McDonald's eyes 60% growth on $6m daily target

McDonald's plans for 60% growth in the Middle East by 2020 include nearly 2,000 new restaurants and double the staff
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, FOOD & BEVERAGE, Operators, Mcdonalds
, FOOD & BEVERAGE, Operators, Mcdonalds

According to a report on Arabian Business, sister publication to Hotelier Middle East, McDonald's daily sales targets for the Middle East and Africa are currently ringing up at an average of $6m a day throughout 2015. Or rather,  $6,027,397 — to be precise.

There’s no denying the numbers are super-sized, but according to McDonald's Middle East vice president of development Yousif Abdulghani, there's more to come, with ambitious plans to increase this target by 60% percent over the next five years. 

McDonald’s operates more than 1,200 restaurants in 16 countries across the Middle East and Africa, serves nearly 2 million customers a day, and employs 46,000 people. Sales are expected to amount to $2.2bn this year. As the man overseeing this colossal operation, one might assume that Abdulghani — the vice president and international relationship partner of McDonald’s Middle East — would be satisfied with the performance so far. Not a bit of it.

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“We aspire to double the number of employees we have to 100,000 by 2020,” he says. “That will come with organic growth as well as our expansion in opening more restaurants. By 2020, we plan to reach 1,700 restaurants.

“In terms of revenue, our vision is to reach $3.5bn by 2020. These are very ambitious targets, but we feel confident in our ability to achieve those numbers in partnership with our master franchisees.”

Those master franchisees — partnerships with largely family-run firms in different countries — are the backbone of McDonald’s operations in the region. Half of the brand’s revenue comes from the Gulf, where nearly 500 restaurants are expected to become 750 in five years’ time. After the GCC, the next biggest markets are Egypt, Turkey and South Africa.

“Saudi Arabia remains our biggest market in the Gulf and we see high potential in our growth there,” Abdulghani says. “The UAE is another market which has been very strong and solid from inception. Kuwait, to a certain extent, due its geographic limitation and a high penetration of restaurants in a small geography.

“When you look outside the GCC, Egypt is another potential market, despite the economic and political situation; the size, demographics and the middle class, indicate there is high potential.”

Also on Abdulghani’s radar is Africa, where “definitely we see opportunities”, although there is currently a moratorium imposed on further expansion in the continent. Other than North Africa, McDonald’s only has operations in the two Indian Ocean states, Reunion and Mauritius, as well as South Africa.

“We regularly receive inquiries from individuals and entrepreneurs through our offices in Dubai, or Singapore or the US,” Abdulghani chips in. “I think the time will come when we revisit our policy, but for now our focus is on existing markets.”

Business may be booming in the Gulf, but McDonald’s operations elsewhere around the globe have been in something of a pickle. The world’s largest fast food brand has had a tough time back in America, its home market, as rising competition and changing consumer tastes have taken a bite out of its sales.

For the first time in its 60-year history, the firm announced that 2015 would see a net reduction in US restaurants. Outside the US, McDonald’s faces all the problems that other multinationals are grappling with; a depressed Eurozone, an adverse currency environment and slowing emerging markets.

But recent results appear to show that McDonald’s has finally turned the corner. Under the stewardship of Steve Easterbrook, the chief executive appointed earlier this year to steady the ship, third-quarter comparable US sales rose by 0.9 percent — the first quarterly increase in two years. Total revenue dropped by 5 percent during the same period, although if the impact of foreign exchange were discounted, sales actually rose by 7 percent.

“Globally, we do have challenges in some markets,” Abdulghani says. “But the good thing is that we are very serious about our business and that’s why in the last few months we have been very focused on a turnaround plan, which has started to see some traction.

“I think it’s very encouraging. I don’t recall any major setbacks from the last 22 years that we have been in the Gulf.”

Much of the turnaround has been attributed to a new policies set in place by Easterbrook, including new menu items, all-day breakfasts and ‘Create Your Taste’ — a customised burger concept that first opened regionally in Kuwait during May. Instead of ordering from the standard McDonald’s menu, customers can now customise their own burgers via large touchscreens, with ingredients as varied as caramelised onions and aioli all on offer. It’s all a far cry from the famous Big Mac, and is a nod to recent competitors from the fast casual segment — such as Shake Shack and Chipotle Grill — who have been munching into McDonald’s market share back home in the US.

Abdulghani says that recently remodelled outlets featuring the Create Your Taste concept have seen a huge increase in sales, pointing out that his team have been researching the idea for the last three years. However, he also points out that the all-day breakfast menu will not be coming to the Middle East for the time being, as breakfast has only recently been introduced to local menus.

