Managerial Economics class: Fall 2011. Speaker - William Saputo, Jr transcript

my organization I have three stores I just I do just under eight million dollars in sales by year we're adding about 1500 new customers per year each people Italy and Rochester Hills besides the city I service number two second moment so you can imagine if anything so offer a ride have 220 employees so you understand why I have a receding hairline at 31 years old we do over two million dollars in payroll every year so there's a lot of money coming in from the consumers it goes out miss you really need success stories I have a manager she was a night swing manager and she just got a part-time job with us just to pay off her second car we have 15 minor clásico she is now my operation supervisor she's 6 years old which is she has a family so now she's made it a full-time career she loves what she does here's right now she's actually the general manager at the Rochester monster let's see McDonald's Corporation we offer health care to all our employees there's another in my organization $10 payment those jobs we have lots of incentives we do a lot of community involvement like this is probably my most exciting one because I get to talk to business students future leaders we do free employee new trend that we're working on right now raising trend we'll sit down and have to raise premiums they have four or five small angles so you'll see that we've done this menu is tiered to that you want to have three squares we have abs if you only have some change in your cup holder and you need a snack we're there for you too we have a dog but then when you get your paycheck so I'm just going to open it up to you guys our way ask some questions do you know all the names I try I go around every every day there's probably one or two new people in there so I paste the name and introduce myself just so they know who I am and then they usually come to me more speakers ask questions I need name tags that's one thing especially with opening the new store and we have 60% of the entire company's all new people within the last two weeks so I'm asking a lot of people to dance right they make their paychecks we found out if you see a large impact at all but there's actually an uptick in our business you know as it got harder for people to get out there from the menu people look at the biggest hit in that with the people that biggest bite out of us in the 80s and 90s because Applebee's Friday's all those mid-tier tonight do you see their marketing scheme now they have meals that are blocked at 5 bucks for meals at 5 bucks reaction was changed to decide they wanted to make a career out of McDonald's I got out of college and people will promise me I got one of the largest real estate guys in state and in my first year I made a negative twenty four thousand dollars when I made a company I that was my correct answer that you know I had a bunch of plaques of awards for a great service but I wasn't making any money so Red Bluff then they went back and got into McDonald's management and just jump right back in but how much control do you have over proper strategies close the profit we can control our pricing there's a few things that we do in a co-op and our co-op is southeastern Michigan 522 stores in Michigan about 350 those are concentrated self-defense right that makes up a co-op so you both as owner operators and what we want to agree to there is some price setting that McDonald's recommends from corporate so frozen lemonade they wanted that and they said that we could get that product and roll it out in the our market first across the country to be the test but they wanted it set at a certain price so in that instance we set the price for a to what McDonald's wanted but everything else is kind of determined by the market and local pay there's a neat company and we get a lot of spin-offs like this they'll be owner operators that see a service that the the whole company needs and they'll spin off the seller stores and then open this other company and an operator did this it's called pi-ramesse and they go out they take prices from all the competitors in the area so Wendy's Burger King McDonald's Panera everything to put it into the equation into a computer and then it spits out what my prices would be then they saw that service so right now we're using that as an indicator of where our prices could be so it's just a guy but you can tell just under your operations report you're increasing guest counts that's a good thing you're taking customer it's usually because you have a better price and faster since I hope that answers your question it's a long story long corporations and franchises the big corporation the public corporation will kind of command you to maximize your revenues rather than your profits is that's something that you've had with kind of there's an operator only session right before we go to the full coop meeting which has all important people and that is usually the most heated power every month talking about those same issues because there's a there's a psychological difference that when you old Bank millions of dollars and you're the only one responsible for it meaning that you lose your house and all that other stuff that puts a certain strain on you as a human being and then there's you don't only pay the bank we pay McDonald's of service feed which is a set flat rate negotiated for the purchase of the store so we talked about the percentages 25 percent or 25 cents of every dollar goes to food costs automatically that's what it is right now commodity costs are going on a lot of percent so 26 cents now instead of 25 that we've seen for less revenues labor is about 24 to 26 percent