McDonald's has come a long way in the last 80 years. It started in 1940 as the brainchild of a pair of brothers who realized that people wanted to get their food as soon as possible.
The McDonald brothers developed a system to make it all happen. Yet we know them for Ray Kroc, who created one of the world's largest chains of restaurants, real estate and toy retailers, while 'outmaneuvering' the founders.
Although McDonald's has not been the largest fast-food chain in the world since 2011, it is still the best-known brand. Even in Israel's Negev Desert, 100 kilometers from the nearest city, there is a restaurant, because franchising has given the company such a huge boost worldwide.
A few key facts about McDonald’s:
Richard (Dick) and Maurice (Mac) McDonald opened their first diner together, a hot dog stands in Monrovia, California, in 1937. Later, in 1940, they moved to nearby San Bernardino and opened McDonald's Bar-B-Que. Over time, the eatery became more popular and profitable, but the brothers realized they could cut a lot of costs if they rethought their concept. They developed a series of revolutionary ideas and strategic measures that proved to be closely linked: reducing the range of products, preparing ingredients properly, keeping potatoes warm with an infrared lamp, and building a kitchen where food could be prepared more quickly. They also encourage people to take their orders and target families rather than young people.
In 1948, the McDonald brothers closed a well-established restaurant and reopened it a few months later with a slimmed-down menu - and by then under the McDonald's name. They realized that most of their income came from selling burgers, so they reduced the selection to almost nothing. (To give you the full picture, the fries and milkshakes were replaced with French fries and patties for a short time.)
Kitchen work was sped up by having only two things to bake. Washing up was also kept to a minimum, as the food was served in disposable packaging. In 1952, the restaurant was closed again for several months to remodel the kitchen so that food could be served more quickly and efficiently than before. The new kitchen and associated system allowed all orders to be filled in as little as half a minute. Since the operation was supported by the "fast system," it's not hard to guess where the term "fast food" came from.
McDonald's goal at the time was to get people to store there, but not to eat there, but to take something there. This was achieved not only by the packaging of the products but also by the fact that there was no built-in canteen in the first restaurant; if you did not want to take what you bought home with you, you could either eat your lunch in your car or sit on a bench nearby. For a while, they also experimented with serving drinks in cone-shaped cups that customers could not put down, which encouraged them to eat faster.
Thanks to this incredibly efficient and fast operation, they were able to sell burgers for 15 cents - about half the price of other places. The fast service, consistent quality, and low price amply compensated customers for the inconvenience. Soon, the McDonald brothers wanted to open more restaurants, but they were not nearly as successful as their first location. The reason was simple: they could not be everywhere; they could only be personally responsible for quality assurance at the first restaurant. At the same time, the oldest McDonald's still in operation today opened in Downey, California.
The brothers realized that they did not necessarily have to open new locations themselves to expand, but that others would do it for them. So in 1948, they began to reform their business model and set up a franchise system. By 1954, they had sold the royalties from 21 franchises.
1954 marked a turning point in the McDonald brothers' lives. To further speed up service, they ordered a new type of mixer that could ensure the preparation of multiple servings at once. The order put them in contact with Ray Kroc, a travel agent. Kroc was amazed at how efficiently the restaurant operated. He wanted to get into the business and eventually convinced the brothers to make him their franchise representative. From then on, he was in charge of who and where they could open new restaurants.
The new buildings were now built the way the McDonald brothers envisioned their dream restaurant. A clean, red and white exterior with a neon yellow golden arch on either side of the building attracts potential clients (aka bypassers) to the restaurant. The juxtaposition of these two golden arches became the familiar Meki logo, which also forms an "M," a reference to the initials of their name. It took on a similar look to today's image after Ray Kroc became the owner, or rather founder, of the company.
In 1955, Kroc founded the forerunner of today's McDonald's Corporation (McDonald's System, Inc.) and opened its first new restaurant. The first was followed by the second, the third, and within a year, the 18th. Kroc was entitled to 1.9% of gross sales for each of these restaurants, but under his agreement with the brothers, they were entitled to 0.5%. He could barely cover his expenses with the remaining amount. Then he met Harry Sonnenborn, who gave him a new perspective: McDonald's was in fact a huge real estate business.
Sonnenborn encouraged Kroc to buy the land on which he wanted to build restaurants and then lease it to operators. Kroc listened to him and took the biggest step toward owning the entire chain. This way, he received a steady stream of income and did not have to give any of it to the McDonald brothers. The latter, of course, was not happy about this situation. Everything in the restaurants had to continue to be done the way the brothers wanted, although Kroc tried to introduce several innovations. Finally, in 1961, Kroc bought out the brothers for $2.7 million. To raise this sum, he had to take out loans, 14 million of which he was later able to repay.
