The route to fast food franchising
A McDonald's Restaurants case study

Page 1: Introduction

When the McDonald brothers, Dick and Mac opened their first restaurant in 1940 in San Bernardino, California, they could never have imagined the phenomenal growth that their company would enjoy. From extremely modest beginnings, they hit on a winning formula selling a high quality product cheaply and quickly. However, it was not until Ray Kroc, a Chicago based salesman with a flair for...
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Page 2: What is franchising

McDonald's is an example of brand franchising. McDonald's, the franchisor, grants the right to sell McDonald's branded goods to someone wishing to set up their own business, the franchisee. The licence agreement allows McDonald's to insist on manufacturing or operating methods and the quality of the product. This is an arrangement that can suit both parties very well. Under a McDonald's franchise...
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Page 3: Advantages to the franchisee

Being their own boss In return, the franchisee agrees to operate the restaurant in accordance with McDonald's standards of quality, service, cleanliness and value. McDonald's regularly checks the quality of the franchises output and failure to maintain standards could threaten the licence. The franchisee is also expected to become involved in local events and charities. Ray Kroc believed strongly...
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Page 4: The advantages for the franchisor

McDonald's recognises the benefits of a franchised operation. Franchises bring entrepreneurs, full of determination and ideas, into the organisation. Franchising enables McDonald's to enjoy considerably faster growth and the creation of a truly global brand identity. The more restaurants there are, the more McDonald's can benefit from economies of scale. On the financial side, McDonald's...
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Page 5: Dynamic innovation

Whilst the franchisees have to agree to operate their restaurants in the McDonald's way, there still remains some scope for innovation. Many ideas for new items on the menu come from the franchisees responding to customer demand. Developing new products is crucial to any business, even one which has successfully relied on a limited menu for many years. Consumer tastes change over time and a...
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Page 6: The three-legged stool - the suppliers

A third group of stakeholders, critical to the success of the franchise operation, is the suppliers. As McDonald's considers the quality of its products to be of absolute importance, it sets standards for suppliers that are amongst the highest in the food industry. McDonald's believes in developing close relationships with suppliers