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The secret to McDonald's success

Oct 16 2016 14:42
Lameez Omarjee

Zafar Mahomed, CFO of McDonald's South Africa. (Picture supplied)

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Johannesburg – McDonald's has over 35 000 restaurants worldwide, and the franchise has opened over 240 stores in South Africa over the past 21 years. The group owes its success to the strength of the brand, says McDonald's South Africa chief financial officer, Zafar Mahomed.

In an interview with Fin24 on the side lines of the Finance Indaba held in Sandton, Mahomed shared some of the factors differentiating the group in the fast food industry.

“People identify with McDonald's, they trust the brand, they trust the golden arches,” he said. What makes McDonald's so successful is its ability to replicate its business model in different parts of the world.

The brand’s strength contributed highly to the group‘s staying power in South Africa. The first McDonald's in South Africa was opened in Blackheath, Johannesburg in 1995. Although the business process is international, menus are localised as far as possible, explained Mahomed. Menus come with the standard shake, fries, Big Mac burgers and cheeseburgers, but menus are innovated to satisfy local tastes.

In South Africa, spicy foods do well and as a result jalapeno sauce has been introduced. A boerie burger has also been introduced.

The new look McDonald's in Blackheath, Johannesburg.

Facing competitors                                                      

As the ninth most valuable brand in the world worth $39.1bn, according to Forbes’ 2016 ranking, Mahomed said the company leverages off that strength. “We respect our competitors, they are good operators… But we like to play our own game rather than worrying about our competitors too much,” he said.

Growing in a tough economic climate

McDonald's has still managed to achieve profitable results despite a slowing, global economic environment. Mahomed said this is because the company puts customers at the centre of everything. Worrying about the economy can distract the group from achieving its goals.

Mahomed said that the current economic circumstances are an opportunity for business. “If we all looked at problems, we would not be running our businesses,” he said. Identifying the opportunities is linked to finding ways to add value to customers during tough economic times.

Impact of a credit downgrade

Mahomed said the group would try find an opportunity for the business, in the event of a downgrade.

“Obviously a ratings downgrade will be terrible for the country. India was downgraded a few years ago and look at them today,” he said. But as a business, McDonald’s South Africa would take a long-term view. “We look beyond what a downgrade would mean for us in the near term and rather look at the long term.”

An opportunity would involve finding better ways to serve customers, and continuing to provide value.

“We are committed to transformation in this country and we play a big role in that … A ratings downgrade tomorrow will not change our view of what we do, we are proud to be in this country.”

McDonald's South Africa recently confirmed that the process to find a new Development Licensee (DL) for its operations in the country is in its final stages. This follows the current DL, Cyril Ramaphosa’s decision to sell the business. Upon taking the position of deputy president in 2012, Ramaphosa indicated that he intended to review his business interests.

The business is being sold by the local Auram Restaurant Company to a newly established local entity, MSA Holdings, which is owned by Emirates African Restaurant Management Company, based in the United Arab Emirates. The Competition Commission has approved this.

Mahomed added that future expansion plans will depend on the market. “We see tremendous opportunity in South Africa to expand. We will expand as the market opportunity allows us to do that.”

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