FROM HAMBURGER STORE TO GLOBAL ICON – THE STORY OF McDONALDS – PETER RITCHIE

The McDonalds food business is very connected to its marketplace and incorporates many readily transferrable business fundamentals.  Many underestimate the size and complexity of the simple hamburger joint. But look at the numbers: more than 41,000 stores are open worldwide, it has more than 2 million employees – the second largest employer after Walmart – and it serves 70 million customers per day in 118 countries with a brand value estimated at $155 billion. Meanwhile its shareholder dividends have increased for 25 years. Peter Ritchie AO joined McDonald’s in 1970 and spent 32 years as CEO/Chairman of McDonald’s Australia, was a Director of McDonald’s in New Zealand, Hong Kong, and Malaysia and served two one-year terms as Advisory Director on the Board of McDonalds. On Monday 15 July 2024, Peter Ritchie addressed The Sydney Institute to discuss how McDonalds Australia became a big player in the global icon’s success. Peter Ritchie has just published The Magic of McDonalds – Bring it to Your Business

FROM HAMBURGER STORE TO GLOBAL ICON – THE STORY OF McDONALDS

PETER RITCHIE

Thank you for coming. I hope we haven’t overpromised with that title, because I’m not really qualified to talk about McDonalds Worldwide. As Gerard said, I had a 32-year career, but all in Australia. So, you’ll find that my comments will be based entirely upon that experience. All I can do to talk about international success is to extrapolate a little bit from Australia. But we have set the pace here in Australia, so that may be what Anne had in mind when she limited me to that title.

I always start on an occasion like this by apologising to the audience. It’s been over 20 years now since I quit as chairman of McDonalds Australia, and I still am inclined to use the terms “we” and “us”. I can’t help myself. I have an excuse in that, I still love the company, and I still stay in touch with them. Although I try not to interfere with the responsibility of the CEO in particular. If I do use those terms, please forgive me.

Two other things that I like to say at the outset also is, I’m just a bloke who’s been making hamburgers for 32 years and learning from my mistakes and, hopefully, growing from there. I’m not a business guru of any sort, nor do I have visions of myself as a remarkable leader of any kind. Again, I’ve learnt that as I’ve gone along, what might be termed the secrets of leadership. My version of them is set out in the book. So, buy it and read it.

This evening, I want to start by claiming to be the Émile Zola of the twenty-first century, because I want to say “J’accuse”. J’accuse Australian industry, Australian trade unions and, because I want it to be consistent with the French analogy, the Fourth Estate, of conducting a conspiracy of silence of the paucity on industrial training in Australia. I wrote those notes out to myself, and I used the term “paucity” because it came into my head. I thought I’d better check exactly what that means. What does paucity mean?” So, I looked up synonyms: shortage, lack, deficiency, dearth, inadequacy. And I said, “Yeah! That’s what I want to talk about; the inadequacy of training in Australian industry.”

I wonder if some of you are saying to yourself, “How can he say that? What’s the evidence?” Well, the easy answer for me is to point you to the numbers. How we in Australia have slid down that ranking of productivity. Of all the countries that matter, all the countries that we should be comparing ourselves to, we’ve slid constantly down that ranking. It’s undeniable. Our industry is getting poorer and poorer productivity wise. We never compare well with the US, but now our productivity is nearly half what it is in the US. So, that’s all the evidence we need. I have a second, more important piece of evidence which I will get to.

I was involved in these two happenings that I’m going to talk to you about. In the mid-1970s, there was a report prepared by a man named David Crawford – THE Crawford study group report. It looked at how we were doing compared with the rest of the world in training our people. His summing up was we’re inadequate. The report very succinctly set that out and said, “What should we do about it?”.  We should have a special training guarantee levy, which may have been the term that torpedoed him. Because it didn’t ever fly, it went over like a lead balloon. It was basically thrown out by the large companies. It didn’t go anywhere in terms of acceptance.

