Turning Up the Heat

When Clay Paschen opened his first walk-up McDonald’s restaurant on the corner of Victoria and Telegraph in Ventura in 1966, the relatively simple kitchen was designed to turn out a narrow menu including burgers, French fries and drinks.

Using a kitchen strategy honed by fast-food legend Ray Kroc, Paschen’s family, which now owns nine McDonald’s restaurants, has shared in the wealth enjoyed by thousands of McDonald’s franchisees. But the family has seen the Golden Arches dim in recent years as competitors introduced new kitchen technology that promised hotter, fresher fare.

Customers gradually cooled to McDonald’s practice of cooking big batches of burgers that sat in warming bins for up to 10 minutes. Now, after years of study in its top-secret food laboratory in Illinois, McDonald’s has started to roll out a new kitchen that relegates the familiar warming bins to the junkyard.

The new kitchens are part of a flurry of activity at McDonald’s that executives and franchisees alike hope will help close a rocky chapter in the fast-food company’s history.

With 12,400 domestic locations and nearly that number overseas, McDonald’s remains the world’s dominant fast-food chain. The Oak Brook, Ill.-based chain accounts for about 7% of the nation’s $244 billion in overall restaurant sales.

But the kitchens, along with a new advertising campaign, an ongoing corporate restructuring plan and an equity investment in the 16-unit, Denver-based Chipotle Mexican Grill chain are designed to make McDonald’s more relevant to consumers who now can find hot, fresh and tasty food seemingly on every street corner.

Costing more than $25,000 per location--and, according to some estimates, as much as $500 million systemwide--the new “Made for You” kitchens promise lightning-fast bun warmers, high-tech holding bays to keep cooked meats hot and moist, and a brainy computer system that will help crew members to more accurately predict what customers will order.

Franchisees who’ve fretted about losing their competitive edge generally welcome the new technology as a sign that the world’s largest restaurant chain is returning its focus to the basics that Kroc emphasized. With more than half of McDonald’s sales coming through drive-through windows for consumption elsewhere, franchisees say, it’s increasingly important that food be delivered hotter and fresher.

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“We’ve largely been using the same tried-and-true [kitchen] technology since the beginning,” said second-generation restaurant operator Clay Paschen Jr. “But our customers are asking us to move forward, and this production system does that.”

McDonald’s executives, including Executive Vice President Claire Babrowski, who has shepherded the years-long kitchen renovation, crow that the new kitchen represents a giant leap for the world’s largest fast food chain.

But competitors such as Burger King say they’ve been letting customers have it their way for decades.

“We’ve got very sophisticated equipment in our restaurants that, based on historical information, can tell the kitchen how many customers will be waiting in line for a Whopper without cheese at, say, 12:10 p.m. on the second Thursday in November,” said Burger King spokeswoman Kim Miller.

“My observation is that McDonald’s is going to a system that’s already in place at a lot of competitors,” said Irvine-based restaurant industry analyst Randall Hiatt. “All they’re doing is coming up to the competition.”

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McDonald’s has had reason to make changes. Too often, observers say, the chain’s attempts at building market share fell flat--like the ill-fated Arch Deluxe sandwich that cost an estimated $100 million to develop and market.

Between 1995 and 1997, McDonald’s market share dropped a tenth of a percentage point to 42.4%, according to Chicago-based Technomic Inc. At the same time, Burger King’s market share rose to 19.4% from 18.2%, and Wendy’s International grew to 11.3% from 10.7%.

Earlier this summer, McDonald’s announced its first-ever corporate staff cuts. It addressed franchisee complaints that “OB”--headquarters in Oak Brook--had grown increasingly isolated by dispatching top executives to five regional headquarters, including one in Irvine.

McDonald’s surprised Wall Street in April with word that Jack M. Greenberg, the company’s domestic chief, was taking over as chief executive, succeeding Michael R. Quinlan, who remains as chairman.

McDonald’s shares took a hit earlier this year when investor Warren Buffett unloaded part of his holdings. And McDonald’s image took another hit when a new Taco Bell Corp. ad campaign compared its Gorditas taco line to the world’s best burger--which, according to Irvine-based Taco Bell, is Burger King’s Whopper.

“The past few years have been a constant test of the system, whether from the headquarters side or the franchisees,” said Cypress-based franchisee Isabelle Villasenor. “While I think we’re still well ahead of [the competition], we did lose a bit of our focus in the past few years.”

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After testing the kitchens heavily in North Carolina for about a year, McDonald’s began rolling them out in February. So far, fewer than 1,000 of the new kitchens have been installed nationwide, and it will take more than a year for franchisees nationwide to add kitchens. So far, just one of Villasenor’s seven restaurants has added parts of the new system. And the Paschen family is now putting the full system into place at the first of its nine restaurants in Ventura County.

Both operators praise the new holding cabinets that are supposed to keep burgers and chicken sandwiches hot and moist. And operators also have high hopes for the computerized point-of-sale system that’s supposed to more accurately predict when customers will walk through the door--and what they’ll order.

In the old days, crews would simply cook up a batch of Big Macs, cheeseburgers and hamburgers and pile them into the warming bin that sits behind the sales counter. Now, though, burgers and cooked chicken are held in high-tech warming trays that keep the meats hot and moist until customers place their orders.

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If the system works as promised, customers who bite into a sandwich will notice that the bun and meat are hot--but that the lettuce and tomato are still cold.

Oddly enough, many customers in McDonald’s North Carolina test bed haven’t noticed that the kitchen has changed, even after the massive warming bins are removed.

The company has begun running advertisements that show the company’s famous “billions served” sign flipping back and forth from one to zero--a way of saying that every sandwich marks a new beginning.

Most customers who are served a hotter, fresher burger “simply think they got lucky,” Babrowski said.

Or, they ask if the restaurant has changed its recipe--perhaps, returned to Kroc’s original recipe. Perceptions change, Babrowski said, after three or four visits.

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Observers predict that McDonald’s biggest challenge will be indoctrinating store employees and managers in the new system. Rather than assembling sandwiches and dropping them under heat lamps, crews will have to learn to build sandwiches as they’re ordered.

“Burger King has already proved that ‘assemble to order’ works,” said Dennis Lombardi, an industry analyst with Technomic Inc. “But the real challenge is changing the mind set of crews--and there are 12,000 of them in the U.S. alone and that much again overseas.

“It means a reculturalization,” Lombardi said. “To be successful, McDonald’s must change how their people think, how they interact with customers.”

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Meal Ticket

In an effort to boost sales, McDonald’s is changing it restaurants to make them more relevant to consumers. Average sales per restaurant, in millions*:

1997: $1.59 million

*Sales at foreign restaurants were reduced by currency devaluations.

Source: Bloomberg News, company reports