McDonald's Strategy

McDonald's Main Business Strategy Was And Still Is Investing in Advertising & The Franchise Model

 “In 1967, McDonald's spent $2.3 million, or about 1 percent of its sales, on its first national
advertising campaign, which was an unheard amount for a fast-food chain.”

 Ray Kroc joined McDonald's in 1955, eventually taking it over and is the one attributed for its
rapid growth and success. He started to franchise and eventually bought McDonald's from
the McDonald's brothers in 1961. Ray valued advertising and marketing. “Kroc believed that
advertising was an investment that would, in the end, come back many times over, and
advertising has always played a key role in the development of the McDonald's
Corporation.”

 McDonald's spends approximately 2 billion dollars in advertising – targeting different groups

including children.

 There are three objectives McDonald's has for advertising: make people aware of the item,
feel positive about the item, and remember the item.

 McDonald's invested in advertising earlier in their establishment.

 McDonald's Happy Meals included toys like popular Teenie Beanie Baby Promotion in 1996
and 1997 and established a Global Marketing Alliance with Disney/Pixar in 1998 (Promoted
their movies). They advertised towards children targeting popular toys that children would
be drawn towards.

McDonald's Advertises Towards Children & Families Producing Recognizable Icons

McDonald's Advertised Towards Children & The Family

 McDonald's marketed towards families and children it's presented as a fun place to go with
your family.

McDonald's Created The Recognizable Icon Of The Golden Arches

 In 1952, the McDonald brothers decided they needed a new building, so they closed down
their store to create a more eye-catching appearance that included the two yellow golden
arches we know today.

McDonald's Created The Recognizable Icon Of Ronald McDonald

In 1967, Ronald McDonald was introduced by a franchise owner. Franchise owners realized the
importance of advertising and utilizing the icon as a clown to appeal to children.

It is noted that by 1973, Ronald McDonald was more familiar to 96% of American children than the
name of their president.

Ronald McDonald ranks second in terms of the most recognizable fictional character after Santa
Claus among U.S. School Children.
 The Keys To McDonald's Success, Rapid Growth & Market Dominance

McDonald's Keys to Success is their Focus on Customer Satisfaction

 Staff are encouraged to be friendly and provide “service with a smile”. They focus on
customer satisfaction (short wait-times, hot food, etc). Ray Kroc was known to offer refunds
to customers waiting longer than 5 minutes and say comments to workers like “if you've got
time to lean, you've got time to clean”

 McDonald's Operations Competitive Strategy focuses on cost, speed, and nutrition. They
prioritize making the customer “happy.”

McDonald's Finds Ways to Make Customer More Satisfied with Fast Service

 Historian Love writes that the McDonald's brothers "defined a totally new food service
concept...(Their hamburger stand was) the birthplace of a new generation of restaurants"

 The McDonald brothers applied a Factory-line assembly design to a commercial kitchen, to

make a faster and precise product. They cut the serving time down from 20 minutes to 30
seconds.

 Ray Kroc who later took over McDonald's implemented having two separate windows for
drive-thru (one to pay, one to get food). This created a faster flow through drive-thru which
decreased wait times.

McDonald's Finds Ways to Make Customer More Satisfied by Creating a Clean Environment

 It is indicated that Ray Kroc when opening his first McDonald's insisted on a high standard of
cleanliness which included (crisp white button shirts, black slacks, and a paper hat). Ray came
up with the phrase that is still used in McDonald's today QSCV – Quality, Service, Cleanliness,
and Value.

 McDonald's has a focus on cleanliness – specifically a focus on clean bathrooms. McDonald's

acknowledges that people will want to dine in clean and orderly environments and they
recognize the negative impacts of having an unclean restaurant and/or bathroom

 Historian Love states, “Kroc was intense about quality of food, fast service, good operations,
and most intense about cleanliness.”

McDonald's Finds Ways to Make Customer More Satisfied with Higher Quality Products

 McDonald's has a strict regiment for safety and food quality standards. There have been
questions about chicken McNuggets, which McDonald's debunks through their video.

