Not clowning around: McDonald's FD, Brian Mullens

This relationship with the franchisees lies very much at the heart of his job as he not only talks with the restaurant owners, but also with the banks on whom they depend to help finance the investment programme. “A lot of my role is engaging with the banks and how they are lending to our franchisees,” Mullens says. The banks, in fact, are invited to the annual meeting with franchisees. “What we look to do is have the banks understand what our business plan and our expectations of growth are, the expectations of cash flow and inflation. Then they’ll generally look to set up lending rates pretty much for the whole franchise system.” So while McDonald’s may not technically be underwriting the franchisees’ borrowings, the group’s supportive approach ought to give the banks comfort in lending to the individual owners as though they were lending to the A-rated corporation.

There’s a flip side: while Mullens and his team keep an eye on all the individual restaurants’ P&Ls and balance sheets to make sure they don’t overstretch themselves, it’s important for the entrepreneurs to do their bit to maintain the investment programme. “When the banks are willing to lend, the franchisees should be willing to borrow as well,” Mullens says.

So while it seems to be keeping the credit crunch at bay, as far as funding is concerned, it’s also apparently defying the recession on the customer side. “When people come to us, they’re actually enjoying the experience. We don’t think people lower their expectations as customers in a recession. If anything, they become slightly more discerning and change how much cash they want to spend. So they won’t really want to spend £2 for a coffee if they can get a coffee they like and enjoy for £1.20. If you look at a family, they will ask, ‘Do I want to spend £10 a head or do I want to spend £4 to £5 a head?’ When you see customers and they’re surprised at our new imaging and using Wi-Fi in restaurants and things like that, you know they are responding to where we’ve chosen to invest in the business.”

Mullens’s role also includes supply chain, and that takes him into the challenging territory of food and energy prices – and lettuce. “Lettuce is an area that’s very interesting in terms of seasonality,” he says. “It’s amazing how the quality of the product changes at different times of the year, you may need to actually go back to farmers.” That doesn’t appear to be a problem with beef, all of which is traceable back to the 16,000 farms from which it’s sourced and which has less weather-related variation. No, the biggest problem with beef is the fact that franchisees will forever bemoan that the cost isn’t more competitive.

What’s your beef
Which brings us to price inflation. Last year wasn’t good in that regard. Energy and food prices were obviously volatile, so part of the job of working with franchisees involves explaining what the hedging strategy is given that supply chain costs get passed on directly to the restaurant operators. There’s not much prospect of just casually passing on the full whack as though it’s someone else’s problem, though. While around 60% of the UK restaurants are franchised (and that figure is heading towards 70%; it’s nearer 80% worldwide), the McDonald’s-owned restaurants have the same cost burdens as the franchises: if energy or food price bills start to bite the franchisees, they chew into the company’s own margins, too.

This twin-track strategy is important, Mullens insists. “Franchisees are a brilliant litmus test with where you are as a business. They’re great for giving you feedback.” But, he adds, “We will always run some restaurants ourselves because, then, you’ve got some skin in the game in terms of feeling the effect of those [supply chain] decisions. To be a good franchisor you have to understand about running the restaurants as well so we will always run a significant number of restaurants in the UK – partly to understand the business, partly for talent purposes in terms of bringing people through the operational side of the business.”

McDonald’s is an American brand that’s gone so global The Economist created a ‘Big Mac index’ to identify mispriced foreign exchange rates. And yet the American headquarters in Oak Brook, Illinois, has little direct control over the UK operation. “It’s surprisingly autonomous, here,” Mullens says. “There’s actually a lot more influence from Europe.” He admits that you wouldn’t want to start messing around with the recipe for the Big Mac, but he cites the pace of re-imaging and the decision to put free Wi-Fi into the UK restaurants as a purely British decision. In similar vein, that’s presumably why the McDonald’s outlets in France sell Kronenbourg lager, we hint. He takes the point: “We haven’t got close to making that decision in the UK,” he says. “But it’s a good example of a local decision.”

Mullens also has IT in his remit, though the financial system is very much “McDonaldised”. It seems to cause little grief – the business closes its books within about three days of the month-end – but it may not be long for this world, consigned to the bin that also contains McDonald’s Cola. More interesting is the fact that Mullens is thinking about ‘the next big thing’ from the customer standpoint: you could be ordering your grilled chicken and bacon salad from your phone in the not too distant future. “If you look at how people interact with mobile technology, I think people increasingly want flexibility of payment; they want flexibility of ordering.”