For decades, McDonald’s Corp. sealed many of its business dealings with suppliers with a handshake, reflecting founder Ray Kroc’s philosophy that relationships, not necessarily cheap prices, are best for business.
But now Oak Brook-based McDonald’s is looking at possibly shaking up one of its lifelines in an effort to cut costs and simplify its system.
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Insiders said the company has brought in at least one high-profile consultant to review everything from the number of different buns the company uses in its restaurants to whether it can save money by changing the way it buys condiments.
The streamlining effort comes as the fast-food chain, in the midst of a dramatic turnaround, also is faced with having to top some of its best sales months in years in the U.S.
But McDonald’s moves are sending worries through some longtime suppliers who fear serious ramifications to their businesses. And they wonder whether the chain is playing with fire.
“A lot of guys put their necks on the line for this company,” said one Midwest supplier, who fears that his business could be affected.
“We have an industry-leading supply chain,” said a company spokesman, who added that its business model wasn’t changing.
“We are looking for even more innovation and efficiencies at all levels of our business,” he said.
Many of the company’s successes over the years came from suppliers taking risks and spending their own money to test products and recipes and going into unknown markets overseas to see if McDonald’s could gain a toehold.
But McDonald’s decision underscores the increasing significance of the role of procurement in corporate America, especially in retailing, where margins are typically thin.
And the burger giant isn’t alone.
McDonald’s would be following in the footsteps of Wal-Mart Stores Inc. and Procter & Gamble, which have applied heavy arm-twisting to suppliers to squeeze out efficiencies.
Companies themselves are being squeezed. They are trying to find ways to increase revenue as intense competition in everything from airlines to fast food has made it imperative to cut costs.
McDonald’s, through a spokesman, acknowledged Friday that it is “consistently re-evaluating all aspects of our business in the spirit of continuous improvement.”
The new emphasis on cost-watching has formed a cottage industry with companies like Instill Corp., which specializes in supply-chain efficiencies.
Even as McDonald’s continues to bask in its monthly sales increases, executives, like U.S. CEO Mike Roberts, have put a sharp pencil to the cost side of the business as the monthly same-store sales numbers get harder to top.
“The object is to try and even out the inevitable ebbs and flows of the business,” said one source close to Roberts.
Timing is key, of course. It’s much easier to push through cost cuts when the business is good and franchisees are happy, noted one McDonald’s insider.
McDonald’s moves don’t surprise analysts, who say the company can no longer afford handshake deals.
“Over the last few years as competition has gotten tougher and the customer refuses to pay higher prices, there has been a lot of interest in taking costs out of the back door,” said Ron Paul, president of restaurant consultancy Technomic Inc.
“McDonald’s, going way back, has had a lot of relationships that may have been protected. They may not have been the toughest bargainers.”
The Hispanic push: Dunkin’ Donuts is the latest company to figure out that it should focus on the growing Hispanic market. Beginning Sept. 1, it increases by tenfold its advertising on Hispanic TV and radio in the Chicago market.
The $600,000 advertising blitz in Chicago is part of a four-market push. Other markets include New York, Philadelphia and Miami.
“If we’re on the air, we’ll be on Spanish-language stations as well as English-language stations,” said Kathy Nowicki, the chain’s field marketing manager.
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Quick hit: After a 10-day delay, Sun-Times owner Hollinger International Inc. on Monday is expected to release a special committee’s report on its investigation into a payment scandal involving former CEO Conrad Black and other top executives.
Investors are waiting to see how tough the committee, overseen by former Securities and Exchange Commission chief Richard Breeden, will be on the company’s high-profile board, including former Illinois Gov. James Thompson.
Investors claim the board rubber-stamped excessive fees and some sweetheart sales of company assets to companies owned by Hollinger executives.