MC Donalds Project

VIVEK COLLEGE OF COMMERCE
CHAPTER-1 INTRODUCTION
1.1 COMPANY PROFILE
McDonald's Corporation is the world's largest chain of hamburger fast food restaurants, serving around 68 million customers daily in 119 countries. Headquartered in the United States, the company began in 1940 as a barbecue restaurant operated by Richard and Maurice McDonald; in 1948 they reorganized their business as a hamburger stand using production line principles.
Businessman Ray Kroc joined the company as a franchise agent in 1955. He subsequently purchased the chain from the McDonald brothers and oversaw its worldwide growth. A McDonald's restaurant is operated by a franchisee, an affiliate, or the corporation itself. The corporation's revenues come from the rent, royalties and fees paid by the franchises, as well as sales in company-operated restaurants. McDonald's revenues grew 27 percent over the three years ending in 2007 to $22.8 billion, and 9 percent growth in operating income to $3.9 billion. McDonald's primarily
sells hamburgers, cheeseburgers, chicken, frenchfries, breakfastitems, soft drinks, milkshakes and desserts. In response to changing consumer tastes, the company has expanded its menu to include salads, wraps, smoothies and fruit.
1.2 HISTORY
The business began in 1940, with a restaurant opened by brothers Richard and Maurice McDonald at 1398 North E Street at West 14th Street in San Bernardino, California . Their introduction of the "Speedee Service System" in 1948 furthered the principles of the modern fast-food restaurant that the White hamburger chain had already put into practice more than two decades earlier. The original mascot of McDonald's was a man with a chef's hat on top of a hamburger shaped head whose name was "Speedee". Speedee was eventually replaced with Ronald McDonald by 1967 when the company first filed a U.S. trademark on a clown shaped man having puffed out costume legs.
GLOBAL AND FRANCHISING STRATEGIES OF MCDONALDS PAGE 1
McDonald's first filed for a U.S. trademark on the name "McDonald's" on May 4, 1961, with the description "Drive-In Restaurant Services", which continues to be renewed through the end of December 2009. In the same year, on September 13, 1961, the company filed a logo trademark on an overlapping, double arched "M" symbol. The overlapping double arched "M" symbol logo was temporarily disfavored by September 6, 1962, when a trademark was filed for a single arch, shaped over many of the early McDonald's restaurants in the early years. Although the "Golden Arches" appeared in various forms, the present form as a letter "M" did not appear until November 18, 1968, when the company applied for a U.S. trademark. The present corporation dates its founding to the opening of affranchised restaurant by Ray Kroc, in Des Plaines, Illinois, on April 15, 1955, the ninth McDonald's restaurant overall. Kroc later purchased the McDonald brothers' equity in the company and led its worldwide expansion, and the company became listed on the public stock markets in 1965. Kroc was also noted for aggressive business practices, compelling the McDonald brothers to leave the fast food industry. The McDonald brothers and Kroc feuded over control of the business, as documented in both Kroc's autobiography and in the McDonald brothers' autobiography. The San Bernardino store was demolished in 1976 (or 1971, according to Juan Pollo) and the site was sold to the Juan Pollo restaurant chain. It now serves as headquarters for the Juan Pollo chain, as well as a McDonald's and Route 66 museum. With the expansion of McDonald's into many international markets, the company has become a symbol of globalization and the spread of the American way of life. Its prominence has also made it a frequent topic of public debates about obesity, corporate
ethics and consumer responsibility.
1.3 KEY DATES

1948: Richard and Maurice McDonald open the first McDonald's restaurant in San Bernardino, California. 1954: Ray Kroc gains the rights to set up McDonald's restaurants in most of the country.
GLOBAL AND FRANCHISING STRATEGIES OF MCDONALDS
PAGE 2
1955: Kroc opens his first McDonald's restaurant in Des Plaines, Illinois; he incorporates his company as McDonald's Corporation. 1960: The slogan, "Look for the Golden Arches," is used in an advertising campaign. 1961: Kroc buys out the McDonald brothers for $2.7 million. 1963: Ronald McDonald makes his debut. 1965: McDonald's goes public. 1967: The company opens its first foreign restaurant in British Columbia, Canada. 1968: The Big Mac is added to the menu. 1973: Breakfast items begin to appear on the menu, with the debut of the Egg Mc Muffin. 1974: The first Ronald McDonald House opens in Philadelphia. 1975: The first McDonald's drive-thru window appears. 1979: The children's Happy Meal makes its debut. 1983: Chicken Mc Nuggets are introduced. 1985: McDonald's becomes one of the 30 companies that make up the Dow Jones Industrial Average. 1998: The company takes its first stake in another fast-food chain, buying a minority interest in Colorado-based Chipotle Mexican Grill. 1999: Donatos Pizza Inc. is acquired. 2000: McDonald's buys the bankrupt Boston Market chain. 2002: Restructuring charges of $853 million result in the firm's first quarterly loss since going public. 2003: McDonald's sells Donatos in order to refocus on its core hamburger business.
PAGE 3
1.4 HEADQUARTERS
The McDonald's headquarters complex, McDonald's Plaza, is located in Oak Brook, Illinois. It sits on the site of the former headquarters and stabling area of Paul Butler, the founder of Oak Brook. McDonald's moved into the Oak Brook facility from an office within the Chicago Loop in 1971.
1.5 PRODUCTS
McDonald's
predominantly
sells hamburgers, fries, soft
various
types
of chicken sandwiches and and desserts.
products, French
drinks, breakfast items,
In most markets, McDonald's offers salads and vegetarian items, wraps and other localized fare. On a seasonal basis, McDonald's offers the McRib sandwich. Some speculate the seasonality of the McRib adds to its appeal. Various countries, especially in Asia, are currently serving soup. This local deviation from the standard menu is a characteristic for which the chain is particularly known, and one which is employed either to abide by regional food taboos (such as the religious prohibition of beef consumption in India) or to make available foods with which the regional market is more familiar (such as the sale of McRice in Indonesia). In Germany, McDonald's sells beer.
1.6 FACTS AND FIGURES
McDonald's restaurants are found in 119 countries and territories around the world and serve 58 million customers each day. McDonald's operates over 34,000 restaurants worldwide, employing more than 1.7 million people. The company also operates other restaurant brands, such as Piles Caf. Focusing on its core brand, McDonald's began divesting itself of other chains it had acquired during the 1990s.
The company owned a majority stake in Chipotle Mexican Grill until October 2006, when McDonald's fully divested from Chipotle through a stock exchange. Until December 2003, it also owned Donatos Pizza. On August 27, 2007, McDonald's sold Boston Market to Sun Capital Partners. Notably, McDonald's has increased shareholder dividends for 25 consecutive years,making it one of the Aristocrats. In October 2012, its monthly sales fell for the first time in nine years.
1.7 GLOBAL OPERATIONS
McDonald's has become emblematic of globalization, sometimes referred to as the "McDonaldization" of society. The newspaper uses the "Big Mac Index": the comparison of a Big Mac's cost in various world currencies can be used to informally judge these currencies' purchasing power parity. Norway has the most expensive Big Mac in the world as of July 2011, while the country with the least expensive Big Mac is India (albeit for a Maharaja Macthe next cheapest Big Mac is Hong Kong). Thomas Friedman once said that no country with a McDonald's had gone to war with another. However, the "Golden Arches Theory of Conflict Prevention" is not strictly true. Exceptions are the 1989 United States invasion of Panama, NATO's bombing of Serbia in 1999, the 2006 Lebanon War, and the 2008 South Ossetia war. Some observers have suggested that the company should be given credit for increasing the standard of service in markets that it enters. A group of anthropologists in a study entitled Golden Arches East looked at the impact McDonald's had on East Asia, and Hong Kong in particular. When it opened in Hong Kong in 1975, McDonald's was the first restaurant to consistently offer clean restrooms, driving customers to demand the same of other restaurants and institutions. McDonald's has taken to partnering up with Sinopec, the second largest oil company in the People's Republic of China, as it takes advantage of the country's growing use of personal vehicles by opening numerous drive-thru restaurants. McDonalds has opened a McDonald's restaurant and McCaf on the underground premises of the French fine arts museum, the Louvre. The company stated it will open vegetarian-only restaurants in India by mid-2013.
1.8 CRITICISM
As a prominent example of the rapid globalization of the American fast food industry, McDonald's is often the target of criticism for its menu, its expansion, and its business practices. The Mc Libel Trial, also known as McDonald's Restaurants v Morris & Steel, is an example of this criticism. In 1990, activists from a small group known as London Greenpeace (no connection to the international group Greenpeace) distributed leaflets entitled What's wrong with McDonald's?, criticizing its environmental, health, and labor record. The corporation wrote to the group demanding they desist and apologize, and, when two of the activists refused to back down, sued them for libel in one of the longest cases in British civil law. A documentary film of the Mc Libel Trial has been shown in several countries. Despite the objections of McDonald's, the term "McJob" was added to MerriamWebster's Collegiate Dictionary in 2003. The term was defined as "a low-paying job that requires little skill and provides little opportunity for advancement". In an open letter to Merriam-Webster, Jim Cantalupo, former CEO of McDonald's, denounced the definition as a "slap in the face" to all restaurant employees, and stated that "a more appropriate definition of a 'McJob' might be 'teaches responsibility.'" MerriamWebster responded that "we stand by the accuracy and appropriateness of our definition." In 1999, French anti-globalization activist Jos Bov vandalized a half-built
McDonald's to protest against the introduction of fast food in the region. In 2001, Eric Schlosser's book Fast Food Nation included criticism of the business practices of McDonald's. Among the critiques were allegations that McDonald's (along with other companies within the fast food industry) uses its political influence to increase its profits at the expense of people's health and the social conditions of its workers. The book also brought into question McDonald's advertisement techniques in which it targets children. While the book did mention other fast-food chains, it focused primarily on McDonald's. McDonald's is the world's largest distributor of toys, which it includes with kids meals. It has been alleged that the use of popular toys encourages children to eat more McDonald's food, thereby contributing to many children's health problems, including a rise in obesity.
In
2002,
vegetarian
groups,
largely Hindu and Buddhist,
successfully
sued
McDonald's for misrepresenting its French fries as vegetarian, when they contained beef broth. People for the Ethical Treatment of Animals (PETA), continues to pressure McDonald's to change its animal welfare standards, in particular the method its suppliers use for slaughtering chickens. Most processors in the United States shackle the birds upside down, then run them through an electrically charged water tub to render them unconscious before slitting their throats. PETA argues that using gas to kill the birds (a method known as "controlled atmosphere killing" or CAK) is less cruel. Both CAK and "controlled atmosphere stunning" (CAS) are commonly used in Europe. Morgan Spurlock's 2004 documentary film Super Size Me said that McDonald's food was contributing to the epidemic of obesity in society, and that the company was failing to provide nutritional information about its food for its customers. Six weeks after the film premiered, McDonald's announced that it was eliminating the super size option, and was creating the adult happy. The soya that is fed to McDonalds chickens is supplied by agricultural giant Cargill and comes directly from Brazil. Greenpeace alleges that not only is soya destroying the Amazon rain forest in Brazil, but soya farmers are guilty of further crimes including slavery and the invasion of indigenous peoples lands. The allegation is that McDonald's, as a client of Cargill's, is complicit in these activities.
1.9 ARGUMENTS IN DEFENSE
In response to public pressure, McDonald's has sought to include more healthy choices in its menu and has introduced a new slogan to its recruitment posters: "Not bad for a McJob". (The word McJob, first attested in the mid-1980s and later popularized by Canadian novelist Douglas Copland in his book Generation X, has become a buzz word for low-paid, unskilled work with few prospects or benefits and little security.) McDonald's disputes this definition of McJob. In 2007, the company launched an advertising campaign with the slogan "Would you like a career with that?" on Irish television, outlining that its jobs have many prospects.
In an effort to respond to growing consumer awareness of food provenance, the fastfood chain changed its supplier of both coffee beans and milk. UK chief executive Steve Easterbrook said: "British consumers are increasingly interested in the quality, sourcing and ethics of the food and drink they buy". In a bid to tap into the ethical consumer market, McDonald's switched to using coffee beans taken from stocks that are certified by the Rainforest Alliance, a conservation group. Additionally, in response to pressure, McDonald's UK started using organic milk supplies for its bottled milk and hot drinks, although it still uses conventional milk in its milkshakes, and in all of its dairy products in the United States. According to a report published by Farmers Weekly in 2007, the quantity of milk used by McDonald's could have accounted for as much as 5% of the UK's organic milk output. McDonald's announced on May 22, 2008 that, in the U.S. and Canada, it would switch to using cooking oil that contains no trans fats for its french fries, and canolabased oil with corn and soy oils, for its baked items, pies and cookies, by year's end. With regard to acquiring chickens from suppliers who use CAK or CAS methods of slaughter, McDonald's says that it needs to see more research "to help determine whether any CAS system in current use is optimal from an animal welfare perspective."
1.10 ENVIRONMENTAL RECORD
In April 2008, McDonald's announced that 11 of its Sheffield, England restaurants have been using a biomass trial that had cut its waste and carbon footprint by half in the area. In this trial, waste from the restaurants were collected by Veolia Environmental Services and used to produce energy at a power plant. McDonald's plans to expand this project, although the lack of biomass power plants in the U.S. will prevent this plan from becoming a national standard anytime soon. In addition, in Europe, McDonald's has been recycling vegetable grease by converting it to fuel for its diesel trucks. Furthermore, McDonald's has been using a corn-based bioplastic to produce containers for some of its products. Although industries who use this product claim a carbon savings of 30% to 80%, a Guardian study shows otherwise.
The results show that this type of plastic does not break down in landfills as efficiently as other conventional plastics. The extra energy it takes to recycle this plastic results in a higher output of greenhouse gases. Also, the plastics can contaminate waste streams, causing other recycled plastics to become unsalable. The U.S. Environmental Protection Agency has recognized McDonald's continuous effort to reduce solid waste by designing more efficient packaging and by promoting the use of recycled-content materials.[60] McDonald's reports that it is committed towards environmental leadership by effectively managing electric energy, by conserving natural resources through recycling and reusing materials, and by addressing water management issues within the restaurant. In an effort to reduce energy usage by 25% in its restaurants, McDonald's opened a prototype restaurant in Chicago in 2009 with the intention of using the model in its other restaurants throughout the world. Building on past efforts, specifically a restaurant it opened in Sweden in 2000 that was the first to intentionally incorporate green ideas, McDonald's designed the Chicago site to save energy by incorporating old and new ideas such as managing storm water, using skylights for more natural lighting and installing some partitions and tabletops made from recycled goods. When McDonalds received criticism for its environmental policies in the 1970s, it began to make substantial progress towards source reductions efforts. For instance, an average meal in the 1970sa Big Mac, fries, and a drinkrequired 46 grams of packaging; today, it requires only 25 grams, allowing a 46% reduction. In addition, McDonalds eliminated the need for intermediate containers for cola by having a delivery system that pumps syrup directly from the delivery truck into storage containers, saving two million pounds of packaging annually. Overall, weight reductions in packaging and products, as well as the increased usage of bulk packaging ultimately decreased packaging by 24 million pounds annually.
1.11 LEGAL CASES

