XIBMS – McDonald’s: Serving Fast Food around the World

XIBMS – McDonald’s: Serving Fast Food around the World

Ray Kroc opened the first McDonald’s restaurant in 1955.  He offered a limited menu of high-quality, moderately-priced food served fast in spotless surroundings. McDonald’s “QSC&V” (quality, service, cleanliness, and value) was a hit.  The chain expanded into every state in the nation.  By 1983 it had more than 6000 restaurants in the United States and by 1995 it had more than 18,000 restaurants in 89 countries, located in six continents.  In 1995 alone, the company built 2,400 restaurants.

In 1967 McDonald’s opened its first restaurant outside the United States, in Canada.  Since then, the international growth accelerated.  In 1995, the “Big Six” countries that provide about 80 percent of the international operating income are: Canada, Japan, Germany, Australia, France, and England.  In the same year, more that 7000 restaurants in 89 countries generated sales of $14 billion. Yet fast food has barely touched many cultures.  The opportunities for expanding the market are great when one realizes that 99 percent of the world population is not yet McDonald’s customers.  For example, in China, with a population of 1.2 billion people, there are only 62 McDonald’s restaurants (1995).  McDonald’s vision is to be the major player in food services around the world.

In Europe, McDonald maintains a small percentage of restaurant sales but commands a large share of the fast food market.  It took the company 14 years of planning before it opened a restaurant in Moscow in 1990.  But the planning paid off.  After the opening, people were standing in line up to 2 hours for a hamburger.  It has been said that McDonald’s restaurant in Moscow attracts

More visitors – on an average 27,000 daily than Lenin’s mausoleum (about 9,000 people) which used to be the place to see.  The Beijing opening in 1982 attracted some 40,000 people to the largest (28,000 square-foot) restaurant at a location where some 8, 00,000 pedestrians pass by every day.

Food is prepared in accordance with local laws.  For example, the menus in Arab countries comply with Islamic food preparation laws.  In 995, McDonald’s opened its first kosher restaurant in Jerusalem where it does not serve dairy products.  The taste for fast food, American style, is growing more rapidly abroad than at home. McDonald’s international sales have been increasing by a large percentage every year.  Every day, more than 33 million people eat at McDonald’s around the world with 18 million of them in the United States.

The prices vary considerably around the world ranging from $5.20 in Switzerland to $1.05 in China for the Big Mac that costs in the United States $2.32.  The Economist magazine even devised a “Big Mac Index” to estimate whether a currency is over or undervalued.  Thus, the $1.05 Chinese Mac translates into an implied Purchasing Power Parity of $3.88.  The inference is that the Chinese currency is undervalued while the Swiss Franc is overvalued.  Here are other prices for the $2.32 U.S. Big Mac. Britain, $2.80, Denmark $4, 92, France $3.23, Japan $4.65, and Russia $1.62.

Its traditional menu has been surprisingly successful.  People with diverse dining habits have adopted burgers and fries whole heartedly.  Before McDonald’s introduced the Japanese to French fries, potatoes were used in Japan only to make starch.  The Germans thought hamburgers were people from the city of Hamburg.  Now, McDonald’s also serves chicken, sausage, and salads.  One of the items, a very different product, is pizza.  In Norway, McDonald’s serves grilled salmon sandwich, in the Philippines pasta in a sauce with frankfurter bits, and in Uruguay the hamburger is served with a poached egg.  Any new venture is risky and can be either a very profitable addition or a costly experiment.

Despite the global operation, McDonald’s stays in close contact with its customers who want good taste, fast and friendly service, clean surroundings, and quality.  To attain quality, the so called Quality Assurance Centers (QACs), are located in the U.S., Europe, and Asia.  In addition, training plays an important part in serving the customers.  Besides day-to-day coaching, Hamburger Universities in the U.S., Germany, England, Japan, and Australia, teach the skills in 22 languages with the aim of providing 100 percent customer satisfaction. It is interesting that McDonald’s was one of the first restaurants in Europe to welcome families with children.  Not only are children welcomed, but also in many restaurants they are also entertained with crayons and paper , a playland, and the clown Ronald McDonald’s , who can speak twenty languages.

With the aging population, McDonald’s takes aim at the adult market.  With heavy advertising (it has been said that McDonald’s will spend $200 million to promote the new burger) the company introduced Arch Deluxe on a potato – flower bun with lettuce, onions, ketchup, tomato slices, American cheese, grainy mustard and mayo sauce.  Although McDonald’s considers the over – 50 adult burger a great success, a survey conducted five weeks after its introduction showed mixed results.

McDonald’s golden arches promise the same basic menu and QSC&V in every restaurant.  Its products, handling and cooking procedures and kitchen layouts are standardized and strictly controlled.  McDonald’s revoked the first French franchises because the franchise failed to meet its standards for fast service and cleanliness, even though their restaurants were highly profitable.  This may have delayed its expansion in france.

The restaurants are run by local manager and crews.  Owners and managers attend the Hamburger University near Chicago, or in other places around the world, to learn how to operate a McDonald’s restaurant and maintain OSC&V.  The main campus library and modern electronic classrooms (which include simultaneous translation systems) are the envy of many universities.  When McDonald’s opened in Moscow, a one – page advertisement resulted in 30,000 inquiries about the jobs; 4000 people were interviewed, and some 300 were hired.  The pay is about 50 percent higher than the average Soviet salary.

McDonald’s ensures consistent precuts by controlling every stage of the distribution.  Regional distribution centers purchase precuts and distribute them to individual restaurants.  The centers will buy from local suppliers if the suppliers can meet detailed specifications.  McDonald’s has had to make some concessions to available products.  For example, it is difficult to introduce the Idaho potato in Europe.

McDonald’s uses essentially the same competitive strategy in every country: Be first in a market, and establish its brand as rapidly as possible by advertising very heavily.  New restaurants are opened with a bang.  So many people attended the opening of one Tokyo restaurants that the police closed the street to vehicles.  The strategy has helped McDonald’s develop a strong market share in the fast food market, even though its U.S. competitors and new local competitors quickly enter the market.

The advertising campaigns are based on local themes and reflect the different environments.  In Japan, where burgers are a snack, McDonald’s competes against confectioneries and new “fast sushi” restaurants.  Many of the charitable causes McDonald’s supports abroad have been recommended by the local restaurants.

The business structures take a variety of forms.  Sixty-six percent of the restaurants are franchises. The development licenses are similar to franchising, but they do not require McDonald’s investments.  Joint ventures are used when the understanding of local environment is critically important.  The McDonald’s Corporation operates about 21 percent of the restaurants.  McDonald’s has been willing to relinquish he most control to its Far Eastern operations, where many restaurants are joint ventures with local entrepreneurs, who own 50 percent or more of the restaurant.

European and South American restaurants are generally company-operated or franchised (although there are many affiliates – joint ventures – in France).  Like the U.S. franchises, restaurants abroad are allowed to experiment with their

Menus.  In Japan, hamburgers are smaller because they are considered a snack.  The Quarter Pounder didn”t makes much sense to people on a metric system, so it is called a Double Burger.  Some German restaurants serve beer; some French restaurants serve wine.  Some Far Eastern McDonald’s restaurants offer oriental noodles.  In Canada, the menu includes cheese, vegetables, pepperoni, and deluxe pizza; but these new items must not disrupt existing operations.

Despite its success, McDonald’s faces tough competitors such as Burger King, Wendy’s, Kentucky Fried Chicken, and now also Pizza Hut with its pizza.  Moreover, fast food in reheatable containers is now also sold in supermarkets, delicatessens (a store selling foods already prepared or requiring little preparation for serving) and convenience stores, and even gas stations.   McDonald’s has done very well, with a great percentage of profits coming now from international operations. For example, McDonald’s dominates the Japanese market with 1,860 outlets (halt the Japanese market) in 1996 compared to only 43 Burger King Restaurants.  However, the British food conglomerate Grand Metropolitan PLC that owns Burger King has an aggressive strategy for Asia.  Although McDonald’s is in a very favourable competitive position at this time, can this success continue?

Questions:

1. What opportunities and threats did McDonald’s face? How did it handle them? What alternatives could it have chosen?
2. Before McDonald’s entered the European market, few people believed that fast food could be successful in Europe. Why do you think McDonald’s has succeeded? What strategies did it follow? How did these differ from its strategies in Asia?
3. What is McDonald’s basic philosophy? How does it enforce this philosophy and adapt to deferent environments?
4. Should McDonald’s expand its menu? If you say no, then why not? If you say yes, what kinds of precuts should it add?
5. Why is McDonald’s successful in many countries around the world?

XIBMS – McDonald’s: Serving Fast Food around the World

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