Franchise Profile Project - McDonald's - Case Study Example

Franchise Profile Project McDonald’s Student’s Name: Instructor’s Name: Franchise Profile Project Entrepreneurship According to McDonald’s, McDonald’s emerged in 1954 when Ray Kroc saw a hamburger restaurant managed effectively with limited menu by two brothers (Dick & McDonald) in Bernardino, California. Ray later sold the idea to the two on launching the same at a nationwide scale and hence, in 1955 they founded McDonald’s corporation. 5 years later, Ray bought exclusive rights to the McDonald’s brand name. McDonald’s initiated a motto entitled quality, service, cleanliness and value in 1957. To cater effectively for their clients, the company has adopted franchise business model. The corporation only possesses 20 % of the food chain stores while the other 80% is ran by franchise agreement. However, their motto is followed regardless of the agreement (McDonald’s, 2009, p. 10-13). The concept of a parent company franchising its business has the positive and negative side. The advantage of this kind of arrangement is that ‘it allows the franchisor to increase the number of outlets with a minimum capital outlay and so accelerate the network’s growth and likely, the profitability’ ((McDonald’s, 2009). For instance, McDonald’s operates in 119 countries with 34, 000 restaurants in the six continents serving approximately 69 million people daily. On the other hand, there are disadvantages to the franchisor such as individual corporately owned being profitable than the individual franchised owned, possibility of conflict between the franchisor & franchisee and possibility of under reporting of turnover among others (McDonald’s, 2009). For further details, see appendix 1 & 2. Marketing/ Advertising According to Wood and Brotherton (2008, p. 305), hospitality marketing is characterized intangibility, inseparability, variability and perish ability. In this context, McDonald’s marketing strategy heavily lies on their service delivery system and 7ps both at local and international level. Most of the McDonald’s food chain out lets is well designed and planned into detail. This planning starts from the first step of entrance up to the end. One of the marketing strategies is about people. The staffs at McDonalds are all the time groomed as a way of attaining desired positioning and are always alert to offer desired assistance. Furthermore, other house operations are well undertaken as a way of appreciating how the process matters to customers (McDonald’s, 2009). Some of the behind the front office operations comprises of costume design, food preparation, training of staff, layout and timing. These detailed operations by management regardless of whether customers notice it or not guarantee advanced extent of achievement and contentment (see appendix 3). The second entails differentiation of consumption. This approach entails the application of collaborating with other brands. The most evident tie in is the collaboration with Disney. In addition McDonald’s has been able to modify its outlets to fit into different settings which develops variety of forms of consumption. This includes the presence of McDonald’s in the mall and theme parks. The third is the utilization of merchandising through having image, logos and copyright (Bryman 2003, p. 159-160). Moreover, the company has produced promotional strategies through the concept of ‘happy hour’. In this approach, they offer combo meal to children accompanied with a free toy. This made them the most popular restaurant among kids globally. Next, they have marketing approaches like drive through which targets those on transit. This now accounts for more than half of restaurant system-wide sales. Lastly, the company has enhanced its niching strategy by targeting that targets customer tastes based on parameters like ethnicity. To cater for their advertising fee as a franchisor, McDonald’s have what is known as ‘conventional Franchises’ which last for 20 years. In this framework, they charge service fee of approximately 4%of the monthly sales of franchisee. It is this fee that is used for advertising and marketing. Thus, this fee is also known as advertising fee. The money is used for promotional services in TV, radio, internet as well as other marketing platforms (McDonald’d Corporation, 1988 cited in Steve, Dan & Samuel, nd, p.3); (Appendix 4). Operations Management In a general view, supply chain refers to a system of facilities and distribution alternatives. These systems carry out the role of procurement of resources, value addition, and allocation of these finished goods to customers. The main aspect to enhanced supply chain management is in the new tendency of incorporation and harmonization rather than competition (McDonald’s Australia, 2010). Furthermore, a lot of theory in supply management has their basis on idealized schemes of most favorable routes and quantities for demand accomplishment when taken into consideration from a whole-network or chain perspective. McDonald’s supply chain is based on collaboration and partnership (McDonald’s Australia, 2010, p.23). McDonald’s has allowed Suppliers to access its data so that they can continuously monitor and replenish products. McDonald’s has adopted the collaborative planning, forecast and replenishing strategy (CPRF). This is a planning model forecast at sharing vital information with the supply chain. McDonald’s shares all information on promotions, inventory level and daily sales with its suppliers, in a real time basis. According to McDonald Worldwide (2004, p.12), their socially responsible food supply chain addresses various parameters. These include systems approach where they view their suppliers as collaborators rather than competitors. Next, they aim at establishing long term relationship and combine global perspectives with locally developed responses. Under these principles, McDonald’s exploits