McDouble: The One-Slice Secret to Survival

Feb. 4, 2009— -- In the past year, the Dow Jones Industrial Average has dropped about 4,000 points, the unemployment rate went up more than two percentage points and approximately 300 Starbucks have closed.

So it may come as a surprise what one large American company is saying about business these days.

"Our business is great right now," said Jan Fields, the chief operating officer for McDonald's USA.

In these dark and dreary times, the fast-food giant is indeed looking good. McDonald's sales increased nearly 7 percent last year. And they are one of just two companies among the Dow 30 whose stock actually went up in 2008.

Fields says more people went to McDonald's this past year than the year before.

With almost 14,000 restaurants in the U.S. alone, McDonald's buys about 800 million pounds of beef, 31 million pounds of tomatoes, and 260 million pounds of cheese annually.

In fact, cheese has been weighing heavily on the minds of the food giant lately. For the past five years, McDonald's customers have been enjoying not one, but two slices of cheese in their double cheeseburgers, a favorite item appearing on the Dollar Menu. But with commodity prices spiking in recent years, something had to be done.

Steve Kilian is a McDonald's franchisee who owns 32 McDonald's restaurants in Wisconsin and Michigan. Kilian was well aware of what a great value the $1 double cheeseburger was.

"It was the best deal out there," he said. "We would hear from customers a lot, [asking]: 'How can you sell it so cheaply?'"

The truth was, they couldn't. At least not as cheaply as they had been. If they continued selling the double cheeseburger for a dollar, Kilian says simply, "We would have not been profitable."

Greg Watson, the vice president of marketing for McDonald's USA, knew something had to give.

"Commodity costs, beef costs were going up, cheese costs were going up," Watson said. "And when you are selling something at a dollar you are pretty limited on what you can do there from a pricing standpoint."

Happy Meals: 'We Listen to Our Customers'

The company embarked on a series of focus groups and extensive research. One message was loud and clear: People wanted to get their beloved double cheeseburger, with two pieces of cheese. If that meant paying a bit more for it, so be it.

Watson knew this was no small decision.

"The biggest concern with the customers is that they wouldn't come back," said Watson. "We wanted to make sure the changes we were making would make them happy."

So McDonald's decided on a two-pronged attack. Raise the price of the double cheeseburger to $1.19. But keep penny pinchers happy with a new burger on the dollar menu: The McDouble. Two beef patties with just one slice of cheese.

Steve Kilian's West Bend, Wisconsin McDonald's was one of the first restaurants to test the $1 McDouble and $1.19 double cheeseburger on customers.

"I couldn't have been watching any more closely. I was neglecting my friends and family," he said. "We were waiting for something bad to happen and it didn't."

Both the McDouble and double cheeseburgers are selling just fine. McDonald's executives say their success on the cheese issue, overall, has one basic explanation: They listen.

"I think customers right now, they're struggling to make ends meet, jobs are being terminated," Fields said. "At McDonald's I think it's a place to go and actually enjoy themselves and have food at a great price. And then have a great experience -- which is something that is important right now."

She isn't the only one who cares about what the customer wants.

"I think what we do and what we do well is we listen to our customers," said Kilian, "find out what they want, and then we try to give it to them."

"First and foremost, McDonalds is laser light focused on their customers," said Watson.

'We Have to Work Harder'

If focus on the customer seems a bit robotic, it's meant to. These are the lessons taught at McDonald's world headquarters in Oak Brook, Ill., at the famously named Hamburger University.

At the university, the company implements its so-called "plan to win," a roadmap to bring McDonald's out of the dark days of early this decade when it was losing money, in part due to fierce criticism for the nutritional value of its food.

In response, it put new, healthier items on the menu, which some customers seem to like. It rebuilt restaurants, giving them more modern looks. And it got into the "premium roast coffee" business more than three years ago.

Whatever it might gain by listening to its customers, it is hard to imagine anything comparing to one of McDonald's most central features -- it is cheap.

One customer named Melissa who was buying lunch at the West Bend McDonald's became unemployed recently.

"We spend a lot of time at McDonald's when we go out to eat," she said. "But we've cut down on a lot of expenses that we would normally do."

When asked if the recession was good for McDonald's, Fields said, "We fare better in the recession maybe than some others do. But we're as concerned as anyone else. We have to work harder."