Christopher Adams

Christopher Adams is the Markets and Banking reporter for the New Zealand Herald

Macca's main man predicts price war

Patrick Wilson, managing director of McDonald's NZ, started working for the company at 18, 'flipping burgers'. Photo / Martin Sykes
Patrick Wilson, managing director of McDonald's NZ, started working for the company at 18, 'flipping burgers'. Photo / Martin Sykes

Patrick Wilson may have only just become the boss of McDonald's NZ, the giant of the local fast food market, but he's already predicting certain victory in a price war against his competitors.

Sitting in his new office at the company's Greenlane headquarters, Wilson - a part-Samoan, born and bred Aucklander - radiates an aura of calm confidence as he describes the current state of New Zealand's quick-service restaurant scene.

The market, made up of about seven major players that include Burger King, KFC, Pizza Hut and Dominos, experienced strong growth in the four years leading up to 2011.

The quick service category is currently estimated to be worth around $1.7 billion annually, and with McDonald's NZ claiming a market share of 40 per cent, that suggests its total annual sales are around $680 million, including the 131 stores owned by franchisees that make up 80 per cent of its 160-restaurant network.

Even as the global economy sank into the depths of the global financial crisis in 2009, McDonald's NZ had its busiest year ever.

"Year-on-year for the past five years we've been growing our sales and market share very aggressively," Wilson says.

The introduction of more upmarket menu items such as angus beef and premium chicken burgers proved a success in an economic environment that drove many consumers to "trade down".

NZX-listed Restaurant Brands - which operates Starbucks, Pizza Hut and KFC stores - also had a successful 2009, more than doubling its share price as the year progressed.

But Wilson says growth in the category became "static at best" last year and strong signs of contraction are now becoming apparent.

"I think people have just got less money in their pockets," he says.

Despite the economic environment and category shrinkage, Wilson says McDonald's market share is continuing to expand.

And he says the Golden Arches will carry out a two-pronged attack in order to stay on top of its competitors in a difficult environment.

It will offer a wide breadth of choices - new menu items are set to hit the stores this year - and unbeatable value, Wilson says.

The price war is already becoming evident in McDonald's marketing, with the company currently offering barbecue bacon cheeseburgers for just $2 each, and a six-pack of Chicken McNuggets for $2.30 - half price.

Other fast food players are also using the value card to drive sales, but Wilson says McDonald's - as the market dominator - will "win that war".

"We have no doubt about that," he says. "We have the best supply chain, the best network and the best franchisees."

His confidence might stem from the fact that he knows the business like the back of his hand, having spent the last 27 years with the firm, most recently as director of operations.

Wilson joined the company in 1984, when as an 18-year-old he became a crew member at the now closed Karangahape Rd store.

By day he'd attend classes at the University of Auckland and by night he'd work at the restaurant which left his weekends free for surfing.

"I was literally flipping the hamburgers, as we did back then - we're a bit more sophisticated these days."

In 1988 he faced a big decision - complete his computer science degree or drop out and become restaurant manager at McDonald's Queen St store.

Wilson went with the latter option, and although quitting university to work at a burger joint might not sound like the brightest career move, in his case it appears to have paid off.

He is the first Kiwi to become managing director of McDonald's NZ in 21 years, and replaces Mark Hawthorne, an Australian who has been promoted to a Singapore-based regional manager role with the company.

Hawthorne says his successor is a tremendous leader who has the respect of McDonald's franchisees, suppliers and global partners.

In order to get the top job, Wilson was flown to Sydney on New Year's Eve and put through a two-hour grilling, at the airport, by a panel of senior vice-presidents from various parts of New York-listed McDonald's Corporation's Asia-Pacific, Middle East and Africa region.

"It was the longest two hours of my life," he says.

Wilson says his interviewers were particularly interested in his ability to continue the strong growth the company has seen over the past five years under Hawthorne's leadership.

Between 2006 and 2010, McDonald's NZ's company-owned restaurants reported a 40 per cent jump in sales, from $140.9 million to $197.6 million, according to documents lodged with the Companies Office.

The firm, however, says those figures are not an accurate indicator of restaurant performance, as they include licensing and royalty fees.

Profits for the company-owned stores soared 231 per cent over the same period, from $10.8 million in 2006 to $35.9 million in 2010.

Meanwhile, the dynamics of the fast food market are also set to change with expansion of the newest player - Carl's Jr, the world's fourth biggest burger chain, in this country.

Two Carl's Jr stores - part-owned by former All Black Michael Jones - are already operating in Glen Innes and Takanini.

And Restaurant Brands, the other Carl's Jr franchisee in New Zealand, says it plans to open restaurants in every major urban centre.

Wilson doesn't expect Carl's Jr to have a long-term impact on McDonald's, but says Wendy's and Burger King have more to fear.

"[Carl's Jr] will come in initially and take our sales, that's what we see, and then over time we'll just claw those sales back."

Wilson says McDonald's plans to open four new stores this year - at Christchurch Airport and in Hamilton, Mt Roskill and Havelock North.

The company wants to hit the 200 restaurant mark at some point.

"We'll try to open somewhere between five and 10 restaurants a year over the foreseeable future."

McDonald's wants to be smarter about its use of real estate, he adds, and move away from free standing stores towards partnering with oil companies and opening smaller sites joined to service stations.

Community leaders have been expressing concern about the rapid growth of the burger chains and their impact on obesity, particularly in lower socio-economic areas.

But Wilson says "we're not here to be the food police".

"We hope that people live a healthy, balanced lifestyle and they make their own choices."

Wilson says he takes his 7-year-old son Taine - named after former All Black captain Taine Randell - to eat at the Golden Arches once a week.

Patrick Wilson
* McDonald's NZ managing director
* Age: 45
* Born: Auckland
* Family: Married, with a 7-year-old son

McDonald's NZ
* 40pc share of the quick-service restaurant market.
* More than $600m in total annual sales.
* 160 stores, 80pc of which are run by franchisees.
* Around 10,000 staff.
* $35.9m profit reported by company-owned stores in 2010.
* Four new stores planned this year - at Christchurch Airport and in Hamilton, Mt Roskill and Havelock North.

Wider role has some cultural challenges

Segregated McDonald's restaurants are just one of the peculiarities that Mark Hawthorne, the departing managing director of the fast-food chain in New Zealand, is having to get his head around in his new role with the company.

The Australian has been promoted to vice-president, regional manager, in the burger giant's Singapore office.

The job gives him responsibility over McDonald's in the Pacific Islands, New Zealand, South Africa and the Middle East.

Hawthorne says the new role is a big change from his old position heading up the branch of the company in this country.

In Saudi Arabia, for example, McDonald's restaurants have a dividing wall, with women and families eating their Big Macs on one side while single men dine on the other.

McDonald's, as well as other United States corporations such as Pizza Hut and Starbucks, have been criticised by western women's rights groups for "upholding gender apartheid" in their Saudi stores.

But Hawthorne said it was just the brand "adapting to the local customs and the way they do things".

McDonald's was rapidly expanding in the Middle East, with 850 stores operating in 16 countries across the region, and a further 100 set to open this year, he said.

"You've got some emerging markets where the quick-service restaurant category is growing pretty fast."

- NZ Herald

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