and so when you get a dollar fifty cents has already gone on dish your people and your your food policy and then you get into McDonald's rent and it's as high in the state as eighteen to twenty percent that gets wiped out and they get that before bigger bills so it is it is a high-stress job but at the end once you get rid of that banknote that frees up a good chunk good percentage but to elaborate on your question yet it is it is stressful you know the main thing that they want right now this is guest house even if that means sacrificing price or going back to a price control you know we want you to say your price is right about here ultimately is the parent company they have a lot more muscle than you do and there's people just pounding down the door to become an operator so it's a pretty cutthroat it's it's exciting good question yeah it's I'd like the videotape one of the operator on these sessions crickets and when I first came into it I'm like seven stores they're paid for you know and you're looking around but after thirty years of it I I'll probably be just like that what is the main difference between a store by seventy more than seventy percent of the stores in the country are owned by people like me it's a small business owner operator so the main difference is you take on the financing yourself whereas we've done with with finance their own source their own a lot bigger budget a lot better credit but yeah you take out all that risk we managed a company within mcdonald's guidelines so you always have the pressure of them with the expectations that you have safety scoring systems that they do to validate you and in the to Rochester Hills stores my my SLR which is a full operational review there are next Tuesday Wednesday and following Tuesday Wednesday in two stores so back to back it's basically like your SAT and you have one of every 18 months and if you score below that you're not expandable if you stay not expandable for months is there like a certain amount you have to be work I work for talking about sign of like in order to like open your own franchise so you have to do work to sort of recent capital and they like obviously how did you go about opening merely your sources without example suppose we started with one you expanded that's within the next five years they were married the first round was actually the one that just burned down so it was my baby it was sixty five percent of my company so started the business as you're doing that you're probably actually so you're paying down a bake and you're growing everybody out the other so your large and gap line is based on your ability so if we were cut off grow it faster and the faster you do that the sooner the bank will look at you and say okay I will loan you another too many dollars the bank's loaning money that was a big concern during the economic downturn nobody could borrow money the one business that they would lend money to as we've done how many McDonald's have you seen fail in your lifetime there's one on the waters exit in northern Michigan that's nice not often so yeah there's a lot of negotiating in shop for your humanity means you better have a few traffic times better increasing guest counts that have feminine customers when operation what would you say is the most exciting part about your job I never know what I'm like I I have kind of old school I don't really use the technology much I have seven legal pads one for every day and everything's written out that I got to do so I'll go in with a plan then sometimes you just hey this person's dog got sick you know they're not here so then you got the maneuver and jockey I promise eight people are very interested they come from all walks of life backgrounds different situation it's kind of like this classroom you know you guys are from all over commute from different areas and they do the same thing and people that drive all the way from the trailer to take classes from different just if they they like working with the team that assembly how many we passed well they just keep coming back that's my favorite part and their shave their shirts and they follow procedures okay Lord you say is the biggest day-to-day challenge that every dinosaur faces you are dead in the water you know when you when you said staffing and you don't get what you're looking for and that was I speaking to you earlier in class about we just went through a really rough time with opening that new store is because we couldn't get any reliable people so we were putting 22 people on and 14 would show up then you fired eight people that day you don't come you don't go and you would hire eight more people give them a chance so we finally hit a baseline after 30 days and just I call it the meat grinder that's exactly what it was 15 16 hour days for me and the general manager is just trying to hold up you know 2,000 transactions per day but we settle down we got some really good three stores how is your time allocated it's kind of random every morning when I wake up start at a plan I hit each store each day cuz unfortunate to happen within a 15 minutes training here of each other so I usually rotate it randomly so they never know when I'm gonna show up so that you walk in as a customer and you see it oh he comes here every day at 7 o'clock we've got to be ready at 7 and then you're never there in 4 and they're screwing around at 4 o'clock just totally random it's a lot of hours it's a lot of fun to have that flexibility but at the same time when you lose the flexibility you become a slave for your business so the last 90 days I was a complete slave to my business a lot barone do mean salty fries or correct people's procedures it's whatever it takes you