privately owned distribution networks to source their products from direct suppliers. The basis is to define standards for their direct suppliers. Moreover, they have indirect suppliers who deal with their direct suppliers (See appendix 7). Costs McDonald’s has a standardized approach towards determining costs and financial requirements. The main parameter defining these costs is the operator lease. (Steve, Dan & Samuel, nd, p.2); (see appendix 5). The initial down payments charged include 40% of total cost while purchasing new restaurant and 25% of the total cost for an existing one. However, the minimum is $ 750, 000 from a non-borrowed source. To cater for different needs, McDonald’s costs vary depending on the franchise model. These include conventional franchise, business facility lease model and joint venture. In the conventional approach, the franchisor charges 4% of the revenue as service fee for advertising on a monthly basis, 8.5% to 13% rent fee of monthly revenue if they own the building and or land (Steve, Dan & Samuel, nd, p.2); (appendix 4 & appendix 6). Break even sales is when sales is equal to fixed cost plus variable cost. For the breakeven point, the computation is ‘profit = (sales- variable expenses) – fixed expenses’ (McDonald’s Australia, 2010). Human Resource Management Employees are one of the integral components and most important of a business. For the company and their franchisee to offer unrivalled quality services, McDonald’s established Hamburger University in 1961. This implies that they offer corporate training. Here, franchisee and operators are trained in scientific methods of running a successful McDonald’s. Moreover, employees are engaged in research so as to come up with new cooking, freezing, storing and serving methods. Lastly, it is the domestication of the motional labor concept. This concept involves having an attitude over the staff in order to promote emotions that are socially preferred and this result to a quality service basis. Royle (2000 cited in Bryman, 2003, p.161) observes that the workers have a responsibility of internal control; this is through being nice, joyful and polite to clients. This result to high quality experience hence a customer would be able to buy extra. It is a beneficial approach as it is an approach to performance management. This results to enhanced performance because workers know what is required from them. Performance management is the formation of mutual effort between the administrators and workers by aligning them with the strategic management plan of the organization. This is undertaken through explanation of the shared prospects and removing obstacles to poor performance (McDonald’s Australia, 2010). One approach towards this is through personnel development. Other than academic qualification and training received at learning institutions, it is significant for businesses to educate its employees and expand their human capital on the job and through refresher courses. This enables them to get new ideas in their field of occupation and be occupied in domestication of these new aspects for the association (McDonald’s Australia, 2010). However, this universal training might not suit the local context of the franchise and hence, a disadvantage. References Cite Brooke, Z. M. (2002). International Management: A Review of Strategies and Operations. Cheltenham: Nelson Thornes Ltd. Bryman, A. (2003). McDonald’s as a disneyized institution: global implication. American behavioural scientist. Available at: http://abs.sagepub.com. Joy-Matthews, J., Megginson, D. and Surtees, M. (2004). Human resource development. London: Kogan Page. McDonald, M. and Chermetony, L. (1998). Corporate marketing and service brands: moving beyond the first consumer goods model. Available at: https://dspace.lib.cranfield.ac.uk/bitstream/1826/1045/1/McDonald- Corporate%20Marketing%20and%20Service%20Brands.pdf McDonald’s Australia (2010). McDonald’s Australia Corporate Responsibility & Sustainability Report 2010. McDonald’s Worldwide (2004). Corporate Responsibility Report 2004. McDonald’s. Franchising: Acquiring Franchise. Available at: http://www.aboutmcdonalds.com/mcd/franchising/us_franchising/aquiring_a_franchise.html. McDonald’s. Our Company: Getting to Know Us. Available at: http://www.aboutmcdonalds.com/mcd/our_company.html. McDonald’s. Our Story: The Ray Kroc Story. Available at: http://www.mcdonalds.com/us/en/our_story/our_history/the_ray_kroc_story.html. McDonald’s. Worldwide Corporate Responsibility Online Report: the Values we bring to the Table. Available at: www.mcdonalds.at/presse/maps/McDCSR.pdf. Steve, G., Dan, D. & Samuel, H. (nd). Franchising and the Impact of McDonald’s. Journal of Management and Marketing Research. Wood, R. C. and Brotherton, B. (2008). The Sage Handbook of Hospitality Management. London: Sage publication limited Appendices Appendix 1: Advantages of Franchise Arrangement Figure 1: Advantages of Franchise Arrangement Source: Brooke, 2002, p.85 Appendix 2: Disadvantages of Franchising Figure 2: Disadvantages of Franchising Source: Brooke, 2002, p.86 Appendix 3: Service Delivery System as a Marketing Strategy Figure 3: Service Delivery System as a Marketing Strategy Source: McDonald and Chermetony, 1998, p. 2 Appendix 4: Service Fee/ Advertising Fee in McDonald’s Franchise Agreement Figure 4: Service Fee/ Advertising Fee in McDonald’s Franchise Agreement Source: McDonald’s 1989 cited in Steve, Dan & Samuel, nd, p.6 Appendix 5: Operator Lease Sample Figure 5: Operator Lease Sample Source: McDonalds 1989 cited in Steve, Dan & Samuel, nd, p.5 Appendix 6: Conventional Franchise Cost/ Expense for New Restaurant Figure 6: Conventional Franchise Cost/ Expense for New Restaurant Source: McDonalds 1989 cited in Steve, Dan & Samuel, nd, p.7 Appendix 7: McDonald’s Supply Chain Structure Figure 7: McDonald’s Supply Chain Structure Source: McDonald’s Worldwide, 2004, p.12 Read More