Then we turn to the 1990s. In the 1990s, the Hawke-Keating federal government had the fortitude to legislate. They called it a Training Guarantee Levy. They got it through both houses and into legislation. You’d think, what a great achievement. We saw what we needed, and we legislated and we got it done. Almost, unbelievably, the lobbyists got it thrown out. How did that happen? I don’t recall how it happened; I was probably too busy making hamburgers. But the legislation was withdrawn in 1996. It wasn’t an effective levy and relied on a business spending a percentage of total payroll on training its people. It ended up just being another tax and was unpopular especially with small business. The point is we had more awareness of training back then, and in the 1990s we just let it slide away. Since then, we’ve done nothing about improving training in our industry, and have slid down the world rankings.

One of the magic parts of McDonalds is all about training. The book relates how that awareness came to me very indirectly. What I was saddled with in Australia was close to the highest labour cost in the McDonalds world. So, in 1985, I was making money and providing the company a return, but not doing anything outstanding. In my opinion, I was running a pretty mediocre operation. I said to my top management team around me, let’s go and benchmark. Let’s go and see how it’s being done in other parts of the world. So, we went round the world; we went to Europe and came back through Asia. We looked at a lot of McDonalds operations.

Story short, we finished up in a store in Singapore. I can remember vividly sitting round the table with six of my top people. And I said, “This is what we’ve got to match. This store is so good, we have to set it as our target.” Most of them were inclined to say, “We can’t do that. Look at the number of people that they have on the floor in this store.”, and “Why is it so clean?”, “Why is it so quick?”, etc. It’s because of the number of people. I knew that was basically true, but thankfully wasn’t prepared to accept it. I said we had to be able to produce a store that is as clean, the services as quick and friendly as this one. How do you do that? You train your people better. If you can’t afford to put more people on the floor, you have to make the people in the store that much more capable and efficient.

When I went to Chicago to get my plans approved for 1986, I told them of my proposal. I said I would spend 35 per cent of my total corporate bottom line on additional training. I give the president the time – a man called Fred Turner, who I became very close to – much credit for letting me go along with that. Because I didn’t really know that I was going to be able to achieve what I wanted to and neither did he. But he approved that spend. We spent that much more that year on training. Things like building a new facility, updating all our manuals, starting to rewrite our training manuals. Anything that I could do that I thought would improve the level of our training in the stores. Can I tell you it was instant? No, not quite. But by the end of 1986, I was getting letters from customers. For somebody to go to a McDonalds and have a hamburger and write to the Managing Director about it, it’s funny, isn’t it? But they were. They were saying things like, “I don’t know what you’ve done in your store, but our last visit was so much more pleasant.” That happened within the year of starting that spend.

I knew it wasn’t going to fix our problem quickly. I didn’t know how long it was going to take. So, I kept on spending. For five years, from 1986 to 1991, I kept spending. I should have mentioned that in McDonalds, we have a very objective way of measuring the productivity in the stores. We’re able to compare, for even a 15-minute time period, the number of customers served, transactions completed, with the number of labour hours used in the store. There’s no currency involved in that. The product around the world is pretty much the same. So, it’s a very objective measurement compared with other McDonalds around the world. On that measurement, we were bottom 5 per cent of the world in 1985. Did it instantly jump? No, we didn’t suddenly leap to fourth on the list or anything like that. But over five years, we inexorably climbed up the rankings.

In 1991, we got to Number 1 in the world. On that measurement, McDonalds Australia was the most productive company in the world. I still get a shiver of pride when telling you that, because it says so much about the capability of young Australians when they’re given the right environment, training and leadership. Number 1 in the world in 1991 and we’ve been there ever since. I keep checking on that, because I’m so proud of it. That’s basically the crux of the book and why it’s called The Magic of McDonalds. What is the magic of McDonalds? Read the book and you’ll find out.

I want to get to the other major piece of evidence about our paucity of training here in Australia. Not only do we have a paucity of training, we have a paucity of leadership. Those two things are causally connected, I believe. I bet we could have a great night just talking amongst ourselves about leadership in Australia right now. I would love to do that. I bet most of you would have a strong opinion and would like to suggest ways of improving things. Well, here’s some of my thinking. The book talks a little about the number of foreigners running our big companies. When I first started to be interested in this, it was really deplorable, some 20 years ago. It’s improved slightly since then, but it’s still bad.

