Discussion in class today turned to profit pools again. This discussion turned me, once more, to looking at when I was a manager with McDonald's in Canada. McDonald's likes to experiment with things and the Canadian extension did it alot while I worked there.
One of the experiments seems the ultimate profit pool example.Someone made a decision to spend around 40K in remodels on most existing stores so that we could sell deli sandwiches. I believe this was in an attempt to compete with Subway and Tim Hortons who both were eating into the QSR market with their fresh sandwich offerings. How does this relate to profit pools? McDonald's was losing money by having parents come into the restaurant and ordering only Kid's meals which are low margin when you include the toy, but go across the street or next door to get their Tim Horton's or Subway sandwiches.
Giving the adults the opportunity to have a non-burger would allow them to spend more money at McDonald's and skip a trip to the competitors. But having parents by the smaller margin kids meal and small margin deli sandwich adds up to a small profit pool. Given that you are spending a fair amount of money to keep the station running (cooler and conveyer toaster) and you need a lot of volume to fill the pool. How do you fill the pool faster when people just aren't eating this delicious offerings? Increase margins on the kids meal, that's how.
I remember, a year into the deli sandwich era, working out that it would take 14 years for the sandwiches to pay for their own existence. How much did this experiment teach McDonald's about profit pools? There are no profit pools playing low margin items off against each other. In other words: there are no deli sandwiches at McDonald's in the US and there will not be in the near future.
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