McDonald's has been involved in a number of lawsuits and other legal cases, most of which involved trademark disputes. The company has threatened many food businesses with legal action unless it drops the Mc or Mac from trading names.
PAGE 9
In one noteworthy case, McDonald's sued a Scottish caf owner called McDonald, even though the business in question dated back over a century (Sheriff Court Glasgow and Strath kelvin, November 21, 1952). On September 8, 2009, McDonald's Malaysian operations lost a lawsuit to prevent another restaurant calling itself McCurry. McDonald's lost in an appeal to Malaysia's highest court, the Federal Court. It has also filed numerous defamation suits. For example, in the Mc Libel case, McDonald's sued two activists for distributing pamphlets attacking its environmental, labor and health records. After the longest trial in UK legal history, the judge found that some claims in the pamphlet were untrue and therefore libelous. The company, however, had asserted that all claims in the pamphlet were untrue, essentially obliging the judge to publicly rule on each one. Embarrassingly for the company, several of the specific allegations were upheld. McDonald's has defended itself in several cases involving workers' rights. In 2001 the company was fined 12,400 by British magistrates for illegally employing and overworking child labor in one of its London restaurants. This is thought to be one of the largest fines imposed on a company for breaking laws relating to child working conditions. In April 2007 in Perth, Western Australia, McDonald's pleaded guilty to five charges relating to the employment of children under 15 in one of its outlets and was fined A$8,000. Possibly the most infamous legal case involving McDonald's was the 1994 decision in The McDonald's Coffee Case where Stella Liebeck was awarded several million dollars after she suffered third-degree burns after spilling a scalding cup of McDonald's coffee on herself. In a McDonald's American Idol figurine promotion, the figurine that represents "New Wave Nigel" wears something that closely resembles Devos Energy Dome, which was featured on the band's album cover, Freedom of Choice. In addition to the figurine's image, it also plays a tune that appears to be an altered version of Devo's song "Doctor Detroit". Devo copyrighted and trademarked the Energy Dome and is taking legal action against McDonald's.
PAGE 10
1.12 CHARITY
MCHAPPY DAY
Mc Happy Day is an annual event at McDonald's, where a percentage of the day's sales go to charity. It is the signature fundraising event for Ronald McDonald House Charities.In 2007, it was celebrated in 17 the United
countries: Argentina, Australia, Austria, Brazil, Canada,
States, Finland, France, Guatemala etc. According to the Australian McHappy Day web site, McHappy Day raised $20.4 million in 2009. The goal for 2010 is $20.8 million.
MCDONALD'S MONOPOLY DONATION TO ST. JUDE
In 1995, St. Jude Children's Research Hospital received an anonymous letter postmarked in Dallas, Texas, containing a $1 million winning McDonald's Monopoly game piece. McDonald's officials came to the hospital, accompanied by a representative from the accounting firm Arthur Andersen, who examined the card under a jeweler's eyepiece, handled it with plastic gloves, and verified it as a winner. Although game rules prohibited the transfer of prizes, McDonald's waived the rule and has made the annual $50,000 annuity payments, even after learning that the piece was sent by an individual involved in an embezzlement scheme intended to defraud McDonald's.
PAGE 11
CHAPTER -2 GLOBAL CHALLENGES AND STRATEGIES
2.1 THREE CHALLENGES TO MCDONALD'S GROWTH

McDonald's has long been the darling of Wall Street, posting increases in same-store sales for 30 consecutive quarters since early 2003. Even during the depths of the recession in 2008, same-store sales rose by 6.1%. Time and time again, the fast-food global chain has found success by being something to virtually everyone. It tweaked its menu beyond its core offerings of burgers and fries, grabbing all kinds of new customers, from the health conscious with its latest oatmeal breakfast to the cost conscious with its dollar menu items. And watch out Starbucks McCafe's specialty coffee drinks now satisfy those who want more than just a standard cup of Joe. Next Monday, when McDonald's announces its earnings for the last three months of 2010, analysts expect the chain's winning streak to continue. Wall Street expects the chain will end the fourth quarter at about $1.15 per share, up 12% from the same period a year ago. Shareholders have reaped the benefits -- McDonald's stock has risen nearly 40% in the past three years. But how long will the run last? While Wall Street overwhelmingly maintains a 'buy' position on the stock, some analysts are beginning to point to factors that could start to work against the world's largest burger chain. Here are three headwinds to watch for in 2011. RISING FOOD PRICES: Higher food commodity and energy prices have recently pushed up wholesale and retail food prices. The US Department of Agriculture predicts that prices will continue to accelerate during the first half of 2011, leading to a 2% to 3% rise in food price inflation for the year. McDonald's and other big burger chains have largely been unaffected so far, but that might soon change.
PAGE 12
In a report last week, RBC Capital Markets analyst Larry Miller said McDonald's will raise prices by 2% to 3% to help offset its higher food costs. McDonald's declined to comment, citing a quiet period ahead of earnings next week. However, the chain's CFO Pete Bensen told analysts in October that while prices for beef and other ingredients were rising, the burger chain could deal with the increase. But it may be too early to conclude that the Golden Arches will survive the inflationary pressures unscathed. Rising food prices could be a risk for McDonald's, says analyst Andy Barish of Jefferies and Company, even though the chain is largely safeguarded from such volatility because the vast majority of its operating profits, about two-thirds, come from franchises and royalties. While individual franchises might have a harder time dealing with rising prices given the sensitive demand of cost conscious consumers, it could eventually hurt profits of the overall chain if prices rise to levels where it makes it difficult for franchises to expand. Barish doesn't see any major disappointments in sales or earnings this year, but rather a gradual slowing of earnings growth. He expects McDonald's to post 16% earnings growth in 2010, followed by 10% growth in 2011. LIMITATION OF BEVERAGES OVER BURGERS: McDonald's increasingly diverse menu has helped it become the nation's bestperforming restaurant company during the economic slump. The chain realized quickly that consumers have lots of options when it comes to food and drink and they want the option to stop at McDonald's for snack time as opposed to just regular meals. Creative drinks are the product du jour at the chain, with everything from fruit smoothies and specialty coffee drinks. But beverages might only take the company so far. The Wall Street Journal recently cited a company email that disclosed that McDonald's peak lunch-hour business has been flat for five years. And the few analysts taking a bearish view of McDonald's 2011 outlook say real growth of the company's core business -- the burgers and fries part -- is overstated. Howard Penney, restaurant industry analyst with investment research firm Hedgeye and a Fortune contributor, believes the chain has expanded too broadly into
beverages, and the plan will eventually catch up with the company -- helping send U.S. same store sales to negative levels during the second, third and fourth quarters this year. Much of McDonald's success in beverages has come from specialty coffees such as lattes, which are sold at relatively higher prices. Penney says year over year sales growth of the pricier beverages has flattened. "McDonald's makes a lot of its money on fries and beverages," Penney says. "So selling beverages is good but it makes operations more complex. It takes more to make a latte than to pour a Coke. To continue peak service time you have to add labor." RETURN ON INVESTMENT: Some franchises worry that their investments will not pay off, according to an October McDonald's franchisee survey by Janney Montgomery analyst Mark Kalinowski, who maintains a buy rating on the stock. A poll of franchisees shows some concern that corporate demands to redo stores and sell more coffee cost too much and might not pay off in the end. One franchisee writes: "Very concerned about reinvestment issues and whether the Corporation is paying a fair share of McCafe, upgraded technology platforms ..." According to the Wall Street Journal, the McCafe machines cost $100,000 to install, with McDonald's covering just $30,000 of that. The criticism might appear typical for any large corporation with a significant franchise business, but if the concerns by some franchise owners begin to snowball, McDonald's could face a problem that no amount of caffeine can fix.
2.2 MCDONALDS REPORTS UNEXPECTEDLY SHARP DROP IN SALES