McDonald's Finds Ways to Make Customer More Satisfied with Affordable Prices

 McDonald's found new ways to streamline the foodservice workplace and employ cheap
labour. For example, McDonald's utilizes self-service kiosks.

 Schlosser reports that McDonald's is the biggest purchaser of beef, pork, and potatoes in the
United States. They are second for the largest purchaser of chicken. Since McDonald's is
purchasing high levels of potatoes, beef, and chicken their higher buying power also reduces
the price they charge customers.

 McDonald's found different ways of cutting back costs with encouraging more independence
from the consumer such as people serving themselves pop and throwing out their own trash.
An Additional Item That Has Driven McDonald's Success is their Relationship with Suppliers

McDonald's Promises Loyalty in Business in Exchange for Innovation

 They encourage their suppliers to develop and create new and innovative products and
processes

 They encourage the development of technology from their suppliers in exchange for loyalty
in business. This was a way of how McDonald's reduced their costs.

Ray Kroc Envisioned and Implemented A Successful Franchise Model for McDonald's

 This franchise model was first to develop a franchise at a large scale with consistent
experiences whatever location they attended.

 Attention to detail – Same set-up, process, and taste. It is said that “attention to detail was
one reason for the company's extraordinary success.”

 McDonald's is the largest Worldwide Franchised Food Service Organization.

 There was training at "Hamburger University" in Illinois. The franchise owners earned
certificates in "Hamburgerology with a minor in french fries". This helped with creating
consistent experiences at each McDonald's.

 McDonald's model had a different approach - A very supportive process to ensure the
franchisees excelled. It was noted that they only collected a fraction of its sales as a service
fee. This contrasted with the territorial model (which the parent company would sell supplies
to the franchise and a large franchise fee) that many other fast foods were utilizing.

 Schlosser notes how most experts would note that key to success with franchises is summed
up in one word “uniformity.”

 Ray Kroc was the one who streamlined operation and franchise to make it successful
 John F. Love writes, "The essence of Kroc’s unique but amazingly simple franchising
philosophy was that a franchising company should not live off the sweat of its
franchisees, but should succeed by helping its franchisees succeed.”
 Kroc was very engaged and involved with his franchisees, encouraging them to call
him directly about any issues. He stressed the importance of each McDonald's being
consistent so it'll reflect well on every other McDonald's that was visited by
customers.
 Ray Kroc believed, “In business for yourself, but not by yourself.” He focused on
getting other people to help him achieve his dream of expanding McDonald's by
approaching franchisees. Through this expansion, Canada's first McDonald's was
established in Richmond, British Columbia in 1967.
How McDonald's Sustains Their Competitive Advantage

McDonald's Sustains Their Competitive Advantage By Providing More Value To The Customer

 McDonald's works to provide the best value to their customers of anyone in their market, a
great example of this is their value menu

 McDonald's tries to always be the leader with dominance when it comes to value

McDonald's Sustains Their Competitive Advantage with Superior Convenience

 They continue to focus on developing and selling products that can be served quickly

McDonald's Sustains Their Competitive Advantage with Innovation

 They utilize Culinary Head Chefs that innovate and create new menu items to be relevant
and provide high-quality taste.

 As per their recent menu changes, this is just one example of how they are continually
innovating and adding new products
McDonald's Sustains Their Competitive Advantage with Optimal Business Operations

 Ray Kroc described that he strived for absolute perfection for McDonald's. This would be true
in how many described how he operated and the strict regiment he expected his employees
to perform by. He was quoted as saying "Perfection is very difficult to achieve, and perfection
was what I wanted in McDonald's. Everything else was secondary for me.”

 McDonald's has a strict focus on operating efficiently at all levels of their company to keep
costs competitive

McDonald's Sustains Their Competitive Advantage with Expansion to Dominate the Market

 McDonald's continued expansion tactics to dominate the field and focus on generating more
traffic in existing restaurants.

 McDonald's has a substantial advantage over its competition due to its size in terms of
purchasing power, optimal physical locations, more resources available for marketing and
brand recognition

 International expansion – McDonald's continues to grow outside of North America. One-third

of their new restaurants are built outside of the U.S. to gain a greater scale advantage

McDonald's Sustains Their Competitive Advantage with their Brand

 McDonald's has an amazing job at creating recognizable images. “The golden arches of
McDonald's are said to be the most recognizable symbol in the world”.

