Retailers aren’t the only customer-facing businesses that are fighting the recession head-on. Joanna Perry learns how four leading companies from outside retail are tackling the downturn
McDonald’s has changed its “corporate body language” over the past four years and turned the tables on its critics to show strength through the recession.
McDonald’s faced tough times in the early part of the decade, with sales at a halt and a backlash against fast food. UK chief executive Steve Easterbrook admits that the company had issues with its food, people and restaurants; all of which it has spent the past few years addressing.
Now the company is back on track, with like-for-likes up about 10 per cent last year, and though Easterbrook says that he would prefer steady growth in the economy, the company is more recession-resistant than most.
The change that retailers are most likely to have noticed is the new restaurant design formats. Easterbrook admits that the look of the 1,200 restaurants was holding the company back, with the average aged between 10 and 12 years old. Three new designs have been created that are scalable, and can be rolled out quickly.
178 sites were remodelled last year, 200 more will be completed this year, and another 200 in 2010. Once the programme is completed in 2011,
Easterbrook expects the process to begin again. No longer will sites be left for years without a makeover.
Just as important to keep the customers coming was the quality and value for money of the food sold. The company has firmly repositioned itself as
a burger business, and one that is proud of the quality and provenance of the food it sells.
It promotes the quality of its ingredients much more, while recognising that customers will not want to pay more for the privilege. Improving its coffee has cost millions, but Easterbrook says that it was essential. Now McDonald’s uses only fresh coffee beans and organic milk, but at traditional prices.
The company has also innovated with its menu beyond the good, better and best pricing structure used by many retailers. It has four tiers to its menu: its entry-level everyday affordable products menu, its saver menu, its traditional menu and its premium range. Easterbrook says sales are growing as much at the premium end as at the value end, but that McDonald’s also sees the payday effect that the grocers have reported.
On the people side, the company has increased the number of restaurants owned by franchisees, and sold more sites to the best-performing ones.
The company has recently signed its first institutional franchise, with Roadchef, and opened a restaurant at one of its sites along the M4, in a relationship that it would like to gently expand. All other franchise deals are signed with individuals who must train for 10 months at their own expense, without the guarantee of a restaurant at the end of it.
Despite the McJob jibes, Easterbrook says that the standardised training that all staff receive, along with the closely defined systems and processes in place, keep the business running smoothly. “Restaurant staff have an average age of 20, and they are handling cash, so we have to have great systems in place,” he says.
The company has also introduced external talent into its senior team – its HR boss came from Tesco and its marketing boss from British Airways – which Easterbrook says is important to benefit from an external perspective.
But he is not counting on the good times rolling again in the near future. “As soon as the economy starts to pick up, people will get taxed more and their disposable incomes will be pinched for longer,” he says.
However, the paradigm shift in what consumers see as good value will perhaps hurt his competition more. “Is paying £2.50 for a cup of coffee as attractive as it was a few years ago?” Easterbrook asks.
He suggests that the current crop of special offers that other restaurant chains have brought in to battle the downturn could turn out to be their downfall, as consumers question whether they were previously being ripped off. “Consumers have recalibrated value, and people are slightly resentful that they were paying such full prices for things,” he says.
The retailers Easterbrook really admires are the fast-fashion businesses such as Zara and Primark, because of their ability to keep turning stock.
He says: “We try to take the best bits from anyone – whether DIY, fashion or a supermarket. We will steal ideas.”
Unilever has pushed the boundaries with the level of insight that it has gathered into how customers shop and what attracts them to particular displays and products.
Unilever UK merchandising manager Nick Widdowson explains that the company has spent the past four years engaged in research in this area, and it shares its insights with retailers to help maximise sales of its products.
It has investigated the length of time consumers spend shopping each category, which parts of the fixture they focus on, how many products
they engage with and how many they choose.
Widdowson says that this helps to answer qualitative questions about how a fixture is performing in a store, rather than relying purely on the quantitative sales figures as the only measure. The outcome should be that each fixture is made as easy as possible to navigate.
Unilever has carried out filming at fixtures, used eye-tracking technology on customers and conducted in-store interviews to collect this insight.
It begins by looking at the percentage of shoppers who enter a category, to determine whether it is in the right location within a store. Then Unilever will question the use of space and range, and from there how customers interact and engage with individual products. After this, questions can be asked about whether products, prices and promotions are right.