McDonalds, the worlds largest fast-food chain, reported a decline in an important global sales figure, the first such drop in almost a decade. Monthly sales in stores open at least 13 months fell around the world by 1.8 percent in October, reflecting the pervasive challenges of todays global marketplace,
PAGE 14
according to Don Thompson, who was appointed chief executive of McDonalds in July. The last decline was in April 2003. Same-store sales fell 2.2 percent in the United States and Europe and declined 2.4 percent in the Asia Pacific, Africa and Middle East regions. Jack Russo, a stock analyst who follows McDonalds at the financial adviser Edward Jones, said Wall Street had been expecting a dip in sales figures from McDonalds, but not such a sharp one. In addition to weak markets around the world, Mr. Russo blamed the calendar. There was one less Sunday and one less Saturday in the month, and those are big sales days, he said. If you make an adjustment for that, sales would have been slightly positive but still decelerating. The chain is also facing stiffer competition from its longtime rivals Burger King and Wendys, which have new owners. Both chains have been adding to their menus and remodeling stores. Burger King is currently featuring a gingerbread cookie shake, while Wendys new Garden Sensations salads are doing well. On Thursday, Wendys announced that its same-store sales in North America were up 2.7 percent in the third quarter, although it reported a loss of $26.2 million, or 7 cents a share, in contrast to a loss of $3.97 million in the same quarter a year ago. At the same time, demographic shifts are favoring chains that traditionally have competed less directly with McDonalds, like Taco Bell and Chipotle. All of the hamburger chains have been working to capitalize on lower bacon prices. Burger King has a White Cheddar Whopper sandwich with bacon, and Wendys is offering a Bacon Portabella Melt sandwich. McDonalds has also been aggressively using social media platforms, like Twitter, to promote its new Cheddar Bacon Onion burger, or C.B.O. It also heavily advertised its Dollar Menu and its Monopoly promotion, but Mr. Thompson said those efforts to drive sales had fallen flat in the face of modest consumer demand.McDonalds stock was down about 2 percent Thursday, while Wendys was up about 3 percent. Burger King was also down slightly.
2.3 MCDONALD'S SUPPLIERS MAKE ADDRESSING GLOBAL CHALLENGES
PROGRESS
McDonald's received more than 400 submissions from 172 different suppliers, making the 2012 selection process the most difficult yet impactful to-date. Supply chain achievements spanned diverse areas including meeting zero waste-to-landfill targets, taking the plastic out of plastic bottles, teaching orphans how to raise chickens, helping employees attain further education, and more. Collectively, they demonstrated the power of sharing responsibility by letting employees lead; sharing experience by applying global lessons locally; and sharing expertise through partnerships.
A panel of executives and external experts, including BSR, Conservation International, Food Animal Initiative (FAI) and World Wildlife Fund (WWF) selected the final 2012 Best of Sustainable Supply winners. These projects were selected based on either measurable results or innovation. "One of our core values is taking seriously the responsibilities that come with being a leader, and using our size, scope and resources to help make the world a better place. Nowhere is that commitment more evident than in our supply chain," said Jose Armario, executive vice president, McDonald's Global Supply Chain, Development & Franchising. "The submissions in this year's report demonstrate that McDonald's supply chain is world class in its ability to provide safe, sustainable, and assured supply of food and products our customers love." Best of Sustainable Supply Report highlights include: Integrated Pest Management
Leading competitive North American potato suppliers (ConAgra Lamb Weston, McCain Foods, J.R. Simplot Company) collaborated to identify and measure the implementation of best practices to reduce pesticide, fertilizer and water use.
PAGE 16
Animal Welfare Training
Gen OSI Inc. (an OSI Group partner in the Philippines) trained government animal welfare officers and meat inspectors in the Philippines. Judges selected this entry as an example of leadership that extends beyond a company's scope of responsibility to drive systemic change. Sustainable Wheat Farming to Reduce Carbon Footprint Fresh Start Bakeries in Europe worked with suppliers to reduce the carbon footprint resulting from the agricultural practices used to produce its main raw material: wheat. This example reflects the highest aspirations of McDonald's Sustainable Land Management Commitment.
Reducing the Use of Fossil Fuels and Supplying Energy to the Community Grupo Melo, a Central American supplier, built and optimized hydro power turbines that produce excess power for the surrounding community during the rainy season.
The majority of any given company's social and environmental impacts are in its supply chain. McDonald's recognition of its suppliers is an important means to highlighting innovative solutions that drive sustainability commitments and encourage leadership within the industry," said Sonal Pandya-Dalal, Conservation International's Senior Advisor, Corporate Leadership Strategies, Center for Environmental Leadership in Business. "McDonald's Best of Sustainable Supply recognizes the importance, and thereby encourages, the development of sustainable initiatives within the supply chain," said Roland Bonney, director of Food Animal Initiative.
McDonald's Armario added, "Leadership throughout our supply chain is increasingly critical as we work to integrate sustainability actions across all areas of our business to help make the world a better place for everyone. We sincerely appreciate all of our suppliers' efforts."
PAGE 17
2.4 GLOBAL GROWTH AND SUCCESS STRATEGIES

Since the start of the company in 1973, McDonalds Corporation began spreading domestically throughout the United States thus establishing its brand recognition. Its initial strategy began by advertising directly to the middle and upper class citizens, as can be seen in countries such as India and China. However, with its many bargain deals on several of its food items, McDonalds began to cater to several people belonging to the lower class. China was McDonalds first global country in which it researched heavily before opening up restaurants. In fact, through globalization and internationalization, McDonalds was able to develop marketing strategies, while at the same time customizing them for different regions in accordance to the cultural and national variations in order to serve specific target markets. The company conducts heavy research in regions where it desires to open locations based upon a few elements, including social, cultural, technological, political, and economic situations. McDonalds key to success is its business mantra of think global, act local. This has allowed the company to achieve financial success in every region it opens its fast food restaurants. Internationally, McDonalds earns high revenues is India. India is one of the toughest markets to enter for foreign businesses, due to the governmental hardships imposed upon by the Indian government. The reason behind such hardships is solely based on the Indian government seeking to protect its domestic businesses, and employment for its citizens. Vasant Vihar, a prosperous residential area in New Delhi, was the initial location that McDonalds opened up its first store in India in 1996. Since then, almost 60 McDonalds restaurants have been opened. One of the most successive strategies that McDonalds uses before opening up its stores is research and development of its foods. Tastes and preferences vary across the globe, therefore, the company thoroughly analyzes the preferred tastes, especially to not offend local cultures. For example, India is a nation where beef is highly unpopular due to religious purposes; therefore, the company had to come up with burgers that were not made with beef, but rather with chicken or lamb. Furthermore, the company had to create flavors that were spicy in order to meet the general taste preferences. In order
to further emphasize the globalization element incorporated by the company, the success strategies include: Emphasis on Local Management Throughout the world, McDonalds prides itself in hiring locals, specifically management in order to gain acceptance into the country by its citizens. The emphasis is based on the think global, act local theme of the company. For instance, the company decided to establish two joint ventures with two local entrepreneurs in New Delhi, who were selected to manage the fast food restaurant. This strategic move allowed the company to gain easy access to the bureaucracy associated with the countrys government. Politically Sensitive Strategy One of the companys major concerns was to develop ways to avoid political confrontation with the Indian government. The other major concern was to be careful of the religious sensitives in India. Almost 80% of Indians do not eat beef, and over 150 million Indian Muslims do not eat pork, therefore, instead of supplying the normal Big Mac, which consists of beef, the company developed the Maharaja Mac that is made of two lamb patties. Other foods were also added to the non-standardized menu including McAloo Tiki Burger, and other common Indian dishes. Employment Opportunity Foreign enterprises are often reluctant to hire locals in their companies, specifically at the managerial positions, however, McDonalds research concluded that in order to survive the brutal Indian government, it would have to hire locals as cashiers, cooks, managers, etc., as well as provide jobs for the countrys agricultural workforce. In fact, McDonalds outsources its products to several Indian companies throughout India. This provides evidence to the Indian government that McDonalds is not only customer friendly, but also employee friendly. Environmental Friendliness In order to achieve a positive reputation, as well as follow local and national policies of a country, McDonalds tries to establish services that are environmentally friendly.
PAGE 19
India is an example where the company provides financial contributions and sponsors several community related activities in order to promote environmental protection. This is primarily seen within schools; thus indicating that the company also supports local schools. Corporate Citizenship In order to better its reputation, this multinational firm gives back to the local citizens in all countries it operates. For example, the company provides several financial donations to local organizations. This is one way to encourage consumers to eat at its restaurants, as it is an incentive that is used to spread the name. Pricing As the value of currencies varies worldwide, McDonalds is often forced to change its pricing strategy in accordance to its target market. For instance, the value of a Big Mac varies worldwide (see Chart 1). In Switzerland, the Big Mac is valued $.60 over the U.S. (price base of the product). However, in China, it is undervalued by $0.60 in comparison to the price of the Big Mac in the U.S. It seems that the company tries to maintain a price range on all its products based on the location, income distribution and it is for this purpose that the company opens up most of its restaurants in major cities such as New Delhi, Shanghai, Beijing, and so on. Its primary goal is to initially attract middle and upper class citizens, as they can afford McDonalds prices. After this, they slowly target the lower middle class citizens. In the United States, for example, the restaurant chain has appealed equally well to all classes ranging from the poor to the upper class; however, its popularity continues to be among the lower, middle and upper middle class.
PAGE 20
Chart 1: The Big Mac Index
2.5 CHALLENGES THE MCDONALDS HAS OVERCOME

