The golden arches were pretty tarnished when John Betts arrived as president and CEO of McDonald’s Canada in 2008. Having already been ousted as Canada’s biggest quick-service restaurant chain by Tim Hortons in 2002, McDonald’s market share had hit a record low of 14.9% by the time Betts arrived. Betts, who started with the company in 1970 working behind the counter in Southhampton, N.Y., was charged with rejuvenating the Canadian business. He had previously run the company’s Italian operations and served as vice-president of its national beverage strategy, where he oversaw the launch of its “McCafé” concept in the United States. After achieving success selling lattes and espressos at 11,000 U.S. restaurants, he’s made the coffee business a centrepiece of his Canadian efforts. He sought to prove McD’s java is just as good as that of Tim’s or Starbucks by giving away millions of cups of coffee over the past three years. The strategy has worked; coffee sales have doubled, and the company now controls 9.2% of the brewed coffee market. The coffee crusade continued with the launch of McCafés in Canada, but McDonald’s next beverage foray will be decidedly less caffeinated with the introduction in late March of smoothies. Canadian Business deputy editor James Cowan spoke with Betts about coffee wars, the brand’s push for quality, and whether people really want fruit shakes with their Big Macs.
Canadian Business: Let’s start with your push into the coffee market. Tim Hortons sells eight out of 10 coffees in Canada. So this is an arena where McDonald’s is actually the underdog. Why did you think this was a worthwhile market to chase?
John Betts: When I arrived in Canada four years ago, we were at a low point in terms of our market share, and when you looked at our business, clearly one of the areas where we were not connecting well was in our breakfast business. And even though there are other players out there that were bigger than us at that particular time, we’d done so well in the United States with coffee that I knew we had a great offering. If we made changes so you could talk to customers about the great taste, the great value, the great experience that went along with the coffee, I knew that we could get them in.
CB: But you were really fighting against people’s habits. I’ve got a Tim Hortons and McDonald’s up on my street. Until recently, I wouldn’t even have thought of going into McDonald’s to get a cup of coffee. So how did you get people in the door?
JB: We were under the radar because there were other players who had a better reputation, so we had to do something dramatic to get into the mouths of Canadians, and that’s when we did our free coffee events. The first time we did it, we gave away six million cups of coffee for free, no strings attached, over a two-week period of time. We’ve given away over 60 million cups over the past three years. Every time we do it, we have more residual customers that stay with us after this. It’s about breaking the habit in the morning. You take somebody that’s a coffee drinker, if you break that habit, you got ’em for a year, you know, you’ve got ’em.
CB: The next stage is adding smoothies to the beverage push. Why did that seem like the next logical step?
JB: Smoothies are incredibly important because the tastes of consumers have changed—they’re looking for different alternatives in terms of the beverages they’d like to have, or foods that they’d like to have. With this launch, we’re going to make Canadians aware that we’ve got high quality. Our smoothies are made with 100% real fruit purée. And purée is a little different than just fruit juice poured over ice and grinded away in a machine. You can actually see the bits of fruit in our product. Now, it costs a little bit more to do it that way, but again we’re leveraging our supply chain, and it will be a noticeably different product than other offerings that are out there. And the nice thing about smoothies is that they come off the McCafé platform very nicely. A lot of those folks go back and forth between espresso and smoothies, and smoothies are also attractive to people who drink brewed coffee, plus the teens and kids.
CB: You’re emphasizing the quality a lot. There’s no delicate way to put this—quality has not always been the hallmark of what people associate with the McDonald’s brand. Is it a challenge to change people’s minds?
JB: There was a period many years ago when we focused more on cost. We changed our recipes to do different things, either from a cost standpoint or a nutritional standpoint, and I think we got away from one of the things that McDonald’s was founded on: quality, service and cleanliness. In the past 10 years, there has been a big push on putting quality first. We gotta get people back in to understand the brand transformation that’s happening in McDonald’s, and quality is a significant underpinning of it.
CB: Part of that transformation has been the billion dollars you’re spending over three years on upgrading your restaurants. Is that about attracting new customers, or is that attracting old customers that maybe haven’t been in for a while?
JB: It’s about both. It’s about us getting our foundation right. Unless you take care of the core, you’re going to have challenges. And the reason we made the changes, our kitchens were too small. We couldn’t produce the variety of products that we have today, so we needed to fix that. We needed to make our drive-through lanes better. You’ve probably seen…how often do you go to McDonald’s?
CB: More often than I would admit in polite company. How’s that for an answer?
JB: And you know what? That is something that we’re going to change here in Canada, so that you’re not embarrassed about mentioning McDonald’s. People have so many stories or myths that they’ve grown up with, you know, about McDonald’s. It’s just not…a lot of them aren’t…they’re just not true, you know? But people get embarrassed about saying it and, you know what, there’s a lot of good things to eat at McDonald’s. The menu is so much different than it was eight years ago. It’s really, really changed.
CB: How far can you stretch the McDonald’s brand in terms of offerings? I don’t have to tell you that over the course of history of the company there have been some fairly large-scale failures, pizza being the most top-of-mind example.
JB: Well, I’m going to say that pizza and toasted deli sandwiches, or what folks here call TDS, is kind of like a tie. TDS was another monumental…whatever. But in any case, those two things didn’t work because our organization, our restaurants, were not prepared to provide those products at the speed and value of McDonald’s. So I think that anything we do in the future, you’ll see an extensive amount of testing. What you will not see us do in Canada is rush to market.
CB: You alluded to this earlier, that you’re focusing on upgrading, not expanding. Is that a recognition that you’ve reached the limits of expansion in Canada?
JB: Absolutely not. For us, it’s about fixing the core, and we will begin to grow. You gotta fix what you’ve got before you can grow. We’re going to build, we’re going to start building when we’re ready, and it’s probably not too far off into the future.
CB: We’ve spent most of this conversation talking about new things, but I imagine that the Big Mac and French fries are still the core of your business.
JB: People still love Big Macs, but we’ve got a whole new category for them to focus on. And then, when you tie it in with our focus on also bringing in things like salads, oatmeal, grilled chicken, fruit and yogurt parfait, those are things that are good for you to eat, people trade between those categories. I’ll tell you, until recently I hadn’t eaten oatmeal in 30 years. I eat it twice a week now, because it’s available at McDonald’s now. My doctor’s been telling me to eat oatmeal for five or six years. I still eat my Big Mac once a week and Egg McMuffins. My challenge is getting everybody to understand there’s a new McDonald’s in town. It is relevant, more contemporary, and desirous of meeting every one of your needs whenever you think about eating. When people are hungry or thirsty, I want them thinking about McDonald’s first. That’s the objective.