Strategy Muse

How they boost income: 18-July-08

McDonald's in Europe is upgrading the customer experience:
1. It refurbished the chain's outlets there
2. It created a McDonald's design studio outside Paris to come up with a range of eight design packages from which franchisees can choose.
3. It has replaced the bold red-and-yellow plastic signage with muted facades in dark olive and yellow, and the 1970s-style interiors have given way to more elegant spaces. Retro plastic and Formica fittings are gone, supplanted by wood, leather, and stainless steel. Many outlets are even kitted out with wireless Internet connections and "egg" chairs designed by Danish architect Arne Jacobsen.
4. It will invest $800 million on opening 150 restaurants (up from 80 in 2007) and remodeling existing company-owned outlets.
5. It has redesigned Ronald McDonald play areas into Ronald Gym Clubs to get kids fit.
6. It may import the redesigns to the U.S.
7. It is making the products and entire experience more localized - from management and staffing to menus.
8. Its food innovation lab in Munich is continually tinkering with new recipes to test out in various European markets.
9. It has rapidly rolled out of McCafés - coffee-bars-within-a-store that offer cappuccino and espresso and a range of familiar pastries.
10. It began using kiosks in France where customers can order and pay for their food, because a majority of transactions there are made using debit cards.

[Click here for full story at Businessweek.com]

Innovation = more income

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Food Companies caught between rising costs and customers with leaner wallets:
1. They are raising prices on only the least price-sensitive items instead of whole product lines
2. They are tailoring prices to various levels of demand in local markets
3. They are tweaking product presentation and packaging in an effort to boost sales volumes.
4. They are backing up price hikes with a higher-quality product that stands apart from its broader food category, such as cereals or packaged cheese - a product that warrants a premium price in consumers' eyes.
5. They are adding value (that can command higher prices) to commodity products.
6. They are focusing more on organic food that allows a bigger profit margin and appeals to the Gen Y market, which has shown a bigger appetite for specialty, ethnic, and natural foods
7. They are using more complex price optimization programs like the on-demand software technology developed by SignalDemand that take not only demand but also supply and product mix into account and can sharply reduce price volatility, and help sell through all the parts when some are more popular than others and cut the price on whatever is in oversupply to bring the business back into alignment with demand.

[Click here for full story at Businessweek.com]

More intelligent pricing, product mix and pricing = more income
(Why wait for hard times to resort to more intelligence? Human nature?)

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General Electric, the $173 billion conglomerate:
1. It has bought $88 billion of assets in high-tech growth areas like alternative energy and bioscience
2. It has overpaid for some acquisitions in water, security, and some media properties, such as iVillage.
3. It purchased Weather Channel with its highly trafficked Web site for $3.5 billion financed with the help of private equity firms Bain Capital and Blackstone Group.
4. It has kept executives in the same position longer than the traditional one or two years to enhance industry expertise, customer focus, and innovation.

[Click here for full story at Businessweek.com]

Acquisitions in high-growth areas + trying to enhance team expertise, customer focus and innovation = more income likely
Overpaying for acquisitions may indicate earnestness that may help recover the overpayment, or it may be imprudence.

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Mattel Inc., the world's biggest toymaker:
It may ask a jury for hundreds of millions of dollars in damages for copyright infringement after the panel found drawings for MGA Entertainment Inc.'s Bratz dolls were made while the designer worked at Mattel as it is construed that MGA and its CEO were liable for intentional interference with the designer's Mattel contract as well as aiding and abiding Bryant's breach of fiduciary duty and his duty of loyalty to Mattel.

[The popularity of Bratz, first introduced in 2001, has contributed to a slide in Mattel's Barbie sales.]

[Click here for full story at Bloomberg.com] 

Compensation for breach of contract = income to assuage the cost of the breach.
[Creators henceforth beware of what you think up when and where.]

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Nissan Motor Co., Japan's third- largest carmaker, and French affiliate Renault SA:
1. They will spend $132 million to expand vehicle production in South Africa by 70 percent to 68,000 vehicles next year
2. Nissan will build its new NP200 light pickup, replacing the 1400 Bakkie
3. Renault will assemble the low-cost Sandero compact and sell its Twingo small car and Koleos sport-utility vehicle.

[Click here for full story at Bloomberg.com]

More investment = more production = more income (IF demand exceeds supply)

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Delhaize Group, the owner of the Food Lion supermarket chain in the U.S., is trying hard to retain customers:
1. It has added private label products which are cheaper
2. It has lowered prices
3. It has offered in-store promotions.

[Click here for full story at Bloomberg.com]

More offerings + lower prices + promotions = more income

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Central African Mining & Exploration Co., the London-based cobalt producer founded by former England cricketer Phil Edmonds:
It will create a separate company for its coal properties in Mozambique and South Africa.
[It will own about 70 percent of the new company and Central African shareholders will own the rest]

[Click here for full story at Bloomberg.com]

Spinning off businesses into separate companies = more focus = more income at some additional administrative costs

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Google Inc., the world's most-used Internet search engine:
1. It will buy 100 percent of ZAO Begun a Russian advertising company controlled by Rambler Media Ltd. for $140 million to tap growth in the country's online ad sales.
2. It has signed an agreement with Rambler to display Google ads next to search results using Google's contextual and search advertising technology on Rambler's Web site to benefit from growing ad sales on Russian-language sites.

[Click here for full story at Bloomberg.com]

Expanding in growing markets = quicker income growth