The company has grown through several challenges that have come its way, including adapting to its local environments; this is an ongoing challenge that it will face as it continues to open up more restaurants worldwide. However, the biggest challenge the firm faced was in 2001, when the company had hit a low point, specifically with the new fad of eating healthy. This was primarily seen in its home country, the United States. This fad continues today, and as a result, McDonalds became one of the least visited fast food restaurants. In fact, Subway increased in sales due to its low calorie subs that were available. After 2001, the company changed its strategy: instead of opening more stores, the firm decided to change its menu by introducing healthier meals (see chart 2a). In fact, the company took a big dip in profits from 2000-2002.
However, since its introduction of the new menu, consisting of fruit snacks for children, and healthier meals for adults, such as the grilled chicken flatbread, the company has begun to increase its revenues from the previous slow years. This can be seen in Chart 2b, as revenues have begun to increase since 2003. Furthermore, in order to fulfill federal health regulations, as well as meet its healthy requirements to societies in which it operates, the company in 2004, begun to experiment with products. It introduced new oven baked sandwiches, which were healthier and tastier for its consumers. In 2004, as a result of overcoming its challenges, the company increased its shares by 11% to 12%. McDonalds in Australia, for example, introduced the Mc Cafe, its gourmet coffee for its customers. This proved to be a big hit. Chart 2a: Sales Growth (Economist.com, 2004)
PAGE 22
Chart 2b: Total Revenue (Economist.com, 2004)
Another way the company begun to increase profits was to introduce its dollar menu. This became popular very quickly, as it allowed even the lower class citizens to eat at McDonalds, not just in the United States, but in countries such as India and China. With its new campaign, larger sizes or portions were introduced at a dollar value, including sodas, fries, salads, and desserts (Eisenberg, 2002). It seems that during the initial years, when the company first began to spread domestically, there were little worries on healthy eating, however, as times have changed and competition has increased, the company has been forced to seek new and innovative ways to not only increase its shares and revenues, but to also fulfill its obligation to the societies in which it operates in.
PAGE 23
2.6 MCDONALDS ADAPTING TO NEW MARKETS
The McDonald Corporation has been able to cater to the needs of their customers in various markets by adjusting their projects, ads and work processes. As the multibillion dollar company continues with its spread into the international waters, it has to first research, and then develops its products. Its most recent locations have been India and China. As noted earlier, the company thoroughly conducted in-depth analysis among several states in India in order to meet the preference requirements. For instance, in the state of Gujarat, most citizens are vegetarians, therefore, when the company opened up a location there, it introduced veggie burgers, and other traditional Indian dishes, such as samosas, dosa, vada, and so on. This was not the case in New Delhi, where the company introduced several meat burgers, including Maharaja Mac, kabas, etc. (Dash, 2005). Therefore, in an effort to adapt to the local environment, the company created foods that were more in line with the taste buds of the Indians. This can also be seen in countries such as China, Israel, Venezuela, Mexico, and so on. Recently, the company opened up a retail store, Mc Kids, a clothing retail store in China which appeals to children on the basis of toys, casual modern clothing, interactive books and videos. Other stores were also opened in Europe and the United States in 2005 (Peoples Daily, 2004). Furthermore, China is the country where high sales are normally generated; and in an effort to keep up these sales, the company has decided to create a new feel for the Chinese people. The Chinese society usually seeks to be more westernized and in an effort to enhance their image and serve the demands of their clients, the company has placed more of an emphasis on beef, which is a luxury item to some customers. The firm has introduced and heavily advertised beef burgers, such as the Quarter Pounder. In fact, in order to exhilarate the image of eating beef, it has been advertised that eating beef increases sex appeal. This is only one of many such ways that the company is promoting its products through its adaptation strategy of becoming local (Towns, 2006). The latest trend in China has been the growth of fast paced restaurants such as McDonalds, which is second in line with the highest number of restaurants in China of over 120, where the majority of these are located in Shanghai.
This U.S. based company owns more stores worldwide (about 19,700) than it does in its home country, thus indicating its appeal of internalization. In 2005, the company opened its first drive- thru restaurant in China, with the hope of opening up at least 100 drive-thru outlets by the next two years. In fact, the company expects to increase the number of total restaurants to 1,000 by 2008 (Goldkorn, 2005). The companys adaptation to the local environments in which it operates stores and restaurants have allowed it to achieve success, as well as maintain it. In fact, McDonalds success has been largely due to its envelopment of globalization, specifically through its adaptation of the local tastes and preferences. Food, specifically fast-food seems to be a weakness among the human race, especially, when it is cheap, convenient and tasty. Yet, this has also led to the companys downfall in its home country during the healthy fad and the growing concerns of obesity among children and adults that the U.S. is going through. However, the company changed its menu in order to accommodate the much desired healthy lifestyle, as well as fulfilling its obligations to provide healthier meals for children. The healthy menu thus carried on over to its global restaurants, where it was tweaked to meet the tastes of the local people. The research and development conducted by the team experts of McDonalds has allowed for a high growth in the company. In the most recent 2006 report, the company announced that it had grown significantly from the previous year. In the United States, the multinational firm grew by 4.7% and 4.9% in Europe. Its largest growth was in the Asian/Pacific region, the Middle East and Africa with 5.7% (McDonalds.com, 2006). This growth illustrates McDonalds successive strategies of not only adapting to the local environments in which it operates, but also fulfilling societys obligations for healthy lifestyle, donating large funds to various countries and the environment.
2.7 RETAINING LOYAL CUSTOMERS

Experts suggest that if you want loyal customers, then dont stop at customer satisfaction as it takes much more than simply having a few satisfied customers to operate a successful business. The McDonald brand has differentiated itself from competitors not just through customer loyalty, but also through quality, consistency, and standardization to name but a few variables. Author Todd Beck, his article
PAGE 25
entitled Want loyal customers? Dont Stop at Satisfaction,1 states that Basic service delivery is not enough to differentiate an organization in todays competitive marketplace (Beck, 2005). Beck states that managers need to understand which service qualities customers value, and then lead employees toward incorporating these qualities into their daily interactions. The creation of a culture that emphasizes and delivers these values can propel an organization beyond customer satisfaction to the type of loyalty that can drive business growth. According to Beck, over the years, business leaders focus on improving customer service has produced a host of messages, well-worn phrases or value propositions such as anything for the customer and the customer is always right. According to Beck, as customers become increasingly savvy, products more commoditized and choices more abundant, companies are finding that simply meeting customer expectations (i.e., creating customer satisfaction) does not automatically translate into repeat business. Beck writes that Indeed, among customers who switch to a competitor, up to eighty percent report being satisfied before making the move. It is when customers feel loyal to an organization that they behave in ways that help grow the business. Companies that guess at what the customer values often miss. Even those that hire expert consultants to do much of formal research can find that they missed something major in their analysis. Beck states that with all of the lip service paid to customer loyalty in todays marketplace, one would think that organizations understand the value of a loyal customer base. Why then do so few provide the kind of customer service that generates loyalty? The challenge lies in human nature and in the ability of service providers to develop the right attitudes and supporting behaviors (Beck, 2005). In order to deliver service performance that inspires customer loyalty, organizations must first understand what customers really want from a service transaction. Research has shown that, regardless of industry, product, age, gender or location in the world, consumers want the following four qualities Seamlessness Service provider must have the ability to manage service factors that are behind the scenes and invisible to the customer, sparing customers the need to deal with multiple organizational layers or complicated procedures.
Trustworthiness Customers wish to feel they are in capable hands and that commitments will be kept. They want and expect things to be correct the first time. Should something go amiss, they expect a quick and thorough recovery. Attentiveness Customers want to be recognized quickly, politely and with respect. Although this may seem a basic tenet of customer service, attentive service--the quality valued most highly by some customers--tends to be the point at which many organizations fall short (Beck, 2005). We know from experience that if someone tells a story about being ignored by a representative, listeners often respond with their own horror stories, each worse than the one before. Resourcefulness Providers who take a fast, flexible approach to the service interaction appeal to customers desires for resourceful service. If needed, customers also expect prompt and creative problem solving in the service recovery. Once an organization fully understands what customers expect from a service transaction, then the next step is to ensure employees both understand and commit to service improvement goals (Beck, 2005). Beck agrees to generate employee acceptance and to ensure that frontline service delivery reflects the qualities customers value most, organizations should consider the following actions. Communicate According to Beck, impart a vision of customer service to your employees that includes clear and understandable long-term goals. Once employees know the direction the organization plans to take, they are more likely to get behind the effort Empower Encourage employees to exercise the flexibility and judgment that customers expect. Employees need to be able to answer a customers questions and to make routine decisions.
PAGE 27
Guide The key is to hold supervisors and managers responsible for modeling the skills you expect to see in frontline service personnel. Show value The best result is to make sure that employees who understand the pay-off are more likely to support the organizations service improvement goals. The most critical factor is to Help employees see how creating a positive customer experience benefits them, their customers and the organization. Equip Provide the resources your staff requires to succeed, including coaching and training. Evaluate and compensate Establish specific and objective evaluation factors to both measure and encourage behaviors that create positive experiences for customers. Build for the future Recruit, hire and develop employees whose values and priorities are in harmony with the organization. Most businesses, and the people who run them, assume they know what their customers value, when in fact they have never really made finding out a matter of top priority, this leaves organizations vulnerable. Companies that do not determine-and then regularly take the blinders off and re-determine- what their customers value often miss fundamental changes. To determine how customers experience value requires more than mere objective, quantitative research. It also requires fresh, unfettered thinking- and listening to maintain loyal customers. Gathering strategic information on your customer, discovering their unique needs, creating loyalty and guaranteed service program and looking for patterns among former customers are all helpful methods of raising customers loyalty rates. And in the value-added era, when customers are less loyal than ever, retaining customers is putting money in the bank.
PAGE 28
The true customer loyalty approach can be one of the most powerful tools any form of industry can follow which will help build a lasting customer relationship. According to Beck, to foster a loyal customer base, organizational leaders must understand that simply satisfying customers won't differentiate their company from the rest of the marketplace. Instead, leaders must commit to delivering the type of customer service that exceeds expectations and inspires customers to continue doing business with the organization. The McDonalds Corporation has consistently exceeded the expectations of their customers by inspiring them to repeatedly count on the quality and taste of their meals at any McDonalds round the globe.
2.8 RE-BRANDING: THE MCDONALDS STRATEGY