We were importing leadership for our two largest companies, our four largest banks, our two largest retailers – one after the other. As I said, it has slightly improved, but still not much. I’m a bit of an outlier on what I think the role of boards should be. Clearly, they’ve fallen down for a long time on one thing, and that’s assuring succession, and what that comes from is good training within. Our boards have just not done a good enough job over the last 40, maybe even 50, years. In my opinion, that shortage of leadership stems from poor in-company training. I’m holding McDonalds up like we’re something remarkable, but that’s not the case. It’s just that we have had a continual flow of leaders coming out of the organisation. We’ve continued to “grow our own”, put it that way.

All of our young people who have started with us, generally they are lined up at 15 years of age to get into the crew of McDonalds. They’ve gone onto leadership, not only in the McDonalds world, but in other parts of the world too. I can name a few: Antoni Martinez is the current CEO in Australia, who’s just come back from running South Korea. The CEO here that he replaced, Andrew Gregory, has gone off to run the franchising world from Chicago. Charlie Bell, who some of you might know, sadly died at 42 years of age after he went on from here to run the worldwide company. He was made President of the worldwide company and died within a year, sadly. Guy Russo – Guy and Charlie both started about the same age at 14 and 9 months; one in Kingsford and one at Hurlstone Park store. Both of them were telling me they were going to run the company at some point. In both cases, they were right.

Russo ran China where he had a thousand stores and came back to run Kmart for Richard Goyder and did that remarkably successfully and has made himself a very rich young man in leading Guzman Y Gomez to a successful IPO. We have a young lady called Sky Anderson who is in the US at the moment running half of the US, and I’m told has a good chance at becoming the next worldwide President. So, they’re the sort of individuals who have come out of the system.

The reason behind that stream of young people proving their capability at those various levels and in other companies is because, during their training at McDonalds, they become supremely self-confident. It’s a joy for me to watch them grow and watch how confident they become. We have 19-year-olds running ten million-dollar businesses; and I mean running – responsible for hiring all the staff, ordering all the product, ensuring that customers get exactly what they expect when they come to McDonalds. One by one, they keep popping up and we shift them around the world. But they also become our franchisees too. So, they’re a source of fantastically capable franchisees. Part of the explanation in the book refers to entrepreneurial spirit; we teach them to be entrepreneurs. There’s not much difference between that and good businesspeople. It’s all about self confidence is what I’m trying to say. Is there a secret to McDonalds training? Is it especially sophisticated? Absolutely not. In fact, it’s almost the reverse of that. It’s very basic.

I thought I might finish up by summing up what McDonalds training is. I always sum the training up with three words. The first word is detail, and its detail to the extreme. To the point where I have had it thrown at me in the past like a criticism; “You don’t leave any room for initiative”, or “You’re creating robots”. I know why people would say that sort of thing, because it is detailed. We used to say there are six steps of service and the first one is “Greet the customer”.

What I discovered in the first store that we opened at Yagoona is that notion of greeting didn’t mean the same thing to many people, particularly 15–16-year-olds. They weren’t capable of greeting the customer. I had to say, “You have to greet the customer, and ‘Next’ is not a greeting.” I’d learnt myself the hard way that I needed to be that specific. We were telling people to say, “Good morning, how can I help you?” – and smile. They were pretty artificial to start with but pretty soon they became self-confident. But you have to put those sort of words in their mouths at times. So, detail from the start.

Structured. McDonalds training is totally structured. If you’ve trained in a McDonalds store and they’ve said, “We’ll train you on front counter”, you learn that, and you’re ticked off when you become competent at that. You acknowledge that you are capable at that sort of thing. Then you know what the next step is, you go to some other station in the store and then you’re ticked off on that. Then when you get to assistant manager, you’re ticked off on that. The structure is there so they know what the next step is.

The final thing is you are tracked. We know at any particular time what the capability of any individual in the store is, because we need to know that. You can’t schedule a shift without knowing that you’ve got enough people for the grill, or enough people for the front counter, or enough people for fries. So, you’ve got to know what their capability is. We do, and each of them do too because they’re told.

That’s where the self-confidence comes from. McDonalds staff are told that they’re capable. When they get through the crew training, they can run a McDonalds store. It’s so satisfying to be a boss producing young people like that on a constant basis.