know it's ultimately at the end of the day the buff Styles a week and thanks coming to me he made that come to me my people are coming to me the city's coming to me everybody comes to you and when you visited locations I reviewed us like the big boss is coming to check up on us or just yes and now it just depends I try to keep it really friendly with my employees down the earth and I could be a nice guy I'm not much of a Yeller the people that I trained under or yellers and screamers and I watched a lot of really good people walk out the door including what you would think you would want to do every once in awhile I was just so disrespectful so trying to be really respectful and in the way that I talk to my people hopefully that will emulate its way through my business and it's my customers in so far it's this work don't get me wrong people try to take advantage of that and walk on you but probably not a good idea you know the year you see the opportunity to how do you manage well we bring cars down we don't real wait to like the year or we don't do quarterly we do monthly so I mean even weekly to this to where we're at right now of okay English stores I have a new plan every week that's how fast it's changing cycle out five people in a week you gotta have a new strategy so we're basically balancing what a weekly plan but I do set goals a year where we want to be sales how much money increase gets bounced break that down by 12 then we go I have general manager meetings all my people that are GM's for the stores we need once a week in I got that started that they do department meetings their top four people just to shake out any issues any miss communications that they have is any miscommunication like that could grow into some huge festering your business there's five good people cuz how do you decide on the size of a new store and you were standing so I think that expanding its good how did you do site what size go to McDonald's and they have they have a layout they have five different building sizes that you can use and it's kind of your choice there's a price tag with each one at the Rochester Avon store during the rebuild the size of a lot determined the building that I could have so it's a skinny lot and then the city wanted us to increase there's a beautification project in Rochester Hills that you have to have X amount of trees X amount of bushes so that crept into my spots and then we did a turnaround on the front neck out at six more spots so that people wouldn't circle the building without going in Rochester Road it's like playing Frogger or whatever okay just kinda jump out there and hope there's not a car coming the lot was lot was trimmed down and kept getting trimmed down and I wanted the biggest building act again cuz that store before it went down it did 3.2 million in sales right now it's on track you can imagine serving fifteen hundred customers a day how many plums the bun stacks are the ceiling here they're all over the store right now so we wanted the biggest woman possibly could that are a lot size company shrimp city so we've got the skinniest building and then I wanted to play place so we had another forty feet in front and because of its volume and where it would be going we had another 20 feet to the cooler instruments so that's pretty much I had my hands tied pretty much on that one or else I would have built a 44 40 which is just the front counter back picked out means you can't touch that you couple small things on a construction site move the law here move the wall there put a floor drain here whatever whatever you want small things but you don't change McDonald's with the lobby you have full control so that's where I really took opportunity to make that Rochester game go to state of the art for four flat screens there's three designated areas and there's a quiet one in the back for the call the center area like it's got two flat screens got ESPN on there and then there's a separated play place area no windows where you're sitting in the adult section you don't see all play place tubes and hear the kids scream so then that has its own Nickelodeon station this is the pit how do you determine what five doesn't like a fact we just shut up there's a ratio every 5,000 because this I always stand I'll see you later or go back to the dining coat the dry food drive-thru is 76% of our business and die by that so I would close the interior first but I would get a phone call to say we're understaffed to operate your try through one or two people like we operate we operate under activate to people because there's some orders we have six people at all times say I'm the 10:00 p.m. so there's two we're takers because we have the double drivers and then there's a presenter which just hands bags off the window and there's an organizer who sets the drink with the bag make sure that it gets it right that's probably one of the hardest jobs in his start and then you have a designated cash person in the back there's nothing about hey take that things get a little tricky at nighttime when there's only building that person has to take two lanes of orders and do all the service so as soon as it gets to a certain certain amount you can validate the investment the busiest McDonald's East eight is thirteen forward that's four point six three dollars a year they have it does what most McDonald's do from 2:00 p.m. until they close do you decide with having clothes yeah we have the right to designate that in 24 hours and everything 364 we're going to make it we're gonna make it 365 because there's some people that are aggressive and maybe are too far away from home to celebrate the holidays or are of a different religion there's some there's