Innovation probably isn't the first thing that comes to mind when you think about your local McDonald's (MCD) restaurant. It is fast food, after all. But when you really think about it, we've all become accustomed to the many novelties that the chain has introduced over the years. McDonald's was the first major international fast-food restaurant. And it had the first drive-thru window. Even today, McDonald's continues to drive innovation in the fast-food industry. Some of these innovations are well advertised, but others are designed so that customers will never notice. This article looks at how McDonald's has shaped innovation in the fast-food industry.
- McDonald's is a leading innovator in the fast-food industry.
- The restaurant chain experimented with outsourcing drive-thru orders to call centers and plans to introduce order-taking kiosks to 14,000 locations by the end of 2020.
- McDonald's expanded its McValue Menu to include breakfast items to help bring foot traffic back during the morning hours.
- The introduction of its specialty coffee pleased shareholders, giving consumers an alternative to its more expensive competitor, Starbucks.
McDonald's: A Brief History
McDonald's history dates back to the late 1940s when brothers Richard and Maurice McDonald opened a restaurant featuring 15 cent hamburgers. Their service system caught the eye of Ray Kroc, who also distributed a milkshake machine. Kroc became a franchise agent, opening up a McDonald's location in Des Plaines, Illinois, in 1955. Five years later, the company bought the brothers out for $2.7 million. And the rest, as they say, is history.
The chain has more than 36,000 locations in more than 100 countries, employing more than 210,000 people worldwide. Best known for its burgers and fries, the company's menu also features chicken, fish, breakfast, milkshakes, coffee, and soft drinks, along with regional items that vary from country to country. In order to keep itself relevant, McDonald's also added healthy alternatives including apple slices, grilled sandwich options, and salads.
"Would You Like Fries With That?"
Ever walked into a McDonald's only to be turned away by a huge lineup? The restaurant has experimented with ways to speed up service, not to mention cut down on costs and order taking errors.
In 2004, the New York Times article from 2004 published an article about how a McDonald's franchisee in Missouri outsourced his drive through order-taking to a call center in Colorado. According to the franchise owner, outsourced order taking let him take 30 additional cars every hour. The error rate in order taking dropped significantly as the process became more efficient and accurate. Other locations followed suit including those in Oregon, Washington, and North Dakota. Even other fast-food restaurant chains tried to outsource their drive-thru order-taking including Jack-in-the-Box.
But that's not all. In 2006, McDonald's was among the few fast-food chains that experimented with order-taking kiosks, putting them in place in 2015. Placed near the front of restaurants, allow customers to place their orders using a touchscreen machine. McDonald's said it would add the technology at 1,000 locations every quarter for eight to nine quarters as of mid-2018. Roughly 14,000 McDonald's locations are expected to have these machines by the end of 2020, according to Business Insider.
Adding Breakfast to McValue Menu
If you stopped dropping by your local McDonald's for breakfast, the restaurant is doing what it can to get your back.
Breakfast sales failed to experience the growth the company was hoping to see since 2007, thanks to higher unemployment. As the theory goes, higher unemployment rates mean less foot traffic. And that drop in traffic means fewer rushed workers in need of a McDonald's grab-and-go breakfast. While breakfast accounts for only about 25% of McDonald's revenues, breakfast food is sold at a higher-than-average profit margin.
Breakfast food is sold at a higher-than-average profit margin, even though it accounts for about one-quarter of McDonald's sales.
As a concession to the recession, McDonald's introduced a breakfast version of its popular McValue Menu at the beginning of 2010. The aim was to capture more morning business, or at least retain the flow of consumers already coming through its doors. Here's what you can get for less than two singles for breakfast as of June 2020:
- Sausage Burrito: $1.29
- Sausage McMuffin: $1.19
- Sausage Biscuit: $1.19
- Hash Browns: $1.09
- Egg & Cheese Biscuit: $1.39
- Cinnamon Melt: $1.69
McDonald's became more than just a fast-food restaurant with the introduction of specialty coffee. Now you could come during the evenings and sit in the McCafe, sipping a cappuccino while discussing the subtleties of 20th-century French philosophy. Well, maybe not. But that did seem to be part of the idea when McDonald's launched its specialty coffee line in mid-2007.
Not much has come of the so-called coffee war between McDonald's and Starbucks (SBUX), although coffee experts have given the burger franchise due praise for its affordable, yet delicious coffee. What actually happened is more of a split between two types of coffee drinkers—one in need of a cheap coffee and the other looking for an experience. McDonald's promotes its coffee to the former customer, touting its coffee as a good value—higher quality than you'd come to expect, all for a much lower price than Starbucks. Consider the fact that you can get a large coffee at McDonald's for $1.49 compared to a venti brewed coffee at Starbucks for $2.45. Starbucks' main focus has been giving its customers an experience rather than price and value.
Despite the competition, McDonald's continues to advertise its coffee, making considerable progress by attracting people who want a cheaper, great-tasting alternative. Rising coffee sales figures are lauded by shareholders, as these products bring exceptionally high margins during the slow late evening sales period. And as McDonald's former president Don Thompson said in 2007, "You can't get much better profit than adding water to beans."
The Bottom Line
Innovation in the fast-food industry may not be rocket science, but it does take a special type of practical genius. McDonald's has managed to squeeze ever-higher sales and greater profits from the American fast food industry—one that many called oversaturated as far back as the 1980s. The next time you stop in for a hamburger or a latte, think about how different fast food would be without the continuing innovations introduced by McDonald's.