McDonald's new system is `Made for You'

COLORADO SPRINGS, Colo. -- It's 11:30 a.m., the lunch rush is on and McDonald's franchisee Steven Bigari can't wait to check out the competition.

Stopwatch in hand, Bigari, 39, hops in his Chevy Tahoe and speeds off to Burger King, where he finds it takes three times as long to fill his order as the 60 seconds he says his crew would take. And the meat on his sandwich is dry, he says -- something he claims you'll never find at his McDonald's. Not anymore.

Bigari is one of the first McDonald's franchisees to adopt a new operating system that scraps its traditional pre-made and kept-warm fare for hamburgers made to order, delivered as fast as ever. It's the centerpiece of McDonald's strategy for returning to glory days in its home market, where its sales and market share have stagnated. "They're hotter, they're fresher," Bigari said of the sandwiches now offered at his five McDonald's in Colorado Springs. "Our quality has gone up exponentially." That's encouraging news to some McDonald's investors. After flitting from price cuts to toy giveaways to "new" sandwiches prepared the same old way in a vain attempt to pump up U.S. sales, McDonald's may have finally gotten the message, they say. The new system "really improves the taste and taste is a big part of all this," said Timothy Ghriskey, head of value investing for Dreyfus Corp., which held 2.1 million McDonald's shares in March. "I feel this is a real product improvement that has the potential to drive sales," said Ghriskey, who says he knows a franchisee who has adopted the new system. The procedure, which McDonald's calls "Made for You," does away with its 43-year-old process of making sandwiches by the batch ahead of time and putting them in warming bins. Bigari's crews don't start filling an order until it's placed. "Made for You" also does away with McDonald's practice of discouraging special orders, lest they disrupt its fine-tuned assembly line. Want your Big Mac without that secret sauce? No problem. "Every sandwich can be customized," Bigari said. Now in about 600 locations, the company says the new system will be in all of its 12,400 U.S. stores by 2000. McDonald's estimates it will spend $170 million to $190 million to put the system in company- owned stores and to pay for half of the up to $25,000 it will cost for each franchised store. "It's a major change," said Jack Greenberg, current head of U.S. operations, who will become chief executive on Aug. 1. "There's no question we can deliver a better food product." That's essential if McDonald's is to stop losing ground to U.S. rivals, analysts say. From 1995 to 1997, its share of the U.S. fast- food hamburger market dropped a tenth of a percentage point to 42.2 percent, according to Technomic Inc., a Chicago consulting firm, while Burger King's share rose to 19.4 percent from 18.2 percent and that of Wendy's International rose to 11.3 percent from 10.7 percent. Early signs are encouraging, says Bigari, whose restaurants include the first McDonald's built from the ground up to accommodate the new system. Sales at that unit have been about 20 percent higher than those of the average McDonald's, he says. Industry experts wonder whether hot-off-the-grill burgers will be enough, though. For one thing, McDonald's is playing catch-up with Diageo unit Burger King and Wendy's, which have offered made-to- order sandwiches for years. "They're going to mass customization the way Burger King has for 40 years," said Barry Gibbons, a consultant who was Burger King's chief executive from 1989 to 1993. "It makes sense, but I'm not sure it's anything other than a defense strategy for them." Some analysts say the new system may even hurt, rather than help, because it could wipe out the one clear advantage that McDonald's retains over its rivals: Its quick service.

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