McDo, Pinoy

Chinese-American Joseph Lau has been in the Philippines for a little over a year and he’s never had this many e-mails and letters. Civil society and professional groups as well as customers and non-customers of McDonald’s have been praising the ongoing advertising campaign that features a grandfather and his granddaugher, Karen/Gina.

"The lolo ad touches the emotional heart of the Filipino. It’s real. It deals with a real Filipino situation, a multi-generation family with grandparents living in the same house as their children and their children’s children," said Lau, managing director of Golden Arches Development Corp.

Although the ad is situated in a McDonald’s store, it doesn’t push the company or its products. "We want to send the message that we should not take for granted the people we love," said Lau. "We are looking for impact, which may or may not translate to brand or top-of-mind awareness and, with it, an impulse visit to one of our stores."

The lolo ad, which has been running since Nov. 1, has been named ad of the month by the Philippine Association of National Advertisers. Lau received the PANA award last Friday.

Competition

There are two companies involved in McDonald’s Philippine operation. Golden Arches Development Corp. operates the 243 stores nationwide.

McGeorge Foods Industries, which is majority owned by George Yang, is the Philippine master franchise holder.

By the end of the first quarter next year, the two companies will be merged with Golden Arches as the surviving company. Taking advantage of the country’s more liberalized retail law, the merger will give McDonald’s flexibility in such areas as financing expansion as well as simplify backroom operations such as accounting

At 243 stores, the Philippines is the biggest McDonald’s operation in Southeast Asia. It is, however, nowhere near the 400 plus stores of its major Filipino competitor.

""We may not be number one in terms of total outlets but there are other indicators of leadership such as quality, service and cleanliness where we have the edge," said Lau.

Informal industry surveys also show McDonald’s is neck-to-neck with its major competitor for market share in Metro Manila. McDonald’s has 141 stores in Metro Manila.

Expansion

A 18-year McDonald’s veteran, nine of which were spent developing the huge China market, Lau has come up with a two-pronged strategy that is expected to put the performance of the Philippine operations at par with the rest of the world. McDonald’s is the number one global brand in the food industry, operating 29,000 stores in 121 countries.

In the coming years, McDonald’s expansion thrust will be outside Metro Manila. "We build our business on what our customers want, not on what our competitors are doing. We see ourselves as the neighborhood family restaurant which just happens to be owned by an American company. As such, we give our customers price value– good food at reasonable prices plus a good store experience," said Lau.

On the average, McDonald’s puts up 30 stores a year. At an estimated cost of P25 million a store (or the cost of a franchise), that adds up to an investment per year of at least P750 million.

Right now, only 25% to 30% of the total stores are operated by franchisees; the rest are company owned. That will change as McDonald’s becomes more aggressive in linking up with local partners. Worldwide, 80% of total outlets are owned by entrepreneurs.

More variety

Local best sellers are not core products such as the Big Mac but products that have been adjusted to the Filipino palate such as the sweetish and blood-red spaghetti and the crispy fried chicken. "We’d like to introduce more food items that Filipinos like to eat but not necessarily Filipino food," said Lau.

Based on its research, McDonald’s has discovered that Filipino customers would like more rice-based products and more food variety. Introducing a new product is, however, not that easy because there are economic repercussions on the supply side.

Take the case of new product, Spicy McWings, which took months of planning. Among other things, the company had to make sure it had a 45-day inventory of chicken wings before the product could be launched. Two weeks after its launch, McDonald’s had to scrounge for chicken wings to meet an usually heavy demand. As a result, there were a point in time when there was no chicken wings to be had in the public markets of Metro Manila. McDonald’s had to import the wings.

It took McDonald’s an equally long time to launch McCafe, a coffee and pastry place which started in Australia seven years ago and has since spread to Europe and two other countries in Asia (Hong Kong and Taiwan). It took six months of planning and 25 days to put up the first and only McCafe four weeks ago at the second floor of McDonald’s-Glorietta.

"We wanted to capitalize on the Filipino appetite for coffee and to broaden our customer base–not so much to copy others in the business," said Lau. The different coffee products are McDonald’s but the pastries are was outsourced.

Everything is in flux, including the stylized French-maid uniforms which the waitresses have designed themselves. As always, Lau is listening to his customers before he makes his final decision.