Name: Husnain Javaid Khan ID: Class: Bba 5 Suject: Management Information System Course Instructor: Sir Shahid Khan
Name: Husnain Javaid Khan ID: Class: Bba 5 Suject: Management Information System Course Instructor: Sir Shahid Khan
Name: Husnain Javaid Khan ID: Class: Bba 5 Suject: Management Information System Course Instructor: Sir Shahid Khan
KHAN
ID:
CLASS: BBA 5
SUJECT: MANAGEMENT
INFORMATION SYSTEM
COURSE INSTRUCTOR:
SIR SHAHID KHAN
INTRODUCTION TO MCDONALDS: McDonald's
is an American hamburger and fast food restaurant
using production line principles. The first McDonald's franchise using the arches logo opened
in Phoenix, Arizona in 1953. Businessman Ray Kroc joined the company as a franchise agent in
1955 and subsequently purchased the chain from the McDonald brothers. Based in Oak Brook,
Illinois, McDonald's confirmed plans to move its global headquarters to Chicago by early 2018
McDonald's aims is to serve good food in a friendly and fun environment, to be a socially
responsible company, to provide good returns to its shareholders, to provide its customers with
food of a high standard, to provide a quick service and value for money
McDonald’s was founded by Richard and Maurice McDonald in 1940 in San Bernardino,
California. In 1955 Ray Kroc bought the chain and oversaw its worldwide shown below you can
see how much McDonalds has changed throughout the years.
Executive Summary
Mc Donald's is one of the world's largest chains of fast food restaurants. They operate thirty
two thousand restaurants serving more than sixty million customers daily. The key to rapid and
successful international expansion of Mc Donald's is the franchise model pioneered by them.
Mc Donald's recognized early in their life that overseas market required an extremely high
degree of local responsiveness and that they needed to manage business spread across
different regions effectively and efficiently which would be achieved only through
"Transnational Strategy". The value chain was constructed taking into consideration of local
culture, legal-political and economic environments in mind.
Company Overview
McDonald's is one of the best brands known worldwide and world's largest chain of hamburger
fast food restaurants, serving more than 50 million customers daily. Company started in year
1940 by Dick and Mac McDonald in San Bernardino, California, USA. From extremely modest
beginning, they could able to scale their business by selling a high quality product cheaply and
quickly. Companies expansion in terms of business happened after Ray Kroc from Chicago
joined two brothers in their business. He quickly realized and had a vision to expand the
business throughout USA and beyond.
They have spread across 117 countries and operate around 32000 restaurants worldwide
employing 1.5 million people. They serve around 60 million customers per day. The key to such
a rapid and successful international expansion is the business model pioneered by McDonald's.
Ray Kroc realized company can achieve rapid expansion by franchise model. Today over 70% of
McDonald's restaurants are running on the basis of franchise model.
Today McDonald's global sales were around $22 billion, making it largest fast food Service
Company and ranked 107 in Fortune 500 companies in year 2009. The company operates other
restaurant brands such as Boston Market, Pret A Manger, Donatos Pizza, Chipotle Mexican Grill,
and Aroma Cafe.
Political Sensitivity
Political risk is that political decisions, events or conditions which may affect country's business
environment in ways that may affect the investments badly or may have to accept lower
returns. The political risk factor is quite important for McDonald's since there can be several
countries which might not allow FDI in fast food industry or disallow franchise kind of business
model.
Countries like India where 80% population do not eat beef and some religion does not allow
eating pork, therefore McDonald's had to customize their product offerings to the local needs
and in a way avoided any political conflicts.
Environmental Friendliness
The strategy of being environmental friendliness is a new emerging concept. Many developed
countries enforce certain environmental laws to make companies comply with the norms. E.g.
there are specific kinds of directions for the disposal of wastes generated by the business
operations. Environmental friendliness in effect brings goodwill to the company and also
provides opportunity to build a brand. McDonald's also engage themselves in CSR activity like
sustainable supply chain management, healthy and nutritious food products etc. Recently
McDonald's have come up with products which have low calorie content, nutritious to the
health of customers.
Pricing Strategy
Companies entering into different countries for business have to evaluate their pricing of
products based on income distribution of citizens, local inflation and other factors like currency
exchange rate. Because of exchange rate it is possible that you end up paying different prices
for same product in different countries. McDonald's mainly open their shops in major cities
targeting middle and upper class citizens as they can afford the prices. After this they start
targeting lower middle class citizens.
Growth Strategy
McDonald's growth strategy is based on three elements
Increasing number of restaurants
Maximizing sales and profits at existing restaurants
Improving international profitability
Maximizing sales and profits at existing restaurants will be accomplished through better
operations, reinvestment, product development and refinement, effective marketing and lower
development and operating costs. McDonald's believes that its long term sustainability and
growth depends on stakeholders - franchisees, suppliers, and customers. They believe that as
long as franchisees and suppliers are profitable, so would the company.