Widdowson adds that while you can get significant data from loyalty cards, they will not tell you how a shopper behaves in front of a fixture, what they pick up, what they point to and what information they are looking for. “There is very much a balance to be had. We need both forms of data,” he adds.
But all of this insight is of limited use unless it leads to changes at store level, and this is where Unilever’s retailer customers come in. Widdowson says: “Very often categories are not laid out in a way that customers want to shop. We can help the retailer with range management and layout to do this.”
Unilever continually reviews shopper behaviour, but says that despite consumers being more careful with their pennies, in some ways it does not change that much. For instance, the way a shopper learns a store layout takes place over time, so it will not change quickly.
Barclays is challenging the status quo of how a bank branch should look with its latest designs, and bringing more self-service technology to the high street.
Barclays head of branch development Helen Dodd says that Barclays was the first bank in the UK to offer ATMs, and it is finding its innovative feet again with the branch design programme.
She spent 20 years working in retail, including stints at Tesco and Sainsbury’s, before moving to Barclays.
Dodd believes that it is not fair to expect customers to do business in branches that are out of date. Despite the recession, and the well-documented financial difficulties the banking sector has faced, Barclays is continuing its investment in this area.
“There is efficiency that comes from a programme where you do lots of branches, and we have a good set of suppliers,” says Dodd. “If we switched it off, it would take quite a long time to turn it on again.”
Barclays’ experience is that customers are still coming to branches, even though they can serve themselves using online and telephone banking. In fact, the newly designed branches have been created as somewhere that customers would want to visit, not just somewhere they have to go.
The bank’s new branch in Piccadilly, London, has a full glass front, and Dodd says she wants customers to get a good sense of what they are
The new format is zoned, and as well as creating a much more open-plan feel than many other banks, Barclays has also provided private areas, so customers do not have to speak to personal bankers in the main banking hall.
More use is being made of self-service machines to reduce the amount of time people need to spend queuing – not just traditional ATMs but also machines for foreign exchange and deposits.
In addition, Barclays has tried to improve the experience for those who do have to queue, and Dodd explains that this area has been made more visually exciting. The bank is also experimenting with new technology, such as Microsoft Surface computers, in branches where this kind of technology is appropriate.
Another change is the breaking down of barriers between bank staff and customers. A concierge is on hand at the front of the new branches to assist customers who do not understand the layout, and there is no longer a glass barrier between customers and staff at the counter.
Barclays faces the same planning issues that some retailers battle, as it finds it hard to get the necessary A2 consent it needs to open a bank branch. While in the past there has been a lot of talk of banks being closed and turned into bars and restaurants, Dodd says that the planning regulations make it incredibly difficult to put banks where people want to use them.
She says that working closely with planners and landlords, and showing them how innovative the design plans are, makes a massive difference when the bank has problems securing a site. For instance, the landlord of Barclays’ Piccadilly branch would not entertain the idea of a bank at first, but was persuaded after seeing how it would look.
BT believes that it must take a long-term view to maintain customer loyalty and demonstrate value for money.
John Petter, managing director of BT’s consumer business, says that the company has witnessed the same kind of consumer behaviour changes as many retailers. When people stay in on a Saturday night – maybe having picked up one of the supermarket meal deals on offer – they are also using the BT Vision IPTV service to buy a pay-per-view movie.
Petter says that there has been a marked increase in the amount of business the service does on a Saturday night. He believes that the proposition, where customers do not have to have a regular subscription, fits with consumers’ present lifestyles and is demonstrating value for money.
Another initiative that Petter hopes will maintain customer loyalty is the BT Basic home telephony package launched last October. This is a subsidised phone service for customers on certain benefits, such as Jobseeker’s Allowance. Petter says that demand has been high, and BT Basic builds on a previous service by allowing broadband access at a time when those looking for work need to be connected to the world more than most.
BT continues to invest in product research and development as well as improving the customer experience. Petter says that discussions within the company on such investment do not go unchallenged, but the company takes a long-term view and is also actively trying to reduce problems that customers have, as this reduces BT’s costs.
He says: “The choice that all businesses face is whether to continue to improve services, or whether they will just take out cost and not improve things and deliver for the short term.”