Comparing McDonald’s with Subway, the recent BusinessWeek article titled Why the McWrap Is So Important to McDonald’s explains how manufacturing style could influence consumer perception of quality.
This article got me thinking about the related configure-price-quote process and its repercussions on a company’s margins and reputation as a fair player. For the uninitiated, CPQ is the process by which a company’s salespersons assemble the appropriate product variations and combinations, work out the price for the bundle and communicate it to prospects and customers (Source: Adapted from Gartner CPQ MarketScope for 2013).
Let me begin with the manufacturing style of McDonald’s.
Each McDonald’s burger has a patty, cheese, a mix of vegetables and one or more types of seasoning. For example, a McDouble comprises pre-defined portions of beef patty, bun, cheese, pickles, onion, mustard and ketchup.
Salespersons take orders and collect payments for burgers – and, of course, fries to go with that – behind the counter of a McDonald’s restaurant. In parallel, and largely uninfluenced by the order, the kitchen staff prepares different types of burgers by putting together their respective ingredients, places ready-to-serve burgers in a wrapper and drops them into a holding bin. When a customer orders a certain burger, the salesperson picks up the respective burger from the bin, places it – along with any other ordered items such as fries – on a serving tray and hands the tray over to the customer.
In short, the burger served to a customer is prepared before their order. This makes McDonald’s an example of Made to Stock style of manufacturing. There are a few exceptions to this general procedure but more on that later.
Apart from McDouble, a typical McDonald’s restaurant sells many other types of burgers like Hamburger, Cheeseburger, Deluxe Quarter Pounder, Big Mac, Daily Double, and more. This list extends to include a few local variants such as Veggie Mac all over India and Europe and McSpicy Paneer, which I’ve seen all over India and in a few outlets of McDonald’s in London and Manchester in the United Kingdom.
Displayed on its menu, these are the items making up the restaurant’s inventory of saleable items. While it’s technically possible for the attendant to pick up a beef patty from storage and sell it in isolation, such transactions don’t happen at any McDonald’s – at least none that I know of. In other words, beef patty – and other ingredients forming a part of a burger – are not by themselves saleable items for McDonald’s.
Now, moving to Subway, the sandwich store offers more choice to customers. Customers place orders by picking and choosing the ingredients they want. Salespersons standing behind the counter – and not kitchen staff behind the scenes – themselves assemble the sandwich in front of customers. For example, a customer Tom can order a Veggie Delite Sub and ask for double portions of all ingredients such as tomato, cucumber, onion, green peppers, olive, pickle and jalapenos. Whereas another customer Jane could order the same Veggie Delite Sub but opt for single portions of tomato, cucumber and green peppers and skip all the other ingredients.
This makes Subway a good example of Assemble to Order style of manufacturing.
Like at McDonald’s, it’s technically possible to just sell tomato slices in a Subway but it doesn’t happen like that in reality. Only fully assembled sandwiches – Black Forest Ham, B.L.T, Buffalo Chicken, to name a few more apart from Veggie Delite – form the list of Subway’s saleable items.
In fact, on one occasion, I wanted a bag of chips with my sub. But the salesperson politely declined my request saying that chips were only sold as a part of a certain meal menu, which was not what I ordered. The exclusion of chips from the list of saleable items is very intriguing since it’s a bought out item, has its price clearly displayed on the bag, so there’s technically nothing stopping Subway from selling it separately.
Because of its style of manufacturing, Subway manages to convey the impression of quality: “whether it’s healthy or not, it’s fresh ingredients freshly prepared”, according to Bonnie Riggs, a restaurant analyst at research group NPD quoted in the above mentioned BusinessWeek article. This impression is largely valid since ingredients are kept in containers right in front of customers who can easily make out whether they’re fresh or not. That’s how Subway carries off its tagline “Eat Fresh”.
Unlike McDonald’s, where all ingredients are made before the order. As a result, McDonald’s lacks the perception of freshness and quality (at least compared to Subway).
(To be fair to McDonald’s, preparation of certain rarely ordered burgers – Gemüse Mac or McVeggie in Germany, for example – commences only after the order, but the process takes place behind the scenes in the kitchen. To improve its freshness perception, McDonald’s is lately adopting a hybrid of made to stock and made to order processes, as explained in this article but that’s still not de rigueure in any of the scores of McDonald’s restaurants that I’ve visited in half a dozen countries.)
When it comes to pricing, things get a bit interesting.
In McDonald’s, two customers ordering for a McDouble will get the same quantity of the same ingredients for the same price. Likewise for all other burgers on its menu. Very fair.
At a Subway, customers can “configure” what they buy and prices are fixed. You’d think that double-portion consuming Tom in the above example should pay more than Jane who has skipped many ingredients. But that’s not the case. Subway has a fixed price for each type of sandwich. So, even though Tom and Jane ask for different quantities of ingredients in their 6″ Veggie Delite Sub sandwich, they pay the same price (INR 100, if you wish to know). This is not very fair. Jane is justified in feeling overcharged.
All three steps in the Configure-Price-Quote process are pre-decided at McDonald’s. This causes the perception of low quality but fair.
Whereas, in a Subway, the first step is driven by the customer’s order and the latter two steps are pre-decided. This causes the perception of high quality but unfair.
On a side note, this raises the question of how Subway ensures its margins when it charges the same price despite inputs varying from X to 2X. That’s a topic for another blog post. Watch this space.