Between 1969 and 2005 McDonalds management strategies were frequently
celebrated on the business pages of The New York Times a testament no doubt to the media relations departments ability to spin the companys mass-marketing efficacy into a much repeated American success story in this very important US newspaper. However, the brand was also often criticized in the news for the labour, environmental and social externalities of its expanding empire. These critiques underscored the most voiced concerns and anxieties: namely problems with youth labour, its encroachment on community values, environmentalism, globalization of culture, and childrens healthy lifestyles. Young workforce
With well over one million employees, McDonalds impact on the workforce has been significant. By 2000, one out of eight Americans had, at some time in their life, worked for this company. As labour was one of the largest expenses and most unpredictable aspects of the McDonalds system every effort was made to rationalize the workforce. Apart from implementing technology to replace human labour, McDonalds decided to use a youthful Workforce. Yet youth labour proved a double edge sword. McDonalds treatment of its young workers emerged as one of its earliest and most challenging public relations concerns. Critics argued that youths lack of experience and eagerness to please leave them vulnerable to corporate exploitation.
McDonalds public relations experts have sought to legitimize its labour practices with articles about employee incentive programmes. They have also been careful to feature happy and helpful servers in their marketing campaigns. The declining teen population in the 1980s led the company to hire more new immigrant workers, seniors, and disabled workers, helping to distance the corporation from the controversy of youth labour. Community and family values McDonalds began its expansion in the late 1960s in medium-sized towns, where its appeals to cleanliness, value for money, friendly service and family looked in step with the mainly white middle classes suburban inhabitants. Yet as the chain expanded into city centres and small towns, it ran up against those for whom McDonalds suburban values provoked a negative register. In 1969, when a black community in Cleveland boycotted McDonalds restaurants, in protest over the corporations denial of franchise opportunities for black people, McDonalds value of mass inclusiveness was challenged. In 1974, the urban residence of Greenwich Village, New York, loudly protested that a second McDonalds chain would threaten local family owned shops, create more traffic congestion, encourage loitering, and contribute to litter problems. Protesters from Hells Kitchen New York, to Belmont in the Bronx, rallied against the opening of McDonalds restaurants. Every location McDonalds failed to secure was more than simply a loss of income; it was a blemish on corporate image. Public relations staff worked tirelessly to turn around community opinion.
Environment issues
During the late 1980s the production of beef to feed the hamburger giant supply chain lead to the charge that McDonalds devastates the rainforest. Animal rights activists were incensed by how McDonalds promotional weight and availability promoted a meat-based diet that resulted in the poor treatment and slaughter of masses of animals. Yet, by and large press coverage reveals that the biggest environmental nightmare for McDonalds is its waste and packaging.
PAGE 30
For 20 years, McDonalds collared its burgers in cardboard, wrapped them in paper and sold them in red cardboard boxes, yet in 1975, the corporation introduced a new Styrofoam package aptly named the clamshell. Apart from being cheap, the clamshell kept the burger hot, the tomato and lettuce cold, and did not show grease stains. Yet, through the 1980s, as landfills dried up and health professionals drew a link between plastic and a suspected carcinogenic, the clamshell became public enemy No. 1. In 1987, grass roots organizations launched a Mc Toxics Campaign encouraging the public to picket, lobby, and boycott McDonalds to stop their use of plastic packaging. In 1989, McDonalds agreed to set up a $16 million national recycling programme for its packaging and become a major purchaser of recycled materials. In a bid for legitimacy, McDonalds joined with three members of the Environmental Defense Fund to research and draft recommendations for changing McDonalds packaging and waste. A year later McDonalds outlined a 40-point plan to reduce its waste stream by 80 per cent, by measures such as trimming the size of its napkins and introducing refillable coffee mugs. The most important point in the plan was the agreement to eliminate foam packaging from its 8,500 US outlets and return to paper wrappings. Fat kids and burger panic In 1985, when the typical Americans diet reached 43 per cent fat, the National Institutes of Health (NIH) announced that daily fat intake be reduced to 30 per cent to avoid health complications. The NIH singled out the fast food industry as a major contributor of fattening foods and asked them to market leaner meats and other foods. By 1986, the American Medical Association had condemned the hamburger as the leading source of saturated fat in the American diet. As of July 1990 fries and hash browns were fired in 100 per cent vegetable oil instead of the beef tallow mixture of much criticism by food campaigners. Low fat milk, new salads, and more fiber rich breakfast options were added to the menu. However, McDonalds was also vulnerable to the charge that it did not warn consumers of the dangers to their health that emerged from a burger rich diet. Following the Center for Sciences 1980s request that fast food restaurants supply ingredient information, in 1986 US Senator Chafee from Rhode Island proposed legislation to require ingredient labelling on packaged fast food as a point of law.
McDonalds countered that the law would increase costs and defeat the purpose, given consumers received the information after the purchase. Fearing state regulation, McDonalds issued a pamphlet to educate individuals about their products, which include calories, protein, carbohydrate, fat, cholesterol, sodium, vitamins and minerals.
In the summer of 1990, McDonalds agreed to post charts outlining the nutritional content of the food in its 8,000+ restaurants. In 1993 to improve the legitimacy of its food information, McDonalds enlisted the support of the American Dietetic Association in its efforts to target food information to children. Special pamphlets were distributed to children in Happy Meals, with accompanying toy food characters and television commercials. However, McDonalds also made claims, such as meat can make it easier to do things like climb higher and ride your bike farther. McLibel Nowhere were the converging discontents which surrounded McDonaldization more clearly revealed than in the 1989 McLibel court case. Against the back drop of aggressive McDonalds expansion in Britain, a group of British Greenpeace activists decided to bring the irrationalities of McDonaldization to public attention distributing a leaflet entitled Whats wrong with McDonalds? that argued McDonalds quest for profit had extended American imperialism into the third world, encouraging labour exploitation and antiunionism, devastated the environment and gulled children into unhealthy diets. The authors pointed to medical evidence that linked: a diet high in fat, sugar, animal products and salt, and low in fibre, vitamins and minerals which describes an average McDonalds meal to fatal illnesses such as cancer and heart disease. The leaflet encouraged consumers to boycott McDonalds, enjoy vegetarian diets utilizing home-grown vegetables and eat wholesome slow food together. Fiercely protective of its corporate image, McDonalds lawyers served writs on the five campaigners claiming libel. The McLibel case became the longest trial in British history, lingering in the courts for ten years as 10 million of McDonalds legal might battled two environmental advocates who defended themselves (with the help of a
vast number of witness supporters) over their rights to publish criticism of the corporation. In 1997, the judge ruled in McDonalds favour on several counts and fined the plaintiffs 96,000. However, the judge also ruled that it was not libelous to claim that McDonalds suppressed labour markets, made deceptive claims about its food, posed a health threat to its long-term customers and exploited children's credulity with its promotions. If anything, the court case only served to illustrate the activists claims that this corporation used its position of global wealth and power to pummel those who would challenge its public image. The end of an empire The cumulative weight of negative publicity, coupled with burger fatigue, and stiff competition from Subway and Starbucks (both of which offered healthy sandwich options) was showing up on the bottom line of the McDonalds Corporation as globalization, competition from other restaurants, and changing tastes and lifestyles began impacting the fast food restaurant market. Between 1998 and 2002, McDonalds experienced declining rates of growth and its actual share of the fastfood market fell more than three per cent. Sales were stagnant since 2000 and plummeted 2.8 per cent in 2002, representing the first ever decline in the corporations history. In Europe too, stiff competition from other fast food chains and anti McDonalds sentiments began to affect the bottom line. After 30 years of phenomenal growth in Britain, McDonalds, who directly controls two thirds of the 1,235 UK restaurants, reported a 61 million decline in their profits from the previous year. But most tellingly McDonalds stock lost about 70 per cent of its value. Moreover, it was now paying the price for its litigious folly. Way back in 1990, McDonalds had announced that it would replace the beef tallow with pure vegetable oil. But a decade later activists found that because the oil change proved costly and altered the flavour of the fries, McDonalds had not followed through on this commitment. In 2000, John F. Banzhaf III, a law professor at George Washington University encouraged his students to work with him to launch court cases on behalf of vegetarians and religious non meat eaters who claimed they had been falsely mislead by the company. In 2002 the judge ruled in favour of vegetarian and religious groups
PAGE 33
and McDonalds was fined $10 million in a master settlement agreement that controlled the terms of pending cases. The turn of the millennia brought the World Health Organizations (WHO) public declarations of a globesity crisis which fuelled criticism of fast food culture. Given its market leader status and super-sized marketing budgets, parenting advocates around the world condemned McDonalds for its excessive marketing to children. McDonalds not only found itself having to defend its right to advertise to children in the UK, but in the USA, crusading lawyer Hirsh brought forward a law suit on behalf of the parents of two overweight teenagers who claimed their children were not aware that McDonalds food was fattening. In this instance, the Judge dismissed the case. Hirsh then filed a revised complaint accusing the fast food giant of making misleading nutritional claims. The complaint not-only included the two original girls, but was filed on behalf of hundreds of thousands of New York state residents under the age of 18 who suffer health problems as a result of eating McDonalds food. McDonalds lawyers contended that it would be impossible to establish whether eating at McDonalds was a major cause of these childrens ailments because genetics, medical conditions and sedentary lifestyles could also be factors. So it is the parents, not the fast food industrys fault if kids are eating improperly and are not active enough. The court agreed with McDonalds noting that it was reasonable to assume that most people were aware that McDonalds food was fattening. However, it was the release of a documentary, which shows filmmaker Morgan Spurlock damaging his health by eating nothing but McDonalds food for a month that became the straw that broke the camels back. Faced with shareholder dismay at its declining profitability, McDonalds once again opted for a public relations turn around. Re-branding The head office decided it was time to stop the decline in global profits and the bleeding of customers to healthier options, and charged its communications specialists to respond to the changing climate of opinion. This McDonalds did with great fanfare devoting billions of dollars in a global corporate re-branding intended to blunt McDonalds association with unhealthy kids.
PAGE 34
Charlie Bell, the CEO of McDonalds whose plan to win approach was a revival of the five Ps of marketing price, people, product, place and promotion. At an operational level, McDonalds stores were to be given new interiors, revamped staff uniforms and packaging, and new menu items. In their UK print and outdoor campaigns, a golden question mark now replaced the Golden Arches explained by the tagline McDonalds. But not as you know it.
Menu changes alone could not achieve the turn around, however, so McDonalds also developed a two-pronged global marketing strategy. They decided to sidestep the child market by targeting teens rather than children, ironically returning to the burgers original fans. Their first ad in the global youth campaign featured, global pop star Justin Timberlake singing its new Im Lovin it strapline. This youth campaign focus unfolded with growing sponsorship of MTV show Advance Warning followed by ads employing hip yet dynamic teen icons like skater legend Tony Hawks to speak to its new youthful targets based around four core areas: music, sport, fashion and entertainment. Future struggles The David and Goliath struggles between the public and corporations are likely to remain endemic to the future politics of the global marketplace. Clearly the defence and maintenance of a corporate legitimacy must now go well beyond spinning positive media stories and promoting happy lifestyles: brand mythmaking today is a multiplex and volatile affair which includes brand advertising, community relations, social marketing, government lobbying, and even litigation as key elements of corporate survival. However, unlike the issues raised by student and environmental advocates, the lifestyle anxieties encountered in the globesity debates arise from the middle class worries of stressed out parents who have trouble childrearing. These are not likely to dissolve in a flurry of lifestyle advertising. So perhaps there remains an accumulated cost of public trust emerging from a deepening parental scepticism towards the corporate ethos of McDonalds.
PAGE 35
CHAPTER -3 FRANCHISING STRATEGIES AND SUCCESS

