The other day we met with one of the turnaround specialists at the McDonald’s Corporation. If you are one of their 5,000+ franchisees running one of the 30,000 independent locations and you are not performing up to expectations, this guy shows up to help you turn your stores around. We were shocked to find out that other than a few extreme circumstances related to the surrounding area, most every franchise can be saved. More shocking was the answer to our question– “What is the one piece of data that correlates to a successful franchise?” The answer not only surprised us but could be directly applicable to branch success.
The Machine of McDonald's
A McDonald’s franchise is one of the few franchises where you can average over $2mm per year in profit per location. The average franchise pulls in about $2.5mm in net sales, the third most behind Krispy Kreme, and the number one leader, Chick-fil-A. To put this in perspective, when it comes to fast food, you need to produce over $1mm per store to achieve your target return. When you fall under that level, you have problems.
Having lent to fast food franchises, we figured that in an operation as well structured as McDonald's, we were expecting that a key success factor would have been controlling your labor costs, some customer service metric or a traffic number. However, it was none of those.
The Key Determinant of Success
With more than 20 years of experience, hundreds of turnarounds to his name, the one data point that was the best predictor of success was this: How clean your front door was.
While the glass on the front door doesn’t cause you to be successful, it turns out that it is a byproduct of success. McDonald's wants you to clean the front door “as often as needed.” That phrase means different things to different operators, and a less detailed oriented operator will clean the door in the morning and maybe one time during the day. However, an operator on top of their game will make sure the door is clean at least once per hour if not more. If your staff is concerned with that level of detail, chances are they are going to execute when it comes to controlling labor cost; producing hamburgers; throwing away fries after seven minutes of being done (but not served); or, keeping customers happy. Smudged doors are like a canary in the proverbial coal mine.
Application To Banking
Now, we have no data on if the cleanliness of our branch doors correlates to profit. We also suspect that our branch doors stay relatively clean as we don’t, unfortunately, have anywhere near the foot traffic of the average McDonald's (nor do we have near the number of kids with Ketchup on their hands running around). Despite all that, we get the point. Ray Kroc’s “QSCV Doctrine” of quality, service, cleanliness, and value can apply to any business.
When a turnaround is needed, the first thing McDonald’s starts with is training on how to train. Usually, underperformance is a function of the operator not being able to train their staff appropriately. The franchise owner already has had to prove his or herself as a successful operator so knowing the standards is rarely the issue. Most of the problems, we learned, occur where the operator either doesn’t teach the skills appropriately or teaches the skills but fails to motivate the staff to live up to the standards. In these cases, corners often get cut, and quality slips. Once quality slips, customers don’t return and revenue drops.
The mission of any McDonald’s is a superior customer experience based on value. Teaching and motivating employees is a critical factor in that experience and having spotless doors around the clock is just one manifestation of an operation that takes training seriously. Get the training right, and it is highly likely success will follow.
Submitted by Chris Nichols on February 28, 2018