How does McDonald's Position their Brand?

McDonald's Utilizes Branding & Co-Branding With Major Companies To Maximize Impact And
Reach

 McDonald's utilizes Branding and Co-Branding (when two companies work together to
market their good/service) with major well-known companies in their marketing

 McDonald's has found strategic ways to co-brand with major companies and used this to
their benefit for marketing their restaurant:

o Coca Cola is their drink supplier who they do co-branding with(which is widely known
throughout the world)

o Walt Disney (Happy Meal toys) – It should be noted that they are no longer working
with McDonald's as they have concerns about childhood obesity and do not want to
be linked to fast-food (34)

o Hasbro Monopoly Game

o TY Beanie Babies – Miniature beanie babies in Happy Meals

o Transformers Toys in Happy Meals

o NHL – Collectable Hockey Cards and various hockey memorabilia

 o NFL – McDonald's signed to be the official restaurant sponsor, and created contests
like “tailgate photo sweepstakes”, happy meal toys, sweepstake contests that a
customer could win tickets to the SuperBowl

o NASCAR – McDonald's has sponsored various NASCAR cars

o Olympics – Official Sponsor and themed cups, Olympic collectible cards

o Nickelodeon toys in Happy Meals

o Barbie figurines in Happy Meals

o Cadbury - this is found it items like McFlurrys and Milkshakes

o Hot Wheels toys in Happy Meals

o Oil Companies (Such as Bharat Petroleum In India) – To have McDonald's available at

gas stations (35)

McDonald's Uses Catchy Phrases and Messages in their Advertisements

 McDonald's has had 23 different slogans in the US from 1960 to now.

 McDonald's current slogan is “I'm lovin' it”. Other slogans that could be remembered are
“Look for the Golden Arches!” (1965-1967), “Do you believe in magic?” (1993-1997), “Did
somebody say McDonald's?”

 Their brand at this time would be “I'm lovin it” and weaving that through their advertising. A
key thing to McDonald's is that they focus on creating memories for the customers. The
phrase “I'm lovin' it” has been so influential, it is a part of the vocabulary of North
Americans.

 An example of how McDonald's uses their tag lines in their marketing is how they play on the
“I'm lovin' it” theme and showed how their food can conquer hate, replacing hate with love
in the recent Big Mac commercial “conquering hate” - It is a commercial where Montreal
Canadiens fans hug the last person they would want – Zdeno Charra from Boston Bruins

 Having a slogan is a simple way of getting people to remember your logo or brand and have a
positive image with your company and McDonald's executes this flawlessly.

How does McDonald's Maintain their Leadership?

McDonald's Changes with the Market Demands of Customers

McDonald brothers realized after the war there was a new mentality of wanting things
instant and thus focused on faster service. This approach is still engrained in McDonalds'
culture today.

In 1993 they started McCafe – to compete with Starbucks, Tim Hortons, and other coffee
shops. Offering premium coffees.

There was a shift in society in the 2000's where people wanted fresh and healthy food, which
continues today. There were concerns about obesity and heart disease. As a result,
McDonald's started creating healthier menu options (added more chicken and salads).
 In 2006 McDonald's chefs noticed a trend of people grazing and eating 5 small meals, so they
created “snack wraps.”

In 2014 McDonald's spent approximately $3 Billion on restaurant renovations. A major shift

and renovation of the restaurant's set-up which created a more family-friendly environment
and comfortable spots for people to stay longer and socialize. Ways they did this was
introducing free wifi, comfortable seating, and focusing on children play areas.

 Every item goes through intense scrutiny and development process to find relevant products
for their customers.

 Each year on average 1800 new menu items get tested and evaluated and only 3 or 4 make it
to the stores.

 Mike Bullington a historian that specializes in McDonald's describes the “staple menu items
have originated from franchisee ideas”. The examples he uses are Big Mac, Egg McMuffin,
Hot Apple Pie, and Shamrock Shake.

