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McDonald’s Franchise Model Report (Assessment)


Introduction

McDonald’s is an international organization founded in 1948. It is a fast food restraint chain outlet serving an average of 58 million customers spread over 118 nations. Its mission is “to be our consumer’s favorite place to eat” (Gilbert, 2008). The food variety it offers ranges from chicken, non-alcoholic beverages and drinks, burgers, chicken, ice cream and salads.

Its first stall was opened in San Bernardino with only a hamburger on sale (Kincheloe, 2002). It was founded by two members Dick and Maurine McDonald’s who later relinquished ownership to Ray Croc. Under him, the McDonald’s product variety increased coupled with the growth in several franchisees. The restaurants under McDonald’s are run by a franchise. Currently, McDonald’s is an ultimate globalization symbol with its presence in international markets (Kincheloe, 2002).

Process of implementation in the Market

McDonald’s has a franchise model that makes only 15% of outlets to be owned by the company, while the remaining 85% are held by franchises. The company ensures a uniform model in monitoring and training of staff across all of its franchises. Its Head of Training is in charge of the implementation and direction of the company training. The restaurant managers and supervisors, in charge of the restaurant, take part in the training.

The strategy to develop and the use of a uniform supply and distribution system have enabled the company to be consistent in their products taste (Kincheloe, 2002). McDonald’s implementation in the market economy is based on a plan to win. They aim at being the best fast food chain and not the biggest.

This has enabled it to satisfy consumers through implementation of projects and initiatives revolving around five issues touching on customers, such as promotion, people, products, price, and place. McDonald’s also uses a variety of marketing mix, to reach goals. This includes daily meals, more working hours and efficiency optimization.

Demographics segmentation, using age as a parameter, is a strategy employed by McDonald’s. It is geared towards kids and urban youths. They provide toys, delicious meals and entertainment spots to attract them. A third party company has a partnership with McDonald’s to provide a toy for each meal. The urban youths are targeted through price sensitivity and offering of WiFi (Mieth, 2007).

McDonald’s also uses varying plans according to geographical locations. McDonald’s incorporates several organizational strategies (Watson, 2006). Some of the organizational strategies consist of better restaurant operations, placing the customer first, menu variety and beverage choice, convenience and continuous reinvestment in restaurants (Mieth, 2007).

Its growth strategy is hinged on three factors; increasing the number of outlets, profits, and sales maximization at current outlets and an increase in profits internationally. This is to be realized through improved operations, low operational costs and effective marketing (Watson, 2006).

Financial flow

In 1955, Ray crocs opened doors to his first outlet and created the McDonald’s Corporation in 1957. The company then went public in 1965, while the introduction of Big Mac occurred in 1968 (Mieth, 2007). Another product, Happy Meal, was introduced in 1974. They hit the 95th country in their operation, with the opening of an outlet in India, 1996.

Their financial flow in the US dollars, million, from 1990-1994 is given below.

Year 1990 1991 1992 1993 1994
No.of restaurants 11803 12418 13093 13993 15205
Total Sales 18,759 19,928 21,885 23,587 25,987
US Sales 12,252 12,519 13,243 14,186 14,941
Outside US Sales 6,507 7 409 8 642 9 401 1 1,046
Revenues 6,640 6,695 7 7,133 7,408 8,321

The budget for various activities during various periods is as follows:

Happy Meal, during 2009-2011, US$ 300,000 was used; marketing promotions totaled $ 1,000,000 from 2009-2011. The advertisements for Big Mac cost $300,000 in 2009. $25000 was spent on training while marketing advertisements during 2009-2011 were $100,000 (Kincheloe, 2002).

Security

McDonald’s ensures that it displays nutrition information on their products, mostly food items, though that was not the case initially. In the past, they would encourage their customers to eat more unhealthy foods through larger portions, supersize, which was an infringement on consumer rights (Mieth, 2007). This shows that, in the past, their security on consumers’ health was wanting, but now it is gaining ground.

Presently, McDonald’s is striving to remove more trans-fats in their products. This is aimed at sensitizing people to watch their weights and also absolving itself from blames of causing obesity. This consistency makes it a major stakeholder in making a healthy society.

Another factor is the requirement that a manager on duty carries out a thirty minutes travel path during a shift, checking the outlets’ surrounding. The areas normally checked include restrooms, walk inns, stores, refrigerators, and perimeter. The organization also carries out regular food safety tests several times in a day, coupled with changing of food safety book multiple times yearly (Love, 2008).

Technology

Technology is a crucial factor in McDonald’s because of its impact. They emphasize on using the most modern technology to lower production cost, gain more profits and increases the speed of serving customers at their outlets. Technology has helped them have the edge over their competitors. McDonald’s valuation of technology as a factor is attested, by their establishment of the Hamburger University to train and model their staff.

Most of their products are also mechanized to increase the hygienic level, rather than hand produced. It recently introduced a database service that is customized to give quick service to consumers (Love, 2008). This enhanced customer service is making their cashiers alert in terms of orders and stock. Currently, McDonald’s has a website that provides consumers with a choice menu, to choose items, and even carry out a nutritional analysis.

In 1999, McDonald’s spent $181 million in adopting a new system to be on par with rival organizations. This system ensured that standard foods are not held on bins till sold, but are only prepared by order, via a computer monitor that relays the order to the kitchen. The system, made for you, came after a consistent drop in customer satisfaction for three consecutive years. They have discarded the old system. Instead, they are perfectly made for you.

