and improvements, old and new equipment, inventories, etc.) were worth only $300,000 total in the bankruptcy case. The amounts of the bills owed totaled many times that worth. It was a hopeless case.

Congratulations to McDonald's for making smart changes in 2015 - 2020!