3.1 THE MCDONALDS FRANCHISING MODEL
When analyzing a McDonalds franchise there are a variety of terms and conditions that come into play with regard to individual store franchise fees. For each McDonalds restaurant, there is an operators lease with an assortment of fees and conditions appropriate to that specific restaurant. A portion of the table of contents from an Operators Lease with various articles is shown as. The Operators Lease is a legal document signed by the franchisee that specifically states the rents and fees for that specific McDonalds restaurant. Each individual store will have a separate and specific operators lease. In order to understand the full magnitude of this lease and its fees, three basic agreements that can originate in the Operators Lease become important and need to be further analyzed and discussed. These three agreements are the Conventional Franchise, the Business Facilities Lease and the Joint Venture. Conventional Franchise The majority of McDonalds franchises are termed Conventional Franchises. This agreement is based on a 20 year agreement between the franchisee and McDonalds Corporation. The Operators lease for a Conventional Franchise usually includes an ongoing service fee of approximately 4 % of the monthly sales/revenues of that particular store. This 4% is used for advertising and marketing. This may also be referred to as the advertising fee. This money is used for TV, radio, internet advertising/promotions, as well as other marketing choices. In addition to this 4%, there is an ongoing monthly fee (percent rent) of 8.5% to 13% of monthly revenues due to McDonalds Corporation for use of the building which is owned by McDonalds. This percent rent is also based on McDonalds Corporation owning the land and building for that particular restaurant. This rent percent can be reduced in rare cases where the franchisee owns the building. There may be a few cases where the franchisee owns both the building and the land, but it appears McDonalds
PAGE 36
Corporation usually owns the land and the majority of buildings where McDonalds restaurants are located. Hence, McDonalds has become one of this countrys largest real estate holding companies; owning thousands of prime commercial locations throughout the United States. An example of estimated monthly fees is found. There are some initial costs, in addition to the service fee and percent rent fee, that are also required to be paid for a conventional McDonalds franchise. These costs include a security deposit (one-time payment of $15,000) and the initial franchise fee of $45,000. These costs are tied to the Operators Lease Agreement for each individual store. These monthly fees and deposits are in addition to the purchase price of the actual restaurant. The purchase price reflects the fair market value paid for an existing restaurant. Although there is no set purchase price, a broad rule of thumb usually sets the purchase price between 50% - 75% of the stores past annual sales for an existing and established store. McDonalds usually requires the franchisee to invest 25% of the negotiated purchase price of a restaurant from personal funds. The Conventional Franchise is further defined in Table III for purchase of a new restaurant and for the purchase of an existing restaurant. Business Facilities Lease (BFL) A second agreement for purchasing a McDonalds restaurant is known as the Business Franchise Lease (BFL). The BFL is a program to help outstanding individuals become franchisees who may lack the funds to qualify under the Conventional Franchise Agreement. The BFL is a program for franchisees lacking the $45,000 for the franchise fee and/or the 25% down of the purchase price of a restaurant. The individual who is selected by McDonalds for the BFL will usually pay a higher base rent rate of 13% or more for 2 - 3 years until the franchisee is able to save-up the required 25% down of the purchase price of the restaurant. Since the BFL is usually purchasing a restaurant owned by McDonalds Corporation, the final sale price will again be determined by the sales volume of the restaurant. The sales price is usually between 42% - 52% of the past years annual sales. The BFL is a popular agreement used for existing outstanding McDonalds employees who wish to become franchisees. The BFL is further defined in.
PAGE 37
Joint venture In the late 1990s, another program was started by McDonalds to enable franchisees to purchase a McDonalds known as the Joint Venture. This program was offered to existing franchisees as a way to rapidly expand with less up front capital expense. Joint Venture franchisees are essentially partners with McDonalds Corporation. For example, if McDonalds had corporate stores that they wished to sell, they may offer them to an existing franchisee as a joint venture. The agreement establishes the payment of a management fee to the franchisee from McDonalds of approximate ly $5,000 per month for each store involved in the joint venture agreement (as many as 10 locations could be involved). In addition, the franchisee may get a percent of the bottom line of each store (40% - 60% - depending on the agreement in place with each joint venture franchisee). Today there is evidence that McDonalds is mainly using the joint venture agreement with franchisees in countries outside the U.S. Additional McDonalds options McDonalds has also located restaurants in various retail stores within the past 10 to 15 years. Locations like Wal-Marts, airports, hospitals and universities that house a McDonalds restaurant are usually called satellite locations, and usually are awarded to existing McDonalds franchisees in the vicinity of the satellite location. The fees and expenses for satellite locations differ from the conventional McDonalds standalone store locations and could serve as the basis for an entirely separate study of this type of franchising fee structure.
Conclusion
Base rents, percent rents, security fees, service fees, franchise fees and royalty fees are all terms used to discuss franchising costs. When looking at the fees and expenses associated with any companys franchise, a good place to begin an analysis is with a comparison to McDonalds Corporation. In this paper we have laid out the 3 basic agreements McDonalds Corporation uses when franchising: the Conventional Franchise, the Business Facilities Lease (BFL) and the Joint Venture with all like associated fees. These three agreements serve as an excellent cornerstone for
analyzing all companies that offer franchising opportunities. Herein, the authors have attempted to elucidate and explain the various terms associated with the numerous fees. One must also recognize McDonalds, as with most franchises, makes money from the monthly expenses (percent rent) to the franchisee based on the restaurants total revenues (and not just profits). Each individual McDonalds franchise is carefully researched prior to completion. McDonalds corporation attempts to reduce its corporate risk exposure as much as possible. If the franchise holder is successful, McDonalds corporation is successful. This concept appears to work very well for McDonalds and equally well for the motivated franchisee. Franchising is not for the weak-of-heart or for someone looking for an easy way to become a small business owner.
In addition to the financial requirements that one must consider when analyzing various franchise opportunities, there are numerous other basic requirements McDonalds mandates of anyone attempting to become a franchisee of McDonaldss. These McDonalds corporate requirements include such restrictions as not allowing partners (operationally or financially) when purchasing a franchise. There are also extensive training programs that franchisees must complete in order to become a McDonalds franchisee. This training can take up to two years with no compensation to the trainee franchisee. A more complete analysis of the many and varied requirements of the McDonalds franchise model definitely should be pursued as an avenue for future research.
3.2 REQUIREMENTS TO OPEN A MCDONALD'S
McDonald's has more than 2,400 owner/operators in the United States, and selling franchises is an important part of McDonald's business strategy. The company is very selective in granting franchises, and prospective franchisees need to demonstrate a solid commitment to McDonald's, as well as possess substantial business or restaurant experience and sufficient liquid assets. Only about 1 percent of applicants are accepted as McDonald's franchisees.
Personal Qualifications
McDonald's has minimum personal requirements that must be met by all potential franchisees. These include business experience at the managerial level and a demonstrated ability to develop and carry out a business plan. A commitment to franchising, an understanding of business finance and a willingness to work on site in the restaurant are also important. Potential restaurant owners must also be willing to train with McDonald's for up to nine months before opening their restaurant, and must demonstrate the ability to manage and motivate employees. Financing
Franchisees must make a down payment when buying a McDonald's restaurant. This is equal to 40 percent of the total cost of a new restaurant, or 25 percent of the total cost of an existing restaurant. This money must be paid using non-borrowed liquid assets, such as cash, securities, bonds or business or real estate equity other than your own home. Before you can be considered by McDonald's, you will need to demonstrate that you have at least $500,000 in non-borrowed liquid assets. McDonald's does not provide financing for its franchisees, so you will also need to arrange additional financing. Application
The process for opening a McDonald's begins with your application to McDonald's Corporation. If you meet the company's initial personal and financial qualifications, you will be asked to spend three days in a McDonald's restaurant, working and learning about the business. If the company is satisfied with your performance during this time, you will be invited to a further interview to discuss training and finance. Training
Before you can open a McDonald's franchise, you must complete a training course run by McDonald's Hamburger University. The training program is conducted in part at the Hamburger University campus in Oak Brook, Illinois, in part online and in part
in individual McDonald's restaurants. Trainees must complete a range of learning objectives before they can qualify to own a franchise. Depending on previous experience, the complete training program can take between nine and 24 months. Training may be taken on a full-time or part-time basis.
3.3 MCDONALD'S FRANCHISE LOCATION REQUIREMENTS

With more than 33,000 locations across the world, McDonald's golden arches are among the most recognizable corporate logos in the world. Millions of people visit the fast food restaurant every day, attracted by convenience, product familiarity, competitive prices and the relative ease of finding a McDonald's location almost anywhere you find yourself. McDonald's began its franchise operations in 1955. For franchise owners, the company has very specific requirements for where a restaurant can be located.
McDonald's Franchises
McDonald's is known around the world for its burgers, fries and shakes. Its huge worldwide success and recognition ensure a McDonald's franchise is a strong candidate to make money. Most franchisees buy existing restaurants from the corporation or from other McDonald's owner/operators. Only a few purchase and build on a new site. As of 2011, 87 percent of McDonald's franchisees own more than one restaurant. All current franchisees are owner/operators; the company does not permit absentee ownership of its franchises. When considering a site, be aware that McDonald's usually will give preference to a proven franchisee over a new one when awarding select, demonstrably successful sites. Location Requirements
The location of each unit is a major element of its potential success. For that reason, the company keeps a close watch on where its stores can be located. The ideal site for a stand-alone restaurant will be 50,000 square feet, although units have been developed on both smaller and larger sites. A corner location with the option to put up
signs visible from two major streets is considered optimal, as is a site near a major intersection with traffic signals. Ample parking space is required and must meet all applicable local parking codes. Size and space requirements are adapted for mall, airport and some downtown locations. Facility Considerations
Your McDonald's location will have to meet stringent inspections to ensure its food preparation, storage and counter areas are safe, clean and sufficiently large to meet client demand. The seating area is subject to safety and health inspections, and will be reviewed in terms of traffic flow and maximum capacity. Each location is required to have restroom facilities for males and females. Drive-through locations must meet local traffic and safety requirements, including clear markings for drive-through lanes and vehicle size restrictions. Additional space is required for restaurants at which the franchisee wants to have a McDonald's Play Place. Space requirements vary depending on whether the play area is inside or outdoors. Financial Requirements
Because of its international name recognition and record of success, purchasing a McDonald's franchise requires a major financial commitment. The franchise fee alone is $45,000, with the total investment required ranging between $1 million and $2 million, according to Entrepreneur Magazine. The term of the franchise agreement is typically 20 years, at which time it can be renewed. McDonald's requires potential investors to demonstrate a minimum of $500,000 in non-borrowed liquid assets to even be considered for a franchise. The down payment is typically 25 percent of the total cost to purchase an existing restaurant and 40 percent for a new restaurant. Other fees include annual service fees and rental costs.
PAGE 42
3.4 THE INITIAL MCDONALD'S FRANCHISE FEE COVER
The Secret Recipe Not only does your initial franchise fee buy you access to all of McDonald's recipes, but it gives you access to the company's successful business plan. Think of your franchise fee as insurance. Instead of worrying about how much garlic to use, you can relax knowing that your burgers will be exactly what your customers are looking for. In addition, McDonald's corporate takes the guesswork out of your location, your decor and image and your procedures. Instead of paying a team of consultants to help you plan and design a start-up, your franchise fee pays for a package with proven results. Marketing: Opening with Instant Name Recognition
If you were to open a restaurant on your own, without the support of a franchise, more than half of your initial battle would be reaching customers and creating a name for yourself. Your burgers might be a thousand times better than those served by McDonald's, but if no one tastes them you cannot make a profit. Your initial franchise fee helps you circumvent that challenge by including your restaurant in a chain with the advantage of instant name recognition. It gives you a legal right to use the McDonald's logo and branding materials and the benefits of years of successful advertising that guarantees customers will recognize your business as they drive past. Consistency: Meeting Customer Expectations Every Time
A McDonald's franchise offers its owner more security than many other new business ventures because of its long-standing successful track record and the company's scrupulously strict standards. Customers know that if they drive through a McDonald's while on vacation across the country, they will receive an identical burger to the one they would have been served in their local restaurant. This kind of consistency requires substantial corporate supervision, which is paid for by your franchise fees and dues. A substantial portion the training provided to franchise owners is devoted to the recipes and standard business practices that ensure high
levels of consistency across the chain. Franchise fees pay for the team of people that not only support and train new owners but also supervise their efforts. Training: Ensuring Your Ability to Successfully Meet McDonald's Standards
A study reported in Small Business Trends found that a significant portion of small businesses fail because their owners lack the experience and knowledge to create something that can compete with existing businesses. McDonald's enhances the competitiveness of its franchisees by providing extensive training. Each potential franchise owner attends an intensive nine-month training program, the cost of which is partially offset by your initial franchise fee. None of your living or travel expenses come out of your fees, but some of the actual costs of training do. Your fees also pay for ongoing corporate support.
3.5 CONDITIONS UNDER WHICH A MCDONALD'S FRANCHISE AGREEMENT CAN BE TERMINATED