Change Process

McDonald’s has carried out several strategic transformations to improve service delivery to its consumers. During the old system, sandwiches would be made and placed in a bin to keep them warm until the time they were bought. The new system requires calculation on the amount of food to be held in the bins. This had to be done methodically to avoid food shortage which would increase customer delays, more food on the other side would lead to wastage.

The introduction of ‘made for you’ system in 1999 that cost McDonald’s $181 greatly assisted its service delivery (Mieth, 2007). It shifted from adding more outlets to increase sales, instead of adopting an increase of sales in already existing outlets. This is geared towards reducing spending and increase cash flow to stakeholders (Mieth, 2007).

McDonald’s has also tried carrying out changes in their menus and offering wide varieties of nutritious products to their consumers. McDonald’s announced a loss of $343.8 million in 2003, which was it’s first since its establishment. This was attributed to the quick expansion of the organization; hence, poor customer service delivery and products quality.

Currently, it has slowed down on the launching of new outlets from the 1700 outlets it has developed in the last ten years. In 1993, the corporation made a management error by abolishing the national grading system for its franchisees, while in 1994, it was ranked very low in the food industry.

Their poor services provision gave their competitors pizza huts, taco bell, and Kentucky an edge over them. This also necessitated the opening of more fast food restaurants. The company’s shift and concentration to development of the real estate, franchise, compromised their service delivery quality (Love, 2008). They ignored the fact that poor returns by a franchise adversely dent McDonald’s earnings.

Organization model to define features of McDonald’s

The application of porters’ five forces model to McDonald’s.

  • Power of buyer- due to the quick and rapid growth in the fast food industry, several competitors have entered the market leading to an increase in competition. This has caused the companies to aim at producing better goods to give them an edge over their competitors to gain more customers (Love, 2008). This provides multiple choices for customers to choose from during purchase. This translates to a higher customer purchasing power in this industry.
  • Power of supplier- the bargaining power of the customer is minimized due to the existence of corporations that supply food to the outlets. Due to a large number of suppliers for competitive products, switching by the corporations becomes easier in case of dissatisfaction (Gilbert, 2008). This significantly reduces the bargaining power of customers.
  • The threat of new entrant- the ease of entry for a new firm into the market is relatively high. It is also easy for those firms to bring products with competing prices, though larger investments would be needed for them to compete with seasoned players in the market.
  • The threat of substitutes- companies that offer substitute products to customers causes stiff competition to McDonald’s, apart from those that deal in fast foods. These products can be found in shops, hotels, cafes, and groceries. They also seem to be cheaper according to customers’ perception (Watson, 2006).
  • Industry competitiveness- companies that offer substitute products to customers cause stiff competition to McDonald’s, apart from those that deal in fast foods. The competitors are a threat to McDonald’s due to the varying tactics they introduce to gain customers.

To be successful in the development of business, McDonald’s should stay on the offensive (Watson, 2006).

Conclusion

McDonald’s process of implementation in the market is comprehensive for the growth of an organization. This process involves market research, consumers forecast, new product line innovations and feedback from consumers. These factors have enabled McDonald’s to create a successful brand name. Due to the dynamism of the world, demands for similar products is increasing significantly. This has forced McDonald’s to the drawing board to ensure efficiency and better service delivery to their consumers.

References

Gilbert, S. (2008). The Story of McDonald’s. New York: Creative Co.

Kincheloe, J. L. (2002). The Sign of the Burger: McDonald’s and the Culture of Power. Chicago: Temple University Press.

Love, J. F. (2008). Mcdonald’s: Behind the Arches. Chicago: Paw Prints.

Mieth, H. (2007). The History of McDonald’s: Hammer, Patrick, Tanja Hammer, Matthias Knoop, Julius Mittenzwei, Georg Steinbach u. Michael Teltscher. New York: GRIN Verlag GbR.

Watson, J. L. (2006). Golden Arches East: McDonald’s in East Asia. New York: Stanford University Press.

This Assessment on McDonald’s Franchise Model was written and submitted by user Marcos J. to help you with your own studies. You are free to use it for research and reference purposes in order to write your own paper; however, you must cite it accordingly.

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J., M. (2019, November 11). McDonald's Franchise Model [Blog post]. Retrieved from https://ivypanda.com/essays/mcdonalds-franchise-model/

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J., Marcos. "McDonald's Franchise Model." IvyPanda, 11 Nov. 2019, ivypanda.com/essays/mcdonalds-franchise-model/. Accessed 6 Dec. 2019.

1. Marcos J. "McDonald's Franchise Model." IvyPanda (blog), November 11, 2019. https://ivypanda.com/essays/mcdonalds-franchise-model/.


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J., Marcos. "McDonald's Franchise Model." IvyPanda (blog), November 11, 2019. https://ivypanda.com/essays/mcdonalds-franchise-model/.

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J., Marcos. 2019. "McDonald's Franchise Model." IvyPanda (blog), November 11, 2019. https://ivypanda.com/essays/mcdonalds-franchise-model/.

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J., M. (2019) 'McDonald's Franchise Model'. IvyPanda, 11 November. (Accessed: 6 December 2019).

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