Situation of Mcdonalds

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“The Mc Donald’s type fast food isin’t relevant to today’s customer.” -A Mc Donald’s Franchisee

“The world’s has changed. Our customers have changed. We have to change too.” -JAMES R. CANTALUPO, CHAIRMAN AND CEO, Mc Donald’s, 2003

Two brothers Richard and Maurice McDonald opened the first restaurant in San Bernardino, California in 1937. • Opened a drive-in restaurant- relatively new concept. • Single store- sold hamburgers and fries. • Strong business in milk shakes.

SUCCESS FACTORS IN MID 1950s Invented a revolutionary new

concept- “self service” • Reduced menu from 25 items to 9. • Prices kept low. • Success factors- speed, service, quality and cleanliness.

• First franchisee- Neil Fox in Phoenix, Arizona(1952) • Franchisee restaurant located in a gleaming red and white tiled rectangular building. • Most distinctive feature- “ two bright yellow arches” which later evolved as the symbol for McDonald’s.


• Ray Kroc- multimixers distributorstepped in to change McDonald’s history. • Small investment for $75000 made business ideal for franchising. • In 1955- Kroc established a franchising company. • In 1961- changed the company name to McDonald’s Corporation.

1960 1963 1965 1967 1968 1975 1979 1991 Indication of competition- Domino’s first telephone order to deliver a pizza McDonald’s debut as Ronald corporate “spokesclown” McDonald’s stock went public at $22.50 a share McDonald’s went International “Big Mac”, the basic burger, made its debut- an immediate hit First “Drive- Thru” operations in Sierra Vista, Arizona Introduced “Happy Meals”- gave working moms a break Introduced low-fat McLean Delux Burger- flopped and withdrawn

Since 1994 McDonalds ranked at the bottom of fast food industry. Stock plummeted 60% over a period of 3 years Lost $20 billion in market capitalization Quarterly loss of $344 million

Dec 2002 2002

Jan 2003

One of the main reasons was the changing customer preferences. Customers preferred eating at home. Became more health conscious and selected fresh food over fatty, fried food and red meat. According to an industry expert, the ageing population behaved differently than they did 10, 20, 30 years ago.

Obesity became a major health problem in late 1990s. According to a report by American Medical Association, 30.5% of Americans were obese and 15% of the children aged between six and nine were overweight. McDonald’s had to face legal suits over claims that its high calorie food was responsible for health problems.  Some of these foods should not be consumed more than once a week which

Depended heavily on US tourism, but with the September 11,2001, terrorist attacks, McDonald’s’ sales suffered. In the late1990s, it faced stiff competition from fast food chains like Wendy’s, Burger King, Pizza Hut, KFC and Subway. According to a research conducted by Business Week, consumers rated both Wendy’s and Burger King better, as far as the quality of food was concerned.

In the late 1990s, McDonald’s faced a slow down in domestic sales. International sales had also fallen due to economic turmoil across Europe and Asia. Market share had also reduced Domestic operating income had also declined. Relationships with franchisees also

o For every new restaurant that was opened, a McDonald’s store in the vicinity lost anything from 6% to 20% of its revenues. o Its continuous expansion had an adverse effect on service and quality. o It stopped grading its franchisees by mystery shoppers on parameters such as cleanliness, speed and service.

o In 1999, it introduced a made-to-order system called ‘Made for You,’ to counter custom made food systems at Wendy’s and Burger King. However, both the systems stretched the time required to...
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