He also says that he has no concerns about the competition, which seems to be increasing by the week. Every major fast food chain is present in force in the Gulf countries, with many more localised burger joints in the US or Europe seeing the UAE as a test-bed for further franchise launches across the GCC. Earlier this year, KPMG predicted there will be 1,600 new restaurants in the UAE by 2018 — the equivalent of one opening every day.

“We have not seen dents in our revenue,” Abdulghani points out. “Our revenues continue to grow. I see the competition as healthy, although some people might see it as a threat. In fact, it’s an opportunity for us to do more.

“My motto has always been ‘business unusual’. If you, as a brand, sit back and say that you are enjoying your leading position and become very complacent, someone will overtake you for sure.”

Still, there is good reason for the McDonald’s boss to be pretty confident about the future. The brand has a 14 percent share of the informal eating out (IEO) market here in the region. When it comes to quick service restaurants (QSR), it has a 42 percent hold on the market (calculated according to customer visits). In addition, while the IEO segment is currently growing at around 6-7 percent a year, McDonald’s’ growth of 11-12 percent per annum shows that it is steadily outpacing its competitors.

It would be wrong to say that any of this has been achieved without effort. In particular, Abdulghani has lavished considerable attention on the brand’s immensely complicated supply chain. Delivering a wealth of products, which need to remain refrigerated, to 1,200 locations — often in sweltering temperatures — is no easy task. Abdulghani says that keeping up to date with local regulations and ensuring food makes it to customer trays safely “remains a challenge” but he also points out that the firm has been sourcing more and more ingredients from local markets.

“In Egypt, for example, we source more than 95 percent of our products locally, and it’s the same in South Africa,” he says. “When it comes to the Gulf, there has definitely been an improvement. When I look back 22 years ago we had to import a lot of our products. Today, close to 60-65 percent of our products are sourced locally or regionally, and our target is 90 percent in the coming two-three years.”

As well as the supply chain, McDonald’s is also having to react to a world that is becoming ever more health-conscious. In the Gulf, in particular, obesity and the rise of non-communicable diseases are taking their toll on local exchequers. As a result, McDonald’s has introduced a range of healthier options to its menus, such as the Quinoa Fattoush Salad and the Feta Garden Salad. But Abdulghani says the discussion is really about choice.

“Whilst we feel very proud of what we offer — the Big Mac and our fries are still icons and a big chunk of our sales come for that classic core and that doesn’t change — we need to continuously innovate and continuously be aware of what happens to our consumers,” he says. “So today the consumer longs for more information, and it’s not about a simply healthy trend. I can say that in our case now, we offer a very balanced diet — it’s up to the consumer to choose from what we offer.”

To that end, Abdulghani says that transparency has a focus for the company in recent years, from publishing nutritional values in 2002 to opening up restaurants for customers. In addition, he says that McDonald’s makes improvements where it can, citing a transition to a new form of softseed cooking oil announced in September. That will lead to a 37 percent reduction in saturated fat.

A Bahraini national himself, Abdulghani is no stranger to the inner workings of the McDonald’s model. Back in 1994, when he started up the first McDonald’s in Bahrain, he underwent extensive, hands-on training, something that’s expected of all the brand’s operating partners.

“I served customers, cleaned restaurants, cleaned toilets, everything,” he says. “One of the things they told me was that I had to have ‘ketchup in my veins’ — what they meant was to work through the ranks and understand the business — and I believe that’s the best way of managing a business.”

He’s also a major proponent of encouraging fellow GCC nationals to follow him in working at McDonald’s. After all, as he points out, some estimates indicate that as much as 30 percent of the US population has worked at the burger joint at some point in their lives, while the current US ambassadors to both the UAE and Jordan have both been employed by the company. And in markets like Lebanon, Egypt, Jordan and Turkey, the firm relies 100 percent on local employment.

“When I started in 1994, in Bahrain, the corporation asked me where I was going to get my labour from,” Abdulghani says. “I confidently told them that we would be able to get at least a third of our workforce from the local market. Today, when you go to Bahrain, you will see 30-35 percent of the workforce is local.

“The dynamics in Saudi Arabia are also changing,” he continues. “Today, we are employing more than 1,700 Saudi nationals, with a goal to increase this number to more than 2,000 by 2016. Of course, we still have a long journey, but the journey has started. As a local I feel very passionately about this.

“For me, it is not simply about earning a living, it is more about preparing you for the future. I see no issues about people joining us and learning the basics of management, and then one day leaving us to pursue their career elsewhere. We provide development and training, and that’s how economies grow.”

Abdulghani may have set himself some ambitious targets for the Middle East and Africa, but he looks relaxed and confident. For McDonald’s, it seems there’s no better man to turn to when the chips are down.

 

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