As part of the agreement, the brothers would continue to own the restaurant in San Bernardino, but they had to change the name because Kroc already owned the naming rights to McDonald's. So they continued to run the restaurant under the name "The Big M," but Kroc was upset that he could not have it. Soon after, he opened a Meki just around the corner from the M, which allowed the McDonald brothers to close the location in a few years. They probably regretted the deal for life, because, with their 0.5% share at the time, it would have guaranteed them $15 million a year until the late 1970s, while their heirs would have received $305 million in 2012. And Kroc probably got a good deal on that loan.
By 1965, the company was operating more than 700 restaurants. That year, they went public. McDonald's stock started at $22 a share, but within a week the price had risen to $49. By the end of the decade, they had 1,500 restaurants worldwide and has started at Sonnenborn's suggestion, they continued to own the land on which the Meccas operated. Now they are looking for new land with fairly high standards: it should be about 4,600 m2, with the possibility of building on 370 m2, and located on the corner of at least one, but preferably two, busy roads.
Also in 1965, the then very limited offer was expanded: the Filet-O-Fish sandwich was added to the national menu. The fish burger was invented to give Catholic customers a choice during Lent. In 1968, the Big Mac, the iconic double-decker burger, was introduced. The Egg Muffin was introduced in 1975, the Happy Meal in 1979, and Chicken McNuggets in 1983. Of these, the Happy Meal is perhaps the most interesting, as it has made McDonald's one of the largest toy sellers in the world: 1.5 billion toys are sold each year thanks to the Happy Meal.
Ray Kroc never stopped working for McDonald's until he died on January 14, 1984. To this day, McDonald's provides its customers with great-tasting, affordable food, franchisees and crew members with job opportunities, and suppliers with reliable ingredients and products.
Successful market penetration does not always require a complete upheaval of the rules of the sector. The McDonald brothers did not invent any truly new dishes, but they did let awareness guide the design of their restaurants. So the number-one success factor for McDonald's is professional design and process management.
The second success factor is sales behavior. While other restaurants were slower to offer their products, the excellent policies encouraged employees to sell customers as many extras as possible. Even today, "go big" accounts for a significant portion of restaurant profits (industry rumors say 40%).
The third approach is the real estate-based approach. The franchising system that Ray Kroc perfected is still used today, and we know from the annual report that the company makes more revenue from franchisees than it can generate itself.
McDonald's core products include burgers, which typically consist of a slice of beef, cheese, and sauce sandwiched between two halves of a bun - in all combinations and sizes. The smallest product is the standard burger, while the largest is the Big Mac. The sandwiches are available with chicken and fish, as well as localized versions in many countries around the world.
Core products include French fries, which also come in a variety of sizes. In addition, the Happy Meal menu specifically for children, as well as shakes and soft drinks, continue to be an integral part of fast food restaurant menus in almost all countries. According to market research, an average McDonald’s menu includes around 145 items.
National holidays, Halloween, Christmas, or even Easter - whatever the occasion, McDonald's introduces new seasonal products every month in every country around the world. Some are country- or region-specific (for example, the foie gras sandwiches are made specifically for the European audience), but most products are available in other countries after a limited local testing period.
Typically, a traditional product, such as a standard burger, is enhanced with additional ingredients (e.g., spices, additional meat, or a special design) to reflect the seasonal event.
McDonald’s has achieved this global success through maximizing localization techniques and appealing to local audiences. The company manages the menus to fit culturally and socially accepted norms; tailoring their traditional Big Mac meals to suit a local audience with specific requirements.
The restaurant chain has made great strides in the area of healthy eating in recent years: think supply chain with only local suppliers or the introduction of gluten-free, lactose-free, and vegetarian options. The calorie content of a hamburger today is much lower than that of a burger from 1980. In addition, the McDonald's team places great emphasis on healthy living - and they are trying to recruit new colleagues who will promote this corporate image. But that's just one side of the big picture.
A very interesting post came to light in 2008 when Karen Hanrahan revealed a shocking picture. Out of curiosity, she had set aside a McDonald's burger she bought in 1996 to see how quickly it would disintegrate (since there were theories about "plastic" foods in the past). After 12 years, the burger looked exactly like the one she had just bought, except it had shrunk a bit.
Although this is not part of the company's strategy, the following sources have been criticized the company:
The product portfolio is the company's strength, so it's no wonder McDonald's is constantly improving and perfecting its recipes. Although the company has yet to build its healthy food image, its fast service and delicious, robust flavors win over millions of customers every month.
The range includes flagship products available in all restaurants (except were banned for religious or legal reasons). These include traditional burgers, fries, and cola.
