• McDonald’s • Telstra
Pre-seen exam information Semester 1 2013
CPA Program professional level Global Strategy and Leadership © CPA Australia Ltd 2013
Case Study 1
McDonald’s case facts
McDonald’s Corporation: A strategic approach to global growth McDonald’s Corporation (McDonald’s) is the world’s leading global foodservice retailer with more than 33 500 restaurants serving nearly 68 million people in 119 countries each day (McDonald’s 2012a). In 2011 the company generated USD 27 billion in revenue from its global operations and USD 8.5 billion of operating profit. Headquartered in the United States, McDonald’s Bar-B-Q restaurant was opened in California in 1940 by brothers Richard (Dick) and Maurice (Mac) McDonald as a typical drive-in featuring a large menu and car hop service (where customers stay in their car and are served their food). In 1948 the brothers closed the business for three months of renovations and reorganised the business as a hamburger restaurant, using production line principles and featuring a simple menu of nine items including the staple 15 cent hamburger, cheeseburger, soft drinks, milk, coffee, potato chips and a slice of pie. In 1954 Ray Kroc, a salesman for Prince Castle Multi-Mixer, visited the restaurant intending to sell the brothers some items. Kroc was fascinated by the operations and learned that the brothers were looking for a franchising agent to expand their restaurant chain nationally. Kroc joined the company in 1955 as National Franchising Agent, and opened his first McDonald’s in Illinois. He subsequently purchased the chain from the McDonald brothers. McDonald’s Corporation was created in 1965 when the company had its first public stock offering on the New York Stock Exchange at USD 22.50 per share (McDonald’s 2012b). The famous ‘golden arches’ of McDonald’s were created in 1969 when the company’s logo underwent a major change, and remodelling of the restaurants was also undertaken to re-brand the company. The original red-and-white tiled buildings were replaced by more contemporary buildings emphasising the golden arches as the company’s branding. Under Kroc’s leadership McDonald’s expanded quickly across the United States. International expansion commenced in 1967 with restaurants opened in Canada and Puerto Rico. In the next 10 years the company would grow rapidly, such that the 1978 opening in Japan marked the 5000th restaurant. By 1983 the company had an interest in 7778 restaurants in 32 countries (McDonald’s 2012b). Although Kroc died in 1984, he left a lasting legacy with the company continuing to grow to date. In addition to outlet expansion, McDonald’s has constantly trialled and introduced new product items and categories in order to increase the company’s share of food consumption and meet changing customer tastes and needs. The company has also extended into complementary product categories, such as the launch of McCafé in 2003. More recently, the company has introduced more premium offerings such as the Angus beef burger in Australia which is made of premium Angus beef, and a higher price is charged compared to its core burger range. McDonald’s is expected to face stronger competition in the future, given the rising popularity of healthier fast-food operators such as Subway, which has a larger number of franchise stores across the world and recently eclipsed McDonald’s as the world’s largest fast-food operator in terms of establishments. This will increase pressure on McDonald’s to promote and expand its new healthier product options and to improve the nutritional content of its food if the company wants to stay the market leader. The following information is based on a number of McDonald’s corporate publications. Part A provides an overview of McDonald’s strategic direction and operating model. Part B provides a review of the 2011 Chairman and CEO reports. Part C provides a summary of the franchising model used by McDonald’s for its...