Case Study No. 1
McDonald’s: Serving Fast Food around the World
Ray Kroc opened the first McDonald’s restaurant in 1955 in the United States. He offered a limited menu of high quality; moderately priced food served fast 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 6,000 restaurants in the United States, and by 1995 it had more than 18,000 restaurants in 89 countries. In 1995 alone, the company built 2,400 restaurants, and by 2001 it had more than 29,000 restaurants in 121 countries.
In 1967, McDonald’s opened its first restaurant outside the United States- in Canada. Since then, its international growth accelerated. In 1995, the “Big Six” countries that provided about 80 percent of the international operating income were Canada, Japan, Germany, Australia, France, and Britain. Yet fast food has barely touched many cultures. The opportunities for expanding the market are great, as 99 percent of the world populations are not yet McDonald’s customers. For example, in China, with a population of 1.2 billion people, there were only 62 McDonald’s restaurants in 1995. McDonald’s vision is to be the major player in food services around the world.
In Europe, McDonald’s 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 for up to two hours for a hamburger. It has been said that McDonald’s restaurant in Moscow attracts more visitors (on average 27,000 daily) than Lenin’s mausoleum (about 9,000 people), which used to be the place to see. The Beijing opening in 1992 attracted some 40,000 people to the largest (28,000 square foot) McDonald’s restaurant in China at a location where some 800,000 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 1995, 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.
Prices vary considerably around the world, ranging from $ 3.81 in Switzerland to $ 0.78 in Argentina for the Big Mac, which costs in the United States $ 2.49. The Economist magazine even devised a Big Mac index to estimate whether a currency is over-or undervalued. For example, the $1.27 Chinese Mac translates into an implied purchasing power parity of $ 4.22. The inference is that the Chinese currency is undervalued. Here are other price comparisons for the $ 2.49 U.S Big Mac: Chile $ 2.16, Euro area $ 2.37, Hong Kong $ 1.40, Japan $ 2.01, Mexico $ 2.37, Peru $ 2.48, Singapore $ 1.81 and Thailand $ 1.27.
McDonald’s traditional menu has been surprisingly successful. People with diverse dining habits have adopted burgers and fries wholeheartedly. 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. Another item, a very different product, is pizza. In Norway, McDonald’s serves grilled salmon sandwich, in the Philippines pasta sauce with frankfurter bits, and in Uruguay hamburger with a poached egg. Any new venture is risky and can be either a very profitable addition or a costly experiment.
Despite the global operations, McDonald’s stays in close contact with its customers, who want good taste, fast and friendly service, clean surroundings, and quality. To...