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eMac gives franchisees an e-break

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In a move that could profoundly alter the multibillion-dollar fast-food business, a new Internet procurement site for McDonald's Corp.'s 27,000 franchisees around the globe is almost ready to serve.

The procurement hub is being launched by eMac Digital, an incubator jointly owned by McDonald's and Accel-KKR Internet Co. Significantly, eMac executives confirmed they are also in talks with other fast food companies to participate in the as-yet-unnamed service.

Whether it will be a public, private, consortium-backed or some other type of marketplace, has yet to be determined. What is known is this: The site will go live by mid-2001, allowing McDonald's franchisees to buy everything needed to run their restaurants, ranging from uniforms to spatulas and hamburger buns. Today, most of these items are bought offline by phone and fax.

EMac Digital's hub would be the first to target the fast food restaurant industry, which is among America's largest. The industry has been slow to embrace the Internet in general and b-to-b e-commerce in particular.

Analysts said eMac Digital may be the one company that can successfully entice not only McDonald's franchisees to the Internet, but outside chains as well. "McDonald's has got the strongest franchise system in the entire world," said Joe Buckley, senior managing director-restaurant analyst at Bear Stearns & Co. Inc. "Its relationships ebb and flow but always run deep."

Undoubtedly, the new hub will be presented as a glittering new service from McDonald's for its franchise owners. "If you look at McDonald's itself, it essentially is a service business," said Dennis H. Jones, president-CEO of Accel-KKR. "The purpose of McDonald's itself is to support the franchises."

Indeed, McDonald's supplies its restaurants, some 75% of which are independently owned, with support ranging from advertising and logistics to quality control.

Yet the franchise owners are a shrewd and combative lot who demand much from the corporation. The hub could curry favor with the restaurant owners by allowing them to buy at a discount.

"The objective would be to provide products that could be procured at a lower price," said Jones, adding that the hub's aggregated, real-time purchases could not only speed up buying-a benefit to franchisees-but also reduce costs for McDonald's. However, many of the details about the hub and its capabilities have not yet been determined. Accel-KKR 's Jones referred some questions regarding the participation of McDonald's franchise owners in the hub-for example, whether they would get an equity stake in it-to McDonald's. Executives did not return calls by press time.

Making room at the table

The most ambitious part of eMac Digital's hub is its plan to include franchisees from other fast food restaurant chains.

Jones would not specify which chains are being considered, although presumably they include Burger King Corp. and Wendy's International Inc., the No. 2 and No. 3 chains, respectively. Executives at those companies did not return calls.

EMac Digital has been approached by other fast food chains interested in participating in the hub, Jones said. Until recently, cooperation among these fierce competitors would have been anathema to their executives, who traditionally regard each others' strategies and marketing campaigns with as much enthusiasm as they would an undercooked French fry.

If nothing else, the b-to-b economy has demonstrated that partnering among competitors works-witness Covisint, the e-hub jointly formed by the Big 3 auto makers.

Robert Ball, president of The Franchise Co., a San Bernadino, Calif.-based consultancy, said Burger King and Wendy's would most likely participate if the hub was an independent entity, not directly owned by McDonald's.

No matter what, the hub will be global-it needs to be. More than 60% of McDonald's sales and most of its 15,000 restaurants, are located outside the U.S. The primary challenge will be to get franchise owners to use the procurement site. Nearly all McDonald's franchisees do all their business one way: offline.

"I don't think they are tremendously computer savvy," Ball said. This is particularly so outside the U.S.

Jones is confident that franchise owners will adapt. "We have made a wide attempt to involve the franchisees," he said. "And I think it's been made very clear to us that the franchisees are extraordinarily interested in these services."

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