Speed Key to McDonald's Success: CEO Skinner
It was McDonald’s that put the “fast” in fast food, and its speed continues to be a major factor in the iconic restaurant chain’s profits.
“One of the things we do very well is to make sure it’s [a new product is] not real until it’s real in the restaurant,” McDonald’s CEO James Skinner told CNBC. “We don’t put something on the menu until it can be produced at the speed of McDonald’s.”
To keep the burgers moving, the company has recently expanded the "footprint" of the drive-thru, explained Skinner. “If you’re driving down the road and you see seven or eight cars in the drive-thru—even though the service time might be 30 seconds per car—you’ll drive by it,” said Skinner. “I do.”
By shaving six seconds off a transaction, Skinner said, an individual restaurant can accommodate 15 more cars per hour.
Another McDonald’s initiative has been the introduction of expanded beverage offerings including high-end coffee drinks and, more recently, frappuccino-like drinks and smoothies. That move has been very good for business: The profit on one McDonald’s $2.29 drink is $1.00, for example.
Selling those types of drinks also cuts into market share of coffeehouse chains like Starbucks , and other restaurants. Starbucks reportedly violated the speedy-service rule recently when it left some customers waiting in long lines for its banana frappuccino.
Steven West, a restaurant analyst for Stifel Nicolaus, told CNBC McDonald’s has performed well on several different planes: responding to consumer demand, especially during the recession when value is a top priority, and over-compensating for inherent weaknesses in multinational businesses by implementing superior operating practices.
“Clearly, we’ve seen McDonald’s have a pretty quality product, at a great value, with convenience and speed,” said West.
West said McDonald’s in 2008 outperformed the market and its stock was trading at 18 or 19 times earnings. More recently, the stock has been trading at 16 or 17 times its earnings, which West said is a good place for it to be.
“As we move into recovery, we’ll start to see the earnings move up,” he added. “What we’ve seen with McDonald’s the last couple of quarters is that it’s continuing to beat expectations, the Street [is] continuing to raise those estimates and the multiples [are] keeping pace with that."
Watch "Big Mac: Inside the McDonald's Empire," Tonight at 8pm ET on CNBC.