some stores out there poison areas down in Dearborn and they $20,000 in sales a game it's not a very selfish would you guys calm down so unless you guys are gone right based on the area how do you manage like tossing everything like we have the hamburger buns stacked all over the ceiling how do you manage that over there is it different like four different days of the week at four different you know obviously would be different different times of the day yeah but you want to keep everything fresh and so how do you manage that have you ever been in situations where you're completely out of you know fries or hamburgers how do you manage that I was actually running stock around today your service isn't affected but that's one of the things that I pick up form is that is that is a bouncing act of all balancing Erica's business is pretty consistent but every once a while things just go or I or somebody makes a mistake or they make mistake on the distributing center side but McDonald's has really helped us with that all the information of all our sales from the registers which is the POS when you say all goes into an ISP which is the main brain that crunches all the numbers and stuff like that so that has every single transaction that you do every day each time you press cheeseburger the computer knows that you have abundant meat cheese X amount of pickles and it does the math for you it's not McDonald's finally set up in a OS an automatic ordering system if they can hold that information based off of what you did for that week they project with a 5% sales increase your next truck works so they sent it to you basically look at it now and say this is what I need and if you have any say you have the Bourke Seaway Iran or something like that coming up you add or subtract a couple products they've really simplified that because it used to be you walk in the back you hope you see and count every box yeah that's kind of Roulette there part of the ALS money we used to do it two days they increase that to three days so that you can have less product that you're building more money in your bank account if you think about it you have 100 cases the fries in the back if you know 5,000 dollars sitting there and if you have a versus 20 you can put the extra 3 grand in your bank earning interest so they've switched it to 3 days and it used to be really difficult with the two days because you you have three days and then four days that you've definitely in for your truck so a lot can go different sales wise in four days before you get your truck you know and if you're out you have to wait three more days that's an eternity that's what you said three days or two days two days and then three days it's that three day period kind of you know it's pretty consistent you know finally found might answer to my guys his name's Eric he's just he's brilliant he's straight from the Air Force and he's very disciplined and that's what it takes you have to be very regimented and do to the inventory when I started about that that meat grinder timeframe I trained seven truck managers in 60 days and then none of them worked from you and he's the one he's going around training everybody how to do it what opportunity cost by my Uncle Tony he's been in the business for it's coming up on his 40th year of service we is in Bridgeport bergeron Franklin with Vassar our family we were originally in Surrey and then some of us got out and someone into Miller someone into it has a bush somewhere in Harley Davidson now and we did McDonald's us live my dad's an owner/operator he's the one who originally started and that's when I started smoking source and illegally cooking meat behind the grill in the tenure they made some started this story was very interesting there's the top five operators in the state look at the deal on paper there's no way we'll go broke and that's and you almost did this first three months it bar a lot of money to pay pay as people without taking a check but then the wheels got a grinding and he's got a big heart so you made it happen and it's the biggest in the area so my dad owned seven stores my sister owns three and aisle 3 so together we I can see why investing in a play place would be smart I have four boys we purposely drive around trying to find the one at the play place but does then increase your liability insurance yeah it does it does they're so padded up the risk is all parents are kind of reasonable to know around its name you know I might bought this hat or whatnot but there are some people that don't look for that and try to take advantage of it but that's what you pay insurance from most people pay a service but I do it in-house yeah we do ours every two weeks just imagine it takes about four hours to do it right so I put a mom from each store the test kids that plays in that and they're responsible for second mom to get back yeah I made that decision once I went through real estate here some of the things that we were seeing in the industry of you know where we're facing this guy getting into getting into this four hundred forty thousand dollar house off of one month of income with me in his business made twenty five thousand I knew that there was something wrong with that before I even knew what was really wrong with that and that's crashed so when I kind of sensitize we back to McDonald's after a four-year hiatus of college and then six months of June the real estate and got back McDonald's has a program it's called second generation it's it's expanded quite a bit since I went through it my my process was two years the average is five because I had already had the manager experience in high school you know take a vacation breaks that really helped shorten