Improved international profitability is realized as economies of scale are achieved in individual
markets and as the company benefits from the global infrastructure.
McDonald's is earning from two sources, one from home country US and another from foreign
markets. With the globalization, the share of foreign earnings is growing rapidly. The chart
below gives number of stores in host countries to home country.
While McDonald's faces costs of expansion into new and within markets, it is able to assess the
long-term prospects of different markets and it is on this basis that it would decide when to
enter a new market. McDonald's initially opened outlets in higher-income countries like UK,
Japan, Canada and then move into lower-income countries like India etc.
Metric
2004
2005
2006
2007
2008
2009
Total Restaurants
30,496
30,766
31,046
31,377
31,967
32,478
Franchized Restaurants
22,317
22,593
22,880
24,471
25,465
26,216
Company Owned Stores
8,179
8,173
8,166
6,906
6,502
6,262
% of Franchised Restaurants
73.2%
73.4%
73.7%
78.0%
79.7%
80.7%
Franchises get up and running faster than other forms of ownership
They are profitable more quickly
Supplies are cheaper for the franchisee by leveraging the company's supply chain
Initial investment is lower for the company
Control on usage of brand and operations is higher as compared to leasing
Franchisee gets assistance in terms of managerial know-how from the company
McDonald's earns revenues from its franchisees in two forms:
Service Fees - A monthly fee depending upon the restaurant's sales (currently a service fee of
4.0% of monthly sales)
Rent - A monthly base rent or percentage rent that is a % of monthly sales. McDonald's usually
owns the property and also acts as the landlord.
Since McDonald's owns most of the properties on which its franchisees operate, it collects a
percentage of monthly sales as rent. Through this method, McDonald's now is the largest
owner of corner properties in the world.
The success of the franchising mode of expansion depends on three factors:
Regional Strategy
For a successful business in host countries McDonald's had to customize its business strategy to
the local needs. Regional strategy became important for McDonald's they started their
expansion in Asian countries as their culture is very different from western world. McDonald's
adopted product localization and innovations for new offerings based on local tastes and needs.
In 1963, McDonald's introduced the "Filet-of-Fish" sandwich in the Cincinnati area for Catholics
who did not eat meat on Friday. This was the first new offering added to the standard menu
and went national the following year.
The "Big Mac" introduced in 1968 was the brainchild of Jim Delligatti, one of the earliest
McDonald's Systems franchisees.
The "Egg McMuffin" was developed in 1973 by McDonald's franchisee Herb Peterson.
A Canadian franchisee invented The McFlurry in 1997.
Use of chicken instead of pork and beef in India.
Introduction of Maharaja Mac, McAloo Tikki in India suitable to local tastes and tradition.
In year 2005 McDonald's adapted Wi-Fi with the changing times and consumer demand with
Nintendo in selected locations. They also started home delivery service in Singapore, where
customer can place their orders on phone and have it delivered at their doorsteps. In busy
places like malls, airports McDonald's installed quick service kiosks rather than its standard
free-standing units.
McDonald's in China
The company managed to succeed in establishing their business where most Western based
Multi-nationals have failed previously. One of the primary reasons for the failure can be
attributed to the lack of appreciation of Chinese culture by other MNCs. They tried to replicate
their US operations China without any modification to local population and their tastes.
McDonald's have made major strides in adapting to Chinese culture in terms menu and local
taste. Locals manage all restaurants. Asian consumers were allowed to change company culture
for their own purpose. Restaurants were more akin to coffee houses where people meet rather
fast food joints. Menu was also modified to include the now highly popular "teriyaki burger".
McDonald's in Britain
McDonald's was tarnished by the McLibel, which was the longest running libel trial in English
history. Activists sued the company for exploiting children in advertisements, producing
misleading advertisements, cruelty to animals and antipathetic to unionization. McDonald's
finally settled for 10 million pounds
Later on, company developed strategy to address following issues in order to address its
situation in Britain.
Tackle impact of recession by offering good value item
Attract new and different customers
Improve tarnished image of McDonald's
The company used photographs of the British farmers who supply McDonald's, which appeared
on the sheets of paper put on customers' trays. Cooking oil was converted into biodiesel fuel to
power the restaurants.
Menus and the introduction of new items, such as the Little Tasters, as well as the introduction
of more chicken-based dishes was introduced, in response to customer demand for a greater
selection of supposedly healthier white meat options .They also tried making breakfast a more
important mealtime "event" for McDonald's to increase their offerings.
All these initiatives helped McDonald's to increase sales during recession at a time when the
fast-food market was suffering huge losses.