This post is part of the On the Margin blog.
It only took about a year, but I finally made it to one of McDonald’s Create Your Taste restaurants, in New York City, last week. I thought the food was great, like many others, but not quite everybody. Service, too.
And now, perhaps, I get it.
Create Your Taste is McDonald’s customization platform. The idea is to give consumers with a little more time a better experience. They go in, order their meals via kiosk, and pick their burger or chicken patty, buns and toppings. A worker delivers the meal to the table. The burger is better, the service is better and the price is higher.
There’s no question that McDonald’s is moving in this direction, at least in some countries. The service has been implemented in Australia. The company is working on it in Canada. And market tests in the U.S. are continuing, even after the chain has apparently succeeded in generating some positive buzz with all-day breakfast.
But many observers remain skeptical, and one big reason is this: The service isn’t available in the drive thru, where roughly two-thirds of customers get their food.
Perhaps that’s the point. McDonald’s generates an awful lot of sales through its drive thru. It would be difficult for the chain to improve on that, regardless of any matter of double or triple or quadruple drive thru window mechanisms the company operates.
Indoors is another matter. If average unit volumes are about $2.5 million, then McDonald’s generates only about $544,500 per location indoors after breakfast ends. That’s maybe half the volumes of your typical fast-casual burger concept — which usually doesn’t have a drive thru or breakfast.
McDonald’s has done a great job of remodeling its restaurants over the past 15 to 20 years. So the restaurant base is inviting enough for dine-in consumers. If the company can get the food exciting and the service level right, in theory that could get customers to dine in more often.
That’s big potential business. If the company can increase lunch and dinner dine-in service over time by, say, 25 percent to about $680,000 — a big if — that’s a $1.9 billion opportunity for the McDonald’s system as a whole. It would also lift unit volumes by more than 5 percent.
Much easier said than done, of course. And there’s only so much demand for higher quality burgers. Competition for that particular market comes literally from everywhere: from fast-casuals, from casual diners and even from your backyard grill.
McDonald’s would also have to convince its customers to think differently about the chain.
McDonald's has traditionally struggled to sell premium items. Consumers would have to be willing to pay higher prices at a chain known for its low-priced menu. They would have to take time at a restaurant they frequent for its speed and convenience. And they’d have to use an entirely new way of ordering.
None of this mentions deep franchisee reservations about the prospect of customized burgers, given the chain’s already complex menu — particularly after the addition of all-day breakfast. And then there is the cost.
But if the company can get through those issues and make it work operationally, there’s significant upside on the inside.