"Entrepreneur" magazine rated McDonald's as the third-best franchise to launch, but it can be expensive, costing as much as $1.9 million in 2011. With 12,465 United States franchises, and more than 30,000 restaurants worldwide, McDonald's is one of the most well-known brands in the world. Managing a franchise for the company that brought the world golden arches, Happy Meals and hamburgers is a significant undertaking. However, under certain conditions, a McDonald's franchise agreement can be terminated by the company. History
Ray Kroc is often credited with founding McDonald's, however his idea was hatched from the work of two brothers in California, Dick and Mac McDonald, who owned a popular hamburger stand in California. Convinced that the brothers' business idea could be expanded and applied elsewhere, Kroc persuaded them to go into business
PAGE 44
with him. The first McDonald's restaurant opened in 1955 and the first franchise was sold that year. Franchise Agreement
Most McDonald's restaurants are owned by independent operators who enter into a franchise agreement with the company. Franchisees must have a business background and the capital required to open a restaurant. "Entrepreneur" listed McDonald's restaurant startup costs from $1,068,850 to $1,892,400. Franchise agreements are for 20 years and include a number of standards and legal requirements that franchisees must follow, including adhering to menu items, employee training, and the use of company products, such as soft goods. McDonald's has terminated franchise agreements for a variety of infractions. Mc Victim's Rights
In 1972, Joan and Fred Fiore opened their first McDonald's restaurant in Long Island City, N.Y. Eventually, the Fiores had five restaurants in that area. In a letter to the Federal Trade Commission, Joan Fiore outlined how McDonald's began a defranchise process that commenced just before the couple's 20-year franchise agreement was to end. The Fiores claimed that McDonald's devalued one of their restaurants because no double-drive through was present, costing the couple $75,000 and forcing them to sell off all five restaurants. Effectively, the franchise agreement was terminated because the Fiores did not make mandated improvements to one or more stores. Financial Difficulties
In 1993, a pair of Mississippi McDonald's restaurants were relinquished by its owners with one restaurant returned to McDonald's and the other restaurant surrendered to the Internal Revenue Service to cover unpaid taxes. In a 1995 suit, McDonald Corporation v. Watson, the hamburger chain alleged that the two defendants had difficulty managing their restaurants and "were unable to honor their financial obligations to McDonald's in a timely fashion." McDonald's cited several material breeches to the McDonald's agreement that took place with subsequent notice served
by the company to the franchisees of its intent to terminate the franchise agreement. McDonald's sued for damages as well as for "trademark infringement, rents, service fees, repair costs, and attorneys' fees." State Regulations
A McDonald's franchise may be affected by where it is located, as some states regulate the sales of such franchises. The Federal Trade Commission outlines the steps that must be taken before a franchise can be sold. In some states, disclosure and registration also is required, with state officials reviewing such transactions before they can be approved. State intervention can make it more difficult to establish a new franchise, but it could also protect the franchisee who might be pressured to giving up his restaurant.
3.6 ADVANTAGES AND DISADVANTAGES OF A MCDONALD'S FRANCHISE
McDonald's has been a leader in the fast-food market for decades, boasting one of the U.S.s most memorable brands, products and mascots. Owning a McDonald's franchise can be safer than lesser-known franchises, since the McDonald's name and operational model comes packaged with its own legion of loyal customers and industry-best practices for restaurant success. Significance Owning a franchise is a dream come true for many entrepreneurs. A franchise store such as McDonald's can help business owners to achieve financial independence by getting on board with an international powerhouse that can almost guarantee a certain degree of success. History The McDonald's brand began in 1940 when two entrepreneurs in San Bernardino, California, open the doors of McDonald's Bar-B-Que. In 1948, the pair eliminated the barbeque options, slimming the menu down to focus on hamburgers, soft drinks
and potato chips. Over time, McDonald's has grown to be one the world's largest corporations, with outlets in at least 119 countries. Benefits Franchise organizations eliminate a great deal of the risk that most small business owners face, since franchises come with financing options, building and training assistance, marketing assistance and detailed methodologies that have been proven successful on the front line for years. Franchisees are required to meet stringent upfront requirements for capital contributions and management experience, improving the chances of success even further. Warning A wide range of business types operate under the franchising model. Fast-food franchises, in particular, may not always be the best choice for a franchise agreement. Fast-food companies such as McDonald's have been targeted in a battle against what has been termed the obesity epidemic, casting McDonald's outlets -- along with their owners -- in a highly negative light in the media and their communities. McDonald's and its peers respond to this negativity by attempting to add healthy options to their menu, but the stigma is likely to linger. Process The process of opening a McDonald's franchise can be challenging, but McDonald's will assign you a franchise representative who will walk you through the process step by step. Begin the franchising process by reviewing the information on their website under Franchising at AboutMcDonalds.com and setting up an appointment with a representative. The representative will walk you through the process of making sure you meet all of the requirements, selecting a site, building or purchasing a store, setting up your store and hiring your first employees, as well as helping you to obtain any necessary licenses and permits for your state and community.
PAGE 47
3.7 MCDONALDS FRANCHISE IN INDIA REDESIGNS AND REPRICES TO WOO MORE CUSTOMERS.
Stung by a consumption slowdown and cut-throat competition from other quickservice chains, Big Mac is trying hard to give customers more reasons to come to its stores. So its latest India menu now comprises a differential pricing strategy and better in-store experience. While Vikram Bakshis Connaught Plaza Restaurants, which has a joint venture with McDonalds and has rights for the north and east, cut prices by 6-15 per cent from August 1 to boost sales, Hardcastle Restaurants, a development licensee of McDonalds which runs West and South India operations, has refrained from doing so. When customers are feeling the pressure of inflation from all sides, we thought it is a good time to rationalise prices, says Bakshi. He claims the chain has seen 10 per cent increase in sales, though it has taken a hit of 40 basis points in its margins after it cut prices. We think 10 per cent growth is far superior than a 40 basis points hit on margins.
Bakshi may have a point as early this year, Pizza Hut, run by Yum Restaurants India, launched the Rs 29 pizza and KFC added two snacker burger and new beverage Krushers Frappe to its Streetwise Menu which starts at just Rs 25. But Hardcastles Amit Jatia has a different take. We do not need to reduce prices as we are seeing a strong comparable sales growth in our stores in the south and west. We believe consistency in offering everyday low value has paid off for us, says. Doesnt such differential pricing create confusion in the minds of consumers? Jatia does not think so. Anyway, different states have different taxes which make prices different. The consumers perception of value is also different, he adds.
Even retail consultants such as Devangshu Dutta, chief executive, Third Eyesight, see logic in the move. Firstly, in India, McDonalds has two JVs with separate P&Ls so the opinions of the partners in their respective regions would have more weight
PAGE 48
than a simple franchisees would. Secondly, local relevance of product mix and pricing is a key driver of success in all retail products. Besides pricing, McDonalds is also experimenting with different formats to woo customers. While Jatias Hardcastle is looking at bigger restaurants of 4,000 sq ft , Bakshi recently launched smaller-sized remote kiosks which are within three to four kms of a mother store and located at metro stations, hypermarkets and high streets. While Hardcastle has around 35 kiosks and 26 drive thrus, it plans to have 25-30 kiosks and a similar number of drive thrus in the next two-three years. It plans to open 35 to 40 restaurants this year. McDonalds is also opening new stores and revamping the existing ones under new designs to make them more appealing. So you have cushioned bar stools, plush LED lights and POS/EDC terminals from the earlier stainless steel furniture and dim yellow lightings. We have learnt that design has to keep up wi th consumer demands, says Jatia. Being modern and contemporary also led McDonalds to increasingly accept credit cards at almost all its new outlets. Experts, however, say the improvement of McDonalds stores should have happened much earlier. QSRs, which focus on coffee, have overtaken McDonalds. There is no doubt that McDonalds needs to look contemporary, soft and modern with cutting edge, says Harish Bijoor CEO of Harish Bijoor Consults Inc. Even for Shripad Nadkarni, founder director, MarketGate Consulting, a brand consulting firm, McDonalds stores had begun to look dull for some time now. One of McDonalds biggest successes is understanding the Indian palate. They draw on glocal products which have been a huge success for them. However, where McDonalds was lacking was in-store experience. Their stores needed improvement. It now seems the in-store experience is moving along the consumer preferences, says Nadkarni. When compared to its peers like Subway and KFC, McDonalds also has to keep it s target audience in mind while planning the in-store experience. Subway caters to an
adult audience, KFC looks to focus mostly on non-vegetarians while McDonalds is about family and kids. Subways appeal is more towards a mature consumer segment while McDonalds is more about family time, says Nadkarni. Needless to say, McDonalds new stores offer ample space for kids play area, thereby tapping its consumers family time. The chain will first renovate those that are more than 10 years old. For the rest, it will adopt a mini-market approach. If we have five stores in the same area, then well partially renovate all of them so that some consistency is managed in the design, Bakshi says.
Tags: hardcastle restaurants, connaught plaza restaurants, mcdonalds franchise in india, mcdonalds india franchise, mcdonalds india franchise cost, mcdonalds india franchise investment.
3.8 THE SUCCESS OF THE MCDONALD'S FRANCHISE

