CASE STUDY

BY PREETAM PEEUSS

McDonald’s

AT THE RECEIVING END!

ABOUT McDonald’sFOUNDED:

• McDonald’s BAR-B-Q, May 15, 1940

in San Bernardino, California

• McDonald's Corporation, April 15, 1955

in Des Plaines, Illinois

HEADQUARTERS:

Oak Brook, Illinois

CHAIRMAN: Andrew J. McKenna

PRESIDENT & CEO: Don Thompson

TOTAL EMPLOYEES: 1,800,000 (as in 2013)

MASCOT:

Ronald McDonald

World's largest chain of hamburger fast food restaurants:

118 countries – 34,000+ locations – 68 million+ customers daily

ABOUT McDonald’s• McDonald’s is committed to providing the highest quality food and superior service, at a great

value, in a clean and welcoming environment.

• At the restaurant level, McDonald’s is focused on energy conservation, sustainable packaging, and

waste management.

• GOAL:

Quality, service, cleanliness and value (QSC&V) for

each and every customer, each and every time.

• BUSINESS MODEL:

“Three-legged stool” of owner/operators, suppliers,

and company employees.

ABOUT McDonald’s

ABOUT McDonald’s

McDonald’s MENU

McDonald’s MENU

HISTORY OF McDonald’s• Richard & Maurice McDonald built hamburger stands

with golden arches in California.

• 15¢ hamburgers were very popular.

• Ray Kroc, a milkshake machine salesman, bought

world franchise rights from them and spread the

golden arches around the globe.

• Kroc partnered with the brothers, and within a few

years turned their small idea into the huge franchise

that would become the McDonald's Corporation.

• Kroc became frustrated with the brothers' desire to

maintain only a small number of restaurants.

• In 1961, he purchased the company from the

brothers for $2.7 million.

Ray Kroc

The original staff of the

McDonald's brothers hamburger restaurant

HISTORY OF McDonald’s

The First McDonald’s

ACROSS THE GLOBE• McDonald’s depends on its overseas restaurants for

revenue.

• Annual revenues for 2012 – $27.5 billion

32%

40%

22%

6%

REVENUE GENERATEDUS

Europe

APMEA

Other Countries

• It is one of the world’s best known brands.

ACROSS THE GLOBE

FINANCIAL REQUIREMENTS/DOWN PAYMENT

• Initial down payment

new restaurant – 40% of the total cost

existing restaurant – 25% of the total cost

• The down payment must come from non-borrowed

personal resources.

• A minimum of $750,000 of non-borrowed personal

resources.

INTERNATIONAL FRANCHISING

FINANCING

• Remaining balance of the purchase price may be

financed for a period of no more than 7 years

• McDonald’s does not offer financing

ACROSS THE GLOBE

ONGOING FEES

• Service fee: a monthly fee based upon the restaurant’s sales performance (currently a service

fee of 4.0% of monthly sales).

• Rent: a monthly base rent or percentage rent that is a percentage of monthly sales.

INTERNATIONAL FRANCHISING

ACROSS THE GLOBE• Spread American culture in East Asian countries.

• Clean restrooms set new standards in Hong Kong and Taiwan.

• Introduced celebration of birthday parties in its restaurants in Hong Kong.

CRITICISM• Jose Bove, a French sheep farmer, led a campaign against McDonald's.

• Ransacked McDonald’s restaurant construction site.

• Part of French delegation to Seattle – protesting against commercialization of food crops by WTO.

• Was against industrial farming.

• McDonald’s – symbol of globalization, implying standardization of food through industrial farming.

• When US attacked Afghanistan in 2001, Pakistanis damaged McDonald’s restaurants in Islamabad.

FRANCHISING IN INDIA:

McDonald’s Corporation has entered into JV’s with

two companies to develop, open and operate

McDonald's restaurants in India.

North & East India:

Connaught Plaza Restaurants Private Limited

("CPRPL")

South & West India:

Hardcastle Restaurants Private Limited

("HRPL")

McDonald’s IN INDIA

McDonald’s IN INDIA• Entered India in 1990s.

• Majority of Indians did not eat beef.

• Muslims did not eat pork.

• Food items were segregated into

Veg and Non-veg

• Introduced Maharaja Mac and

McAloo Tikki

McDonald’s IN INDIA• In 2001, an Indian businessman sued McDonald’s for misrepresenting its French fries as vegetarian,

when they contained beef broth as “natural flavor”.

• McDonald’s admitted to mixing beef extract in the oil.

• Settled the suit for $10 million.

• Labelled ingredients of all food items.

• Special care is taken to ensure that all

vegetable products are prepared separately,

using dedicated equipment and utensils.

• Mayonnaise and soft serves are also 100%

vegetarian.

• Uses only vegetable oil as a cooking medium in

India.

ACCOLADESGOLDEN ARCHES THEORY OF CONFLICT PREVENTION

• Thomas L. Friedman said in The Lexus and the Olive Tree that no two countries with McDonald's

within their borders have ever been in a war since having a McDonald's.

BIG MAC INDEX

• It is published by The Economist as an informal way of measuring the purchasing power parity (PPP)

between two currencies and provides a test of the extent to which market exchange rates result in

goods costing the same in different countries.

THE QUESTIONS

• Globalization is still not accepted by all classes of people.

• Actions of one’s own country can affect the business in another country.

• One should be completely aware of the culture, society and food habits prevailing

in the target market.

• One should not mislead customers in any way.

• One should be able to create products based on the needs of the customers.

• Standardization of quality, service, cleanliness and values – no compromise.

What lessons can other MNC’s learn from the experience of

McDonald’s?

• Beef extract is the only natural flavor in McDonald's French fries.

• Using ''natural flavor'' as a synonym for beef extract is within federal Food and Drug

Administration guidelines.

• McDonald’s wanted to maintain the taste of French fries globally.

Aware of food habits of Indians, why did McDonald’s err in

mixing beef extract in the oil used for fries?

• Connected local suppliers with international suppliers and encouraged them to

form JV’s.

• Handshake agreements with suppliers.

• Sharing of best practices within suppliers.

• Introduced region-specific food items.

• Developed products that the local market wants and at disruptive price points.

• Innovative practices – dedicated R&D.• Standardization.

• Developed user friendly environment for consumers.

• Involved in Charity.

How far has McDonald’s succeeded in strategizing and

meeting local cultures and needs?

THANK YOU