The company also diversifies its menu with seasonal and localized items. In the latter category, offerings vary from country to country and region to region, usually in partnership with local businesses and brands.
Franchising has spread throughout the world not as a separate form of business, but as a special kind of business.
Franchising is a form of business based on close cooperation in which the franchisor or the owner of the system sells a complex system that has been carefully designed professionally and commercially in every respect and successfully tested in a market environment. The system is handed over to the franchisee with full training, branding, and ongoing support and supervision. Franchisors operate the franchise system to the specifications of the transferor, in the agreed territory, for a fee, for a fixed period.
When purchasing an existing restaurant or a new restaurant, an initial down payment of 40% is required. Down payments must be made from non-borrowed personal resources, such as:
The down payment amount will vary depending on the total cost of the restaurant. McDonald's generally requires $500,000 of non-borrowed personal resources before considering a new franchise partner. With less cash available, most opportunities to participate in the program are limited and depending on the transaction's specifics, financial requirements may be much higher. Additional or multi-restaurant opportunities may be more available to those with additional funds.
To purchase a McDonald's restaurant, the buyer must pay a down payment of at least 25% cash. It is possible to finance the remainder of the purchase price for a period of up to seven years. Although McDonald's does not offer funding the project, McDonald's Owners/Operators benefit from established relationships with many national lenders.
Costs usually range from $1,2 million to $2,2 million. Most of the costs are related to the construction of the restaurant, such as building and interior design, but the franchisee also pays for equipment, furniture, and kitchen appliances.
McDonald's restaurants provide quality food and beverages in 119 countries, which are franchised and operated by the company. At year-end 2020, McDonald's will have 39,198 restaurants, of which 36,521 are franchised, or 93 percent.
McDonald's franchise restaurants fall into one of the following categories: conventional franchises, development licenses, and affiliates. Optimal ownership structures for restaurants, trading areas, and markets (countries) depend on a variety of factors, including financial resources and entrepreneurial abilities, as well as legal and regulatory frameworks in key areas such as property ownership and franchising. McDonald's business relationship with independent franchisees is governed by standards and policies, which are of fundamental importance to the company's performance as well as its brand protection.
McDonald's franchise partners are not financial investors, but committed partners who not only put up the capital to open a restaurant, but are also willing to participate in the day-to-day operations and running of the restaurant. They know all the ins and outs of the business, but they also reinforce the McDonald's brand through their involvement in the local community.
The potential partner does not have to have a suitable location, as the location of the restaurants is always determined by the company and handed over to the franchisee.
Accelerating the Arches is the Company's new growth strategy for 2020. As the leading global omnichannel restaurant brand, McDonald's Strategy encompasses all aspects of the company's business as well as updated values and new growth pillars that leverage the company's competitive advantage.
For decades, McDonald's sales efforts focused on the cash register and drive-thru. One of the strongest elements of this was the introduction of the "Go Large" theme. By sizing and pricing the products, even those who had no real need chose the largest product, believing it to be the best and most appropriate offering.
Today, in addition to physical sales, digital sales have become a priority. An app developed by the company not only speeds up the ordering process but also offers additional discounts that can further increase the cart value per customer.
With the introduction of home delivery, McDonald's has begun working with several partners including UberEats, FoodPanda, and Wolt. For a long time, these online marketplaces did not offer fast food products like McDonald's, but they have now become serious players in the market. The company's offering is particularly strong when it comes to speed: on average, food is delivered in 15-20 minutes, compared to 50-80 minutes for a traditional restaurant.
There are several cornerstones of the company's marketing strategy that have contributed greatly to McDonald's success:
The company is one of the biggest innovators in the food industry and is credited with inventing or perfecting the following:
The 2020 growth plan contained nothing new compared to the path taken a year earlier. The key elements were digital customer access, which was a key driver of the company's continued growth during the COVID epidemic.
Sales and marketing go hand in hand at McDonald's: over the past 80-plus years, the techniques used have been perfected, all aimed at getting customers to buy. Advertising builds on this image of cheap and healthy food.
McDonald's has seen steady growth since its founding. Because of the relative cheapness of its products, it is a truly crisis-proof company, which even COVID could not bring to its knees - unlike millions of small catering businesses.
The company has emerged from the crisis as a winner, thanks in particular to digital developments, drive-thru, and the spread of home delivery.
Number of restaurants
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Consumer opinion on McDonald's is certainly divided: some say it's plastic, others say it has grown up to meet consumer expectations. As a publicly-traded company, the owner of the golden arch has no choice but to march forward, pioneering innovation as it has throughout its history. What does the future hold for the company? An even broader product range, a stronger home, and digital experience - and, investors expect, continued revenue growth.