"It's the lots of little things that [people] notice. With 27 million customers a day, if you're doing a better job tomorrow than you're doing today, 27 million people notice."
-- McDonald's CEO Steve Easterbrook
Everyone knows that the world's largest burger company is losing customers to fast casual chains.
Yet if conventional wisdom could be represented by a McDonald's Corporation (NYSE:MCD) take-out order, surely there are a few french fries that have shaken out of their yellow and red container while wedged up against a Big Mac. You know, the ones you scour the bottom of the bag for once you're home.
These small fries, perhaps not "small fry" at all, represent another group of customers McDonald's has lost, folks who may wish for a healthier, more sustainably sourced meal at McDonald's, but who for the time being like the company's product and haven't been lured away by the likes of Chipotle or Shake Shack.
Rather, they've moved on to other quick-service restaurants in recent years, as McDonald's has allowed its customer service to slip.
Specifically, I'm referring to the gradual peeling away of drive-through customers, who, according to McDonald's management, make up some 70% of U.S. sales. Drivers grabbing food from the window for reasons of convenience, speed, and at least a minimum of ingredient quality represent a core patron who theoretically shouldn't be lost to competition without a fight.
Yet we can deem such losses as inevitable; just look to surveys such as the American Customer Satisfaction Index, which has compared customer satisfaction results of limited service restaurants since 1994.
This year, privately held Chick-fil-A garnered the top satisfaction ranking out of 18 brands, with a score of 86 out of 100 possible points. Chipotle claimed the next ranking with a score of 83 points. McDonald's placed last out of all limited service restaurants, with a score of 67 -- a 5.6% drop from the prior year.
Just as troubling, and no small determinant of customer satisfaction, is the slow rate of McDonald's drive-through service. QSR Magazine studies drive-through efficiency annually among quick-service restaurants in its well-regarded "Drive-Thru Performance Study." The study's focus changes periodically, so the last year we have average service time breakdowns by chain is 2013.
During this year, McDonald's was clocked at an average drive-through service time of 189 seconds -- its worst in the 15-year history of the survey. By comparison, the group leader, Wendy's, achieved an average service time of just 134 seconds.
Since annual improvement in drive-through efficiency is measured by mere seconds, we can assume that these numbers, or ones very close, prevail today.
Looking for incremental change, with inspiration from manufacturing
How to solve the interdependent problems of speed and satisfaction, and win back customers in the process? Answers to McDonald's issues might be found in The Goal, a business novel by management expert Eli Goldratt, co-written with Jeff Cox, in 1984. In this colorful narrative, a young manufacturing plant manager, Alex Rogo, is given three months to turn his ailing production facility around -- or see it shuttered.
The Goal uses Alex's frantic quest to make his plant profitable as an allegory to introduce the "Theory of Constraints." This theory posits that by identifying and eliminating production constraints, a company can improve throughput -- the rate at which a system generates money through sales.
Though it may have arisen out of manufacturing process improvement theories, throughput is an important concept in certain service industries as well. A faster throughput rate means that a company can service more customers in a given period of time. Peak hours in the quick-service restaurant industry (think breakfast and lunch dayparts) are characterized by a demand that often exceeds a restaurant's capacity.
We've all had the experience of turning away from a purchase we're about to make after seeing a long line of people queued up. Cars that turn away from a fast-food drive-through line represent uncaptured revenue dollars.
This isn't such a big deal when demand is beyond what a location can possibly service. But when demand falters, the cost of not maxing out a restaurant's potential throughput rises.
And not just for the particular daypart in which cars steered clear. If convenience and price (and not simply food quality) are major determinants of a drive-through purchase decision, then a single disappointment can be enough to convince a customer that he or she doesn't want to battle a slow McDonald's drive-through line again.
These customers can be lost permanently to faster-serving, evenly priced competitors such as Wendy's. In The Goal, and hopefully in McDonald's executive boardroom, removing bottlenecks to speed up throughput is of the utmost priority.
In the absence of an overnight solution
McDonald's CEO Steve Easterbrook seems to understand the power of incrementalism -- that sometimes, big problems require not only new top-level strategies but also small fixes underneath. Easterbrook has been lauded for introducing broad, thematic strokes, such as the phasing out of antibiotics in chicken, and the company's plan to eventually buy only free-range eggs from its supply chain.
At the same time, McDonald's management team is balancing its strategic, quality-based improvements with grounded initiatives aimed at achieving faster throughput.
These include not only a less complex menu, but also simplified menu boards that speed customer decision-making in the drive-through (yes, you and I can also contribute to McDonald's bottlenecks, and an overly dense menu only makes things worse).
What would a bit of incremental gain in drive-through throughput -- say, three percentage points -- mean for McDonald's? It would mean a 2.1% increase in same-store U.S. sales. Such an advance could be gained independently of the projected 2.5% sales increase pegged by a recent internal McDonald's memo for the limited-menu, all-day breakfast set to roll out in October.
In fact, all-day breakfast availability will ease one bottleneck -- the need of some customers to get to McDonald's before 10:30 a.m. Dissolving this constraint may pull in those who formerly turned away from the sight of a long drive-through queue at 10:15 a.m.
Ultimately, then, with the proper focus on execution, it's not out of the realm of possibility for McDonald's to increase U.S. same-store sales by roughly 4.5%, via its all-day breakfast introduction, and additional throughput gains.
Work that never ends
Goldratt surprisingly observed near the end of The Goal that once a bottleneck is fixed, a new one will often arise elsewhere in the manufacturing process. Since orders, materials coming into a facility, customer deadlines, and labor are all variable components, you can't ever really solve the problem of the bottleneck; you can merely enhance throughput by knocking out each new bottleneck as it occurs.
Similarly, by the time McDonald's improves speed, customer satisfaction, and consequently throughput in its drive-throughs, a new business hurdle will be waiting for attention. However, this shouldn't faze the current leadership, which appears to have embraced the art of small fixes for big problems.
Asit Sharma has no position in any stocks mentioned. The Motley Fool owns and recommends Chipotle Mexican Grill. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.