 McDonald's franchisee Lou Groen responded to a decline in sales on Fridays by creating the
filet-o-fish. This was in response to a Roman Catholic neighbourhood that practices
abstaining from red meat on Fridays and during Lent. It is noted that in 2016, 25% of annual
sales of the sandwich occurs during that time. The filet-o-fish is a permanent menu item that
beat out Ray Kroc's own idea of a “Hula Burger” in a contest between the two individuals.

McDonald's Focuses on Improving the Restaurant's Image by Showing Transparency

 Recognizing the importance of the restaurant's image was learned early in the development
of McDonald's. In 1952, McDonald brothers created a new building (shut down their
restaurant and re-opened). Their main goals were to improve the appearance of the
restaurant and efficiency of the operations.

 McDonald's are trying to be transparent with their customers. They have a website where
you can ask questions and they will respond. It's called, Our Food, Your Questions.

 A perfect example is that McDonald's shows a basic recipe for their Big Mac Sauce through a
video, in the restaurants, and on the website – trying to show that they are not hiding any
secrets. This strategy appears to be working as over 5.5 Million people have watched the
video

 McDonald's has done a shift to focus the importance of Canadian farmers. They are trying to
change the image of it being highly processed with fillers. In the Not Without Canadian
Farmers advertisements, McDonald's indicates that more than 80% of their ingredients are
sourced from Canadian farmers.

 They have a commercial where kids are able to ask farmers questions about their work and
food. The focus is “Canadian beef”

 McDonaldès also did an Old McDonald twist for International Women's Day. McDonald's
aired a commercial that advertises Canadian women farmers and when shared they will
donate money towards helping young Canadian farmers.
 Statistics on McDonald's Leadership

McDonald's Has The Largest Market Share in The Fast Food Industry (10% Global Share and
43% of the U.S. Fast Serve Market)

 Below is a chart of the revenue of McDonald's Corporation worldwide from 2013 to 2016, by
region (in billion U.S. dollars).

 The Fast Food Market Size is $245 billion worldwide (this includes not only burger
restaurants but all fast food restaurants including Asian, Italian, pizza, etc).

 McDonald's is has a market share of 10% of the world wide fast food market

 McDonald's in the United States has $8.253 billion of the Fast Food Market.

 McDonald's main competitor in the United States is Subway. It is noted that they have
approximately $1.110 billion of the market.

 In 2015, a study was done for the quick service restaurant chains by revenue worldwide. It is
noted that McDonald's is at the top with $25.41 billion US dollars, followed by Subway at
$19.2 billion US dollars.

 In 2015 a study was also done on all restaurant chains in the US. It indicated that McDonald's
had $35.8 Billion in sales in the US in 2014, compared to $12.7 Billion by Starbucks, $11.9
Billion by Subway, $8.6 Billion by Burger King and $8.5 Billion by Wendy's (66)

 Of the Quick Service Food Industry in the United States, it is noted that McDonald's
represents 43%.

 In 2016, McDonald's was the highest ranked restaurant brand with the value of $42.937
billion US dollars. (12)
 Below you can see in the chart of the revenue of McDonald's Corporation worldwide and
how it has ranged between 2005-2016 (This graph does not break it down like the earlier
graph by region). (11)

How McDonald's Recovers from Major Set-Backs or Losses

Investing in Real Estate - Harry Sonneborn's Solution to McDonald's Risk of Bankruptcy

 Schlosser details how McDonald's Corporation is the largest owner of retail property in the
world.

 Historian John Love notes that McDonald's was at risk of bankruptcy after Ray Kroc bought
out the McDonald brothers. Profitability was low at this time.

 Harry suggested that McDonald's purchase real estate as a way to create income. This helped
create some stability in the earlier stages. Initially they had long leases with landowners to
sublet. Later, they purchased land and leased it. This was a predictable profit (with land
appreciation) and provided money for expansion.

 The rate at what the markup was for subleasing started at 20% and then gradually they
reached 40%.

 They charged rent based on how much the franchisee sold. Franchisees who were subleasing
would either pay McDonald's a minimum rate or a percentage of sales (whatever one was
more profitable). (22)
 McDonald's Focuses on Marketing Towards Children

 The chart below you can see how much McDonald's focuses on advertising towards children
between the ages of 2-5, and 6-11 years old. McDonald's is more than three times than their
competitors.

Examples of McDonald's Marketing Material

McDonald's Utilizes the Four Ps of Marketing – Price – Finding the Right Price

 McDonald's focuses on the right price (not too low as some consumers will think quality has
been impacted). North Americans are known to respond well to “value items”.

 It is noted that 40% Americans will choose quick service food industry after work due to the
food being cheaper.

McDonald's Utilizes the Four Ps of Marketing – Product – What the Consumer Prefers

 Focusing on their product and demands of the consumer (what is relevant, assessing if
the item is in decline in the product life cycle) – Offering certain items around a specific time
(Christmas themed McFlurry, Shamrock McFlurry, McRibs, etc).

 They focus on familiarizing themselves with customer preferences and how to upsell to
them.

McDonald's Utilizes the Four Ps of Marketing – Place – Creating the Atmosphere Customers
Desire

 Targeting their types of customers. For example, children want to visit McDonald's because it
is a fun place to go (playground, happy meal toy). A business person eats at McDonald's
because it is quick and can be eaten on the go. Teenagers are drawn to the value menu items
as it is more affordable and that free wifi is available.

Examples of McDonald's Advertisements

McDonald's Advertises towards Children & Families

As stated earlier, McDonald's markets towards families and children and presenting the
restaurant as a fun place to go with your family. Some advertisements talk about how
children "always have a friend with big red shoes".

McDonald's advertises in a way that associates McDonald's with "good times, great taste"
and with children singing with the Ronald McDonald characters.

McDonald's Food, Folks, and Fun Ad has children playing with their Happy Meal toys and
signing with Ronald McDonald the song "food, folks, and fun"

What are McDonald's Values and How Does that Impact their Leadership

McDonald's focuses on Employee Recognition and Creating a Good Place to Work

 By trying to create a better workplace atmosphere, McDonald's believes it should result in

happier employees which should create better customer service.
 McDonald's shows appreciation of youth and their important role (to try to eliminate
negative association with working at McDonald's and valuing their role at McDonald's).

 It is estimated that 1/8 Americans have worked at McDonald's at one point in their life.
Famous people noted that have worked in McDonald's: Shania Twain, Rachel McAdams, Jay
Leno

Historic Timeline of McDonald's Major Events

McDonald's Timeline In The US

Who Were the Main Contributors to McDonald's Development?

Fred Turner's Training Program that Ensured Consistency with each Franchise

 Fred started a serious management training program – called Hamburger University.

 The training at the Hamburger University provided consistency, as everyone was being
trained the same way, which was what Ray Kroc desired to have each restaurant the same
wherever you went.

 Fred Turner was known as the son that Ray never had.

Ray Kroc and Fred Turner

Other Interesting Information and Statistics about McDonald's

The first McDonald's moved from a sit-down to fast food. The early McDonald's tried
different marketing tactics such as turning off the heat (to prevent people from staying), the
arrangement of seating (having people sit over their foot, which encouraged faster eating),
 seating location (further apart which made it more difficult to socialize and stay longer), and
using cone-shaped cups to encourage people to eat faster (not able to put their drink down).
These tactics were all focused on speeding up the eating process and getting more people to
flow through the restaurant.

 Historian Love describes how Ray Kroc sold Multi-mixers for milkshakes and the McDonald
brothers had eight of the milk shake machines. Ray went to visit them and then proposed
franchises to the brothers. Dick and Mac McDonald made $100,000 a year (50,000 each)
when in 1952, the average wage is U.S. was about $3000.

 In 1961, the brothers agreed to sell the business to Kroc for $2.7 million.

 There have been significant changes in the amount of money Americans spend on fast food.
Schlosser notes that in 1970 they spent approximately $6 billion, while in 2000, it was more
than $110 billion. It is suggested that Americans are spending so much on fast food that it is
more than they would on academics, technology (computers, computer software),
entertainment (books, movies, magazines, newspapers, music) or a new vehicle.