McD’s strategy
Context: As the lockdown restriction was eased last week, my mother and I went to our farm. We have two patches of farmland that are 5 mins drive from each other. On one farm (we call it old farm) we mainly grow mangoes and on the other (we call it a new farm) we have mainly Melia Dubia species of trees.
This conversation happened while I was driving my mother to our farm,
My mother: Chinmay, all these years it was the middlemen dictating the terms whilst purchasing our farm mangoes. They used to offer very low prices, and on top of that, they were not paying on time.
Me: (In my mind, “Insanity is doing the same thing over and over and expecting different results.” – Albert Einstein)
Mother: But this time good that you took the initiative, we were able to sell most of the mangoes directly to the customers and made a profit.
Me: (again in my mind, that was sales, not profit) Ma… yes, we did make a profit but it was in RED!
Mother: What?
Me: forget it, you didn’t get it.
Mother: Don’t try to act too smart because you have done an MBA. Remember, I am your mother.
Me: (I briefly lifted both my hands in the air and said) I was just talking about numbers.
Mother: Anyways, I am thinking we should plant mango trees in our new farm.
Me: Ma, please do not expect me to take the initiative even next year to sell mangoes as I am not sure if I will be in India or Australia?
Mother: (in a low tone) ok go, do whatever you want, you are all now grown-ups. How can I expect you to be with me during my old age?
Me: (in my mind, typical Indian mother’s emotional blackmail) ok, if we plant more mangoes on the new farm, who will take care of it? Again, you will have to find someone to stay there – then we have to dig a new borewell for water – power supply – new shed to be constructed and the list goes on.
Mother: I have checked with a few local people they said it will not be that expensive.
Me: (I knew the only way to change her mind would be to show a bigger shining object) Ma, I have a better idea.
Mother: What?
Me: Remember, a few years back we went to McDonald’s in Orion Mall?
Mother: yes, they had very few vegetarian options on their menu. And I ordered some sandwich or something that I did not really like. But the fries were ok.
Me: Correct, it was a burger, not a sandwich.
Mother: for me, they are all the same.
Me: Anyways, the point I would like to make is, we cannot order only a burger in McD. They always combine it with fries or cookies and that sugar water.
Mother: Sugar water?
Me: Pepsi or Coke
Mother: Oh… yes, I have seen a video on WhatsApp where they explained why one should avoid drinking them.
Me: Ma, again the point I am trying to make here is, we cannot buy only a burger in McD. The burger is the way to get the customer inside their door. Then, they upsell, cross-sell and bundle other items with it.
I might be wrong but I remember reading some article that had mentioned the profit margin (after deducting overheads like salary, rent, and so on) on a burger is 25-30%
On fries and cookies, it is 2-3 times more. And on Pepsi and Coke, I believe it is more than five times.
I do not think any Mcdonald’s outlet can make a profit just by selling only burgers. They have to upsell and bundle other items.
(I understand McDonald’s business model is more focused on owning real estate but I did not want to complicate the conversation)
Mother: So?
Me: On our farm, mangoes are like burgers. The profit margin is very less. The reason we struggle to even break even is simply that we are not selling any other item that compliments mangoes.
Mother: I used to make mango pulp and mango jam.
Me: Wow! You are a genius!
Mother: I know!
Me: Yes, mango pulp & jam have more profit margin than just selling raw mangoes. They can be like the fries and/or cookies from a profit margin perspective. Also, on the new farm slowly we can consider building a homestay and have it on Airbnb.
Mother: I had given this idea to your father 10 years ago. But, you know he never listens to me. Now, you are telling the same thing.
Me: (in my mind, Chinmay, remember you are talking to your genius mother)
Mother: How about Pepsi & Coke? What do you think we produce on our farm that falls under that category?
Me: hmm… maybe marijuana?
Mother: What’s that?
Me: MEDICAL marijuana.
(I knew my mother cannot relate to marijuana if I’d used the word ‘Ganja’, then I would have got a big tight slap)
Mother: I saw a video on WhatsApp that after Covid there’s a lot of demand for medicinal plants. We should consider growing it.
Me: (with a cheeky smile) Ma, you are a genius
(My mother was calling someone on the phone)
Me: Ma, are you calling Appa (my father) to speak about this idea?
Mother: definitely not! If your father had listened to my ideas then we would have made so much money!
(My mother started talking to someone over the phone. It was her regular kitchen hand who helps my mother when we have family functions at home.)
Mother: Done, she said she will be coming the day after tomorrow to help me prepare the mango pulp and jam. I will have them ready in a few days. You think about selling them.
Me: That’s the difference between an entrepreneur and a wantrepreneur!
(started humming the lines ‘If you’re not busy being born, you’re busy dying.’ – Bob Dylan)
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If you are a business owner, do you know how many of your products and/or services are like burgers?
Do you have products or services that have profit margins like fries and cookies, and/or like Pepsi or Coke?
Or are you busy selling more and more burgers year on year? If yes, then I am afraid you might be running faster and faster just to stay at the same place!
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