The success of McDonald's is the business equivalent of the American Dream. While McDonald's was not the first franchise business, it has possibly become the premier example of the business model. With roots that trace back to a single drive-in started by a pair of brothers, Dick and Mac McDonald, in Southern California, McDonald's has grown to a network of well over 30,000 locations in more than 100 countries. So how did the chain grow from a single restaurant into the expansive corporation it is today? It's not a question that can be answered concisely because McDonald's is firstclass in every segment of its operation. With that in mind, this article focuses upon three of the characteristics which stand out when speaking about the success of McDonald's: consistency, innovation and resiliency. Consistency It doesn't matter if you're visiting a McDonald's in California or Connecticut, America or Australia you're going to have a similar experience wherever you are. This highlights Ray Kroc's vision for McDonald's from the beginning. Kroc was a salesman from Illinois who ventured to San Bernardino, California in 1954 when he noticed a larger than normal order for the milkshake multi-mixers he was selling came in.
When he arrived in Southern California, he was intrigued with what he witnessed a restaurant that was efficiently serving a large number of customers who seemed pleased with the food they were receiving. Sensing a business opportunity, he made a proposal to the McDonald brothers to begin franchising their restaurant concept, which the brothers eventually accepted. Kroc opened his first McDonald's in 1955 in Des Plaines, Illinois. Quality, Service, Cleanliness and Value was Kroc's motto. His belief in this motto was so strong he went on to found a training school, Hamburger University, in 1961 whose curriculum is based upon the four concepts, as well as lessons he had learned from his initial years in operating the franchise. Consistency, of course, is the lynchpin of any franchise system and Hamburger University has systematically taught future franchisees how to run a McDonald's restaurant the way Ray Kroc envisioned.1 Customers know what to expect and can take comfort in that knowledge when making a decision on where to eat. These efforts towards process repetition and efficiency not only set the basis for McDonald's success from the standpoint of customers' expectations, but also help McDonald's stay on top in a culture where producing at a quick pace is commonly expected. Innovation At first, the characteristics of consistency and innovation seem to contradict one another. But in fact, they work together to allow for McDonald's continued growth. Staying consistent on the core components of your business doesn't mean the products you sell, or even the way you deliver them, have to stay the same. It's a delicate balance. However, if you take the necessary steps, and put the work in ahead of time, you can tweak your product without causing disruptions, and potentially better serve your customers. Innovation stemming from responsiveness to customers and franchisees has played a big role in McDonald's fending off stagnation over the years. For example, in 1975 a group of potential McDonald's customers had a problem: at that time, soldiers in a certain locale weren't permitted to get out of their cars while wearing their fatigues. After learning of this problem, McDonald's came up with a solution: add a drive-thru. The first McDonald's drive-thru was located near military base Fort Huachuca in Sierra Vista, Arizona to serve the soldiers with additional drive-thru locations in Georgia and Oklahoma City soon following.
In addition, McDonald's product offerings have evolved over the years alongside the tastes of their customers thanks in part to some observant and innovative franchisees. A few examples of products that were introduced after being developed by McDonald's franchisees or owner/operators are:

Filet-O-Fish Big Mac Hot Apple Pie Egg McMuffin McFlurry
These menu innovations (along with items developed in their test kitchen) have allowed for McDonald's to hold product offerings for all meal times, and the snack periods that fall in between, allowing for greater profitability. But McDonald's takes great care not to effect the consumer experience when a new item is introduced. As McDonald's CEO James Skinner said in a 2010 interview with CNBC, [McDonald's doesn't] put something on the menu until it can be produced at the speed of McDonald's. Resiliency Though the trajectory for McDonald's has been primarily upward throughout its existence, the company has had to weather several challenges and controversies. For decades, McDonald's has had many lawsuits directed at them for various issues, and has been the subject of a large amount of negative press. What does McDonald's do combat this negativity? It appears part of their strategy entails acknowledging the concern, and then dedicating resources in-house to staying on top of the issue as the following examples illustrate. Many of the challenges McDonald's has faced over the years are related to health concerns, particularly related to children. In response to these concerns, McDonald's formed the Global Advisory Council (GAC) in 2004. The GAC is an international team of independent experts assembled by McDonald's to provide us with professional guidance in the areas of nutrition and children's well-being.4 Several additions to their menu items have come in answer to critics' and consumers' desire for healthier choices.
PAGE 52
Some examples of these choices include an increased variety of salads, fruit and maple oatmeal, and the option of being able to order a Happy Meal with apple dippers and apple juice or 1% low-fat milk as the drink. In addition, McDonald's was one of the first fast food restaurants to provide nutrition facts on their packaging, beginning in 2006.
When it comes to sustainable environmental practices, activists have been raising concerns over McDonald's policies for decades. In the mid-1980s, McDonald's began facing one of its staunchest challengers in the activist group London Greenpeace (not affiliated with the international Greenpeace organization). In a leaflet entitled What's Wrong with McDonald's? the group alleged that the food that McDonald's served was bad for people's health and that actions used to produce their food products and packaging contributes to the destruction of rainforests, among other things.5 In response, McDonald's formally established a Global Environmental Commitment in 1990 that outlines the steps they have taken to reduce solid waste, conserve and protect natural resources, along with encouraging others to be accountable for their actions.6 One of results of this commitment is that currently 82% of McDonald's consumer packaging is made from renewable materials.7 But, McDonald's did take a big PR hit through the actions of members of the London Greenpeace group that is well documented by the Mc Libel case and subsequent accounts of the litigation. In spite of these and additional controversies, McDonald's ranked in the top 10 overall, and number one in food services, in CNNMoney.com's survey of the World's Most Admired Companies for 2011.8 How can McDonald's turn these tribulations into bumps in the road instead of them have a devastating impact on business? Part of the reason McDonald's can be resilient when they are challenged is an established rapport within the community. When controversies arise, having goodwill with consumers can help any company weather the storm. Ways McDonald's cultivates goodwill with consumers include their involvement in youth sports programs and charity programs such as Ronald McDonald House charities. Very few companies will ever come near the magnitude of operation McDonald's has achieved. However, the lessons the corporation showcases are on display to be learned by entrepreneurs striving to make their company the best it can be.
PAGE 53
The success of McDonald's can be attributed to many more factors that have been discussed in this article, but these are three which have contributed heavily to it. Here are some takeaways from the discussed factors that can be applied to virtually all businesses:
Developing strong, efficient processes and procedures and remaining consistent on them allow for businesses to develop consumer confidence in the brand.
Having the foundation of consistent processes allow businesses the flexibility to innovate and adapt to consumers' concerns, and improve the brand with minimal disruption.
Problems and downtimes will happen in business. Having an established rapport with consumers can help businesses be resilient when difficulties arise.
PAGE 54
CHAPTER -4 CONCLUSION
McDonalds is one of the largest fast food companies in the world. They continue their path for success by keeping their consumers in mind regarding their product selection as well as their prices. They encourage their employees to do a good job, usually promote from within, and offers several scholarships to encourage education. Though McDonalds is a centralized, wait and see company they find ways to use technological products that will increase their productivity, service, and sales, everywhere from using the Nintendo DS to train staff to suing Mew POS touch screen registers. McDonalds will certainly be around for plenty more years to come. McDonalds has been successful in operating within the food service industry through efficient strategies and quality standards which enables them to gain competitive advantage. As evidenced by its international market growth, McDonalds has already been efficient in gaining entry even in the most challenging markets like Britain. Through its strong sense of quality service and customer satisfaction, McDonalds was able to offer its products to the Britain market. Products were modified to suit the British taste and preferences; affordable prices were implemented; effective promotions and offers were done. These are some of the strategies involved in the companys business strategy which allowed McDonalds to gain the Britain support. Despite these successes, the company should take into consideration the growing level of competitiveness in the food service industry. In Britain, several foreign fast food chains offering similar products are also being supported by the Britain consumers. Constant strategic change is then necessary to ensure that the company would sustain their competitive advantage. In conclusion, McDonalds has been successful because of the value the company gives for its customers. Hence, despite the controversial beginning of McDonalds in Britain, the company managed to adapt to its peoples cultural needs. Indeed, McDonalds is a learning organization, one that is willing to learn and open to change.
PAGE 55

MC Donalds Project

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

MC Donalds Project

Uploaded by

Copyright:

Available Formats

VIVEK COLLEGE OF COMMERCE

VIVEK COLLEGE OF COMMERCE

ethics and consumer responsibility.

1.3 KEY DATES

GLOBAL AND FRANCHISING STRATEGIES OF MCDONALDS

VIVEK COLLEGE OF COMMERCE

GLOBAL AND FRANCHISING STRATEGIES OF MCDONALDS

VIVEK COLLEGE OF COMMERCE

sells hamburgers, fries, soft

of chicken sandwiches and and desserts.

drinks, breakfast items,

1.6 FACTS AND FIGURES

VIVEK COLLEGE OF COMMERCE

1.7 GLOBAL OPERATIONS

VIVEK COLLEGE OF COMMERCE

VIVEK COLLEGE OF COMMERCE

largely Hindu and Buddhist,

1.9 ARGUMENTS IN DEFENSE

VIVEK COLLEGE OF COMMERCE

1.10 ENVIRONMENTAL RECORD

VIVEK COLLEGE OF COMMERCE

1.11 LEGAL CASES

GLOBAL AND FRANCHISING STRATEGIES OF MCDONALDS

VIVEK COLLEGE OF COMMERCE

GLOBAL AND FRANCHISING STRATEGIES OF MCDONALDS

VIVEK COLLEGE OF COMMERCE

countries: Argentina, Australia, Austria, Brazil, Canada,

MCDONALD'S MONOPOLY DONATION TO ST. JUDE

GLOBAL AND FRANCHISING STRATEGIES OF MCDONALDS

VIVEK COLLEGE OF COMMERCE

CHAPTER -2 GLOBAL CHALLENGES AND STRATEGIES

2.1 THREE CHALLENGES TO MCDONALD'S GROWTH

GLOBAL AND FRANCHISING STRATEGIES OF MCDONALDS

VIVEK COLLEGE OF COMMERCE

VIVEK COLLEGE OF COMMERCE

2.2 MCDONALDS REPORTS UNEXPECTEDLY SHARP DROP IN SALES

GLOBAL AND FRANCHISING STRATEGIES OF MCDONALDS

VIVEK COLLEGE OF COMMERCE

VIVEK COLLEGE OF COMMERCE

2.3 MCDONALD'S SUPPLIERS MAKE ADDRESSING GLOBAL CHALLENGES

GLOBAL AND FRANCHISING STRATEGIES OF MCDONALDS

VIVEK COLLEGE OF COMMERCE

Animal Welfare Training

GLOBAL AND FRANCHISING STRATEGIES OF MCDONALDS

VIVEK COLLEGE OF COMMERCE

2.4 GLOBAL GROWTH AND SUCCESS STRATEGIES

VIVEK COLLEGE OF COMMERCE

GLOBAL AND FRANCHISING STRATEGIES OF MCDONALDS

VIVEK COLLEGE OF COMMERCE

GLOBAL AND FRANCHISING STRATEGIES OF MCDONALDS

VIVEK COLLEGE OF COMMERCE

Chart 1: The Big Mac Index

2.5 CHALLENGES THE MCDONALDS HAS OVERCOME

VIVEK COLLEGE OF COMMERCE

GLOBAL AND FRANCHISING STRATEGIES OF MCDONALDS

VIVEK COLLEGE OF COMMERCE

Chart 2b: Total Revenue (Economist.com, 2004)

GLOBAL AND FRANCHISING STRATEGIES OF MCDONALDS

VIVEK COLLEGE OF COMMERCE

2.6 MCDONALDS ADAPTING TO NEW MARKETS

VIVEK COLLEGE OF COMMERCE

2.7 RETAINING LOYAL CUSTOMERS

GLOBAL AND FRANCHISING STRATEGIES OF MCDONALDS