The success of some of America’s biggest brands is down to specialization. Figuring out how to do one thing really, really well has allowed these brands to become market leaders, even to the point of monopolization. But as the twenty-first century gets settled in, the specializations these giants are known for are not always one and the same. They’ve changed strategies to stay strong and it’s working out.
Take for example McDonald’s. The restaurant chain found success by selling one type of burger and making it on the Ford-style production line. Although they weren’t the first fast food place in the US, by only selling a very limited menu they could quickly generate profit and growth. However, flipping burgers is no longer how Miccy D’s makes its money. Its real wealth comes from its property portfolio and rental revenue.
“The company earns far more from lease payments than it does from selling its product to the franchisees. . .”
About 85% of McDonald’s restaurants are franchisee-run locations. In this business model, McDonald’s buys the physical properties and leases them to franchisees at cost. The company earns far more from lease payments than it does from selling its product to the franchisees (22% verses 16% of the franchise revenue, respectively), making then one of the biggest landlords in the country.
Likewise, many big-name retailers made their mark by supplying goods that were deemed either a good deal or desirable or a combination of the two. Amazon, WalMart, and Zara are all go-to names across the country, but they owe their success to far more than purchasing power. All three are logistic geniuses. They’re simply better at logistics than their competitors.
While it’s clear that Amazon is in a league of its own when it comes to investing in logistics, both WalMart and Zara have also excelled. WalMart learned early on that demand could be predicted and met with technology. They work with their suppliers, sharing real-time data to help third parties meet their requirements. Zara realized that being the quickest fashion retailer to copy catwalk looks would make their business highly attractive. To this end, they established their own Eastern European factories where they could rapidly turnaround new designs.
With these examples, we notice one thing they all have in common — they started out doing one thing really well and grew by learning to do something completely different equally well. The caveat being, their service offering and value proposition to the customer stayed the same.
“. . . profits could rise and fall, but rent would always be payable”
Businesses need to do this because the world and our society aren’t static objects. McDonald’s learned early on that franchise profits could rise and fall, but rent would always be payable. However, while it was busy building up a healthy property portfolio, its competitors were changing too. Up until 2017, McDonald’s was the market leader in fast-food sales, however by Q3 the tables had turned. Burger King took the lead for the first time in history.
BK has been developing a revival strategy for some time, concentrating on Miccy D’s weaknesses and developing targeted responses. While McDonald’s grew its menus and locations, BK saw a possible flaw in their design. More menu choice meant a longer ordering process and queues at peak times. More locations lead to under performing franchises and closures (700 last year alone).
Burger King was also able to introduce some new products, such as Satisfries, a healthier French fry option with 30% fewer calories than the “leading” (read McDonald’s) French fries. Having fewer locations also made it easier to rollout innovations like the locally sourced food options. This has earned it the title as the “healthier” of the two and brought customers through its doors.
So while specializing in a secondary discipline can be essential to growth, it’s also worth remembering the value proposition to your customer. After all, without customers, there is no business.
How Big Business Changed its Specialization was originally published in UX Planet on Medium, where people are continuing the conversation by highlighting and responding to this story.