my time down make some big changes in your life last year was stressful thank you process that goes for like how do you put that in Korean is go that is one of her purchasing from corporate I'm reinvesting their cash where'd that to be now it's got a well he hasn't picked some adult they want their cash to look good so turn it around where our bread is made is where you can increase your sense I don't know what corporate constrains the each product I do this every story on the same products or ten different stories and different raters carry different yeah they were all the same across the board and that all depends on the the BB that's the person in charge of your so we had a new VP come in name is Marcy and she wants everybody the same I rightfully so just then when you quoted prepare preparing apples apples ice that frozen Coast least that frozen coast all 13 of her stores they made us get rid of it it was tough looking at that as it was at the end of it at the end when everything was said and done was the machine for pay for his fifty six hundred dollars a year and per store profit in our pockets but loss so I don't know this is a little chat - but will there be a certain product in place that you would you like every product that's stacker fruit salads that's why you're here that's why there's you just you know we've been we've been badgered as a corporation of you know McDonald's buy a case per week cases of everything else flies on the shelf in a two three day basis and these don't move so for you can you change out the advertising too many market towards that more than maybe the McRib that you guys are probably fine yeah they they could but to invest tens of thousands in the two dollar product versus a full margin product like an extra value meal or an Angus burger or their that's where they keep their money or into a whole chicken is fast outpacing our burger sales and beverages like the strong so you see the mid cafe has actually put us into a competitive zone with different companies that we never thought we'd compete with and that was Starbucks we beat him up pretty bad because we had locations again now you won't see it starting a new Starbucks without a driver cuz they got the message say this is a convenient society we thrive on convenience that's it I remember Howard Schultz down one McDonald's came to him he said to be late to start but from a restaurant because we would have made them strong as a barback so then we came up with our own coffee it got stronger reimage the stores you guys notice although the interiors have changed oh yeah it comes off this thing that had eaten passed along to me about easiest thing to be in the world as critic but sometimes a critical analysis of your business from the outside and it's good it really helped McDonald's over the last year so the woman here was get relevant days of people help sitting on any moveable plastic furniture is over all our stuff is leather fireplaces and flat screens really maybe having a coffee get some work done than getting a sandwich later on so you just gotta look at criticism not get a settled it but there's a lot of truth how much do they like influencer decision back in the 80s we were back on our heels before I got into it I was still beating the mystery we were back on our heels looking worried about what everybody else was and that's when they lost their edge but then in the nineties they kicked it into a new gear they got a head chef and a creative team because we just said we install it creatively and come out and he promised and people were ordering my my favorite is number 10 melted cheese number 10 Jesus yeah there's there was a lot of things that they were doing wrong in that time and these are kind of the core things that we still work on every day like I'm I'm working on some of these things now at the new store like teaching me all the new people the basics start the cheese on a double cheeseburger what does that matter goes in the same way does it matter it's a beautiful thing and they go great oh and I'm the boss and that's the way I want so let's say some of these things were kind of needs fixing the food so they came up with all kinds of new equipment in the kitchen that's the most amount of change UHC is a staging cabinet it keeps the meat everything temperature and when it beeps it's out of their freshness there's hot landing zones everything has an acronym in mythology a CHL Z's everything she does so we basically speak a different language but when the food goes down the table all the tables on the assembly line are so that the product never loses heat and then he goes into a hot landing Bay the other strategy that was really big for that was made for you when I was a kid and I got into the business it was we had a very simple lineup just just being in front you guys every would remember that or they would call it back and we just kind of get lined up in there and like three filets like a 12 cheeseburger yeah we do them like just mass production and then we got rid of that platform this is when everybody said you're through this goal or it's not good that's when the cheese really felt it was when that stuff would sit in there for 20 minutes we corrected all that there's a new system it's made for you so as they bring out the order the screen comes on back in the grille they drop the bottom it starts going along with that person pulls from the speaker they do their cash and by the time they get to that window it's already in a bag with their drink and that's helpful any of you guys that would be interested if Addington could make time for it beautiful small group show you guys how the back operations work it's actually quite amazing and I took the mayor mayor Barnett through his wife and his mom his dad and everything they never realized they just I just thought it was burgers and fries and multi-million dollar company and there's so many people working there and there's so many different moving parts now they say oh now I know how my drinking get screwed up I know how I say if it could get screwed there's all those different points of care don't ignore the grow up grown-ups they need to clean up their act and offer healthy alternatives and this guy said this sooner than he came out but supersize me you know they wanted to attack the big guys but the reason McDonald's sells the majority of the food is that's why these are they expire before we can even sell them we once they eat apples it's not you know it's not what they want and they go out so supers I knew was one of the biggest public critical ones and McDonald's made the biggest biggest change that products started bringing in all these other products so in essence the image has changed that we've offered everything but the sales determines you know what the people are buying determines that McDonald's to change everybody Eddington asked me if I eat I eat there two times day breakfast but what I eat is no real chicken you know I don't it's all about choice so when they when they do attack us you know the inside track I'm 2 pounds lighter than I was in high school so if any one of us mind to open a franchise what's the best piece of advice you could give us start out and hope that you get in at a time when it's down a little slow because everybody wants to be in it right now you know I want more more stores because it's a good business that the end McDonald's has in so many stores or opening stores as fast because they're all doing you know but there is a process a registered applicant we just go to McDonald's they do a background check and do they see what kind of financing that you can bring to the table they just want you and you alone they don't want any strings attached to me and my investment group you seen a lot of a lot of companies go down the tubes Wendy's was one of the biggest examples of it got bought out and they started changing things and they just went after it from a piano angle or a profit angle and Wendy's lost their there they were number one when we were cost a good customer feedback so can you tell the class what in the future so okay stop the video we have a puff burger coming out it's gonna be a good crowd yeah we have we have a cheesecake parfait we have the parfait and anything that works that expansive platform so now we have two parfaits 31 which she's kind of like this Snack Wrap platform was started with the Christie ranch and now that's 20 months they're acknowledged triple date now it's everything I recommended to menu management that we have the Southwest salad ingredients why couldn't we make a Southwest wrap might cut into Taco Bell's a little bit but it's what we're here for a neat little segue about Taco Bell to is they were they were the King and queens of the night they rule before Camille you know and then McDonald's got into it he took the lion's share so just neat looking at different opportunities we were originally worried about the wear and tear on machines and a lot of people thought that most hot and heavy cut a lot meetings but we came to find out less than eternal machine on and off like starting a diesel motor better it runs so there's actually the other neat thing about doing the overnight service was that there was someone always in the building I stopped getting calls before 30 even morning of UOP managers not here on the grill person and so think about that you open an hour late every single hour after that was affected negatively and then your customers they show up at 5:00 you're not there do that once to them well they're on their way to work forget about it they won't be back that is favorite stories is practical and breakfast in Maine this profit yeah but if I say that's the breakfast yeah and I've never seen McDonald's without breakfast no I couldn't even imagine my alternative snack wraps are huge that a big gap but part of the crazy thing is not necessarily always getting the food problem it's a beverage like they call them comforters all the caffeine crimes I'll get a mocha and make it small fry or just get a mocha that has a lot of sugar and calories but it gives them that boost to keep me going through the day and a lot of that comes from all the feedback that we're getting from personal trainers health advocates around the world it's better to keep your metabolism puppet going with five small meals than it is three big ones if you're gonna have a people on half earlier in the day so that you can break it down with gems like that is it the individual owner operator is do you manage that or is it headquarters that takes a look at that make adjustments to that for lucifer's are grazing that you've noticed this extra that's all research development that's you know what we pay our service fees for is there's people that they go to work every day and they try to figure out what the next hottest thing is what the consumer wants people that just go around and test our competitors figure that out we do it on a local level let's go local star marketing like I'll take my general managers out I haven't done in the last six months but we're gonna do it here pretty soon and we're gonna go shop some of our competitors like Panera and see what is different about them why do people come here how could Panera get an eight nine dollar average check and we only get five - what are they doing differently you know you learned some goods about your business and you learned some bands