Case Study - McDonald's

TAKING A LOOK AT

McDonald’s

McDonald’s was started by the McDonald brothers in 1940. Ray Kroc joined later in the 1950s and eventually took over the company.

Year-over-year revenue for the company has been on the decline for the last three years. Shifting focus on healthier eating is a large reason for the decline. People going out has also seen a slowdown, due to the rising cost of eating out. In other words, it’s much cheaper to eat at home than it is to bring the family out. In the restaurant business, whenever the differential between eating out and eating at home is high, consumers opt to stay home.

Restaurants, in general, have been pressured in the last several years to increase wages, and they have tried to pass that cost onto the consumer. However, the consumers are answering back by not going out as much. Although general levels of inflation have been on the decline, food prices on average have increased. This clearly affects McDonald’s along with most other restaurants.

Ronald McDonald was not the first character mascot to be used by the company. It was a guy with a hamburger head holding a sign with a chef’s outfit. He was called Speedee which represented getting your food fast.

The company had served potato chips before it switched over to its famous French fries.

How the Company Started

The company was started by the McDonald Brothers in 1940 as a barbecue restaurant. Later they restructured it as a hamburger stand. They incorporated a production-line format. When Ray Kroc joined the brothers as a franchise manager, he saw the potential to grow the business using that production line concept. He eventually bought out shares from the McDonald brothers but kept the name.

Initial Problems

Ray Kroc and the McDonald brothers had differing opinions on how the company should be run. These disagreements continued up and until Kroc took control of the company. The brothers wanted to only franchise a few restaurants whereas Kroc believed the concept could be expanded aggressively. This was a big source of their contentious relationship.

A current problem the company is facing and is one that they have largely ignored for a long time is the ever-increasing health consciousness of the consumer. The food served at McDonald’s has never been what would be considered healthy. The company’s present management team seems to have made this issue a part of their new initiative going forward.

Why it Works

McDonald’s has great brand recognition. Kids love the Happy Meals and all the goodies that come with it. Parents love the fact that they can take the family out for a reasonable amount of money and not have to wait a long time for their food. People also love the fact that they know exactly what to expect with whatever they order.

From an operations perspective, the company has the operation down to a science. This is why it was able to be franchised easily. Consistent operations from store to store make it dependable and reliable to customers. Any inconsistencies are handled quickly, and modifications are made to rectify the situation.

The company has a mix of franchised stores, affiliate and company-owned stores. This allows them to collect fees as well as use the company-owned stores to test out different products and store customizations.

Ray Kroc was a risk-taker and was not afraid to take action. This was a principal cause for him to be at odds with the original brothers. They didn’t want large growth and were perfectly happy with the status quo.

McDonald’s was a forward-thinking company in that as early as 1967 it expanded operations to Canada and Puerto Rico.

By the late 1970s, the company opened its 5,000th restaurant in Japan, with no plans on the horizon to stop. Today, McDonald’s operates in over 119 countries.

Promotion:

In the 1970s McDonald’s introduced a line of characters to interact with Ronald McDonald, including his biggest nemesis, Hamburglar. They were incorporated into the company’s advertising as well as part of its product lines.

You may also remember from that time the famous slogan, “You deserve a break today.” It was a hugely successful campaign.

One of the more recent promotions is the decision by the company to serve breakfast any time of the day. Before this, the restaurants closed up breakfast at 11:00 AM.

The company is also taking on more green initiatives and trying to be more ecologically friendly in its business practices. It tries to work with suppliers who treat their employees well, like fair trade practices, etc.

It’s likely McDonald’s will get more in tune with the shifting of the customers’ focus to healthier eating choices. They will still offer the staple products that made the company successful. But they may try healthier ways to prepare those foods while introducing healthier choices into the mix.

As the company has been in its mature phase for quite a few years, advertising will become more focused on other aspects such as that of the consumer. An example is its Pay with Love campaign. The idea behind the campaign is that select people during the promotion period will be asked to pay with love instead of cash. The meaning is that they do something nice, like hug their spouse, or call a loved one and state that they love them, etc.

Features:

There has always been a big rivalry between McDonald’s and Burger King. The two stores would center their advertising by showing the weaknesses of the other. In most cases, it came down to preference. Burger King adopted healthy choices quicker than McDonald’s.

Lessons Learned by The Business

• Ray Kroc believed that the secrets to success were being at the right place at the right time and doing something about it.

• He believed that he took the business of making hamburgers more seriously than anyone else. This is why he was able to build the business to the level he did.

• Kroc believed in wiping out the competition before it was able to do it to him. He was a fierce competitor and did anything he could to get the upper hand over his competition.

• He believed that success came from those who loved what they are doing and put the customer first because of it. People who chase the dollar never make enough of it because that is all they become good at.

• The company holds a firm belief that customers don’t want too many choices as that can overwhelm them. Plus, offering too many choices can lead to supply chain and inventory management issues. This is not to say that the company does not try new products and concepts. It just doesn’t flood the market with them.

How Other Businesses Can Learn from This

Make your process as cookie-cutter as possible. This ensures consistency and quality. An employee from one McDonald’s could easily switch over to another without any retraining. Also, the product will remain consistent each time the consumer goes to any McDonald’s restaurant.

When expanding to other regions of the world where cultures are substantially different from your own, you need to be sensitive to the ways and customs of those local cultures. This can be tricky when they go against the foundation of your company. In such cases, it’s probably best to compromise as much as possible.

Check our other case studies to learn more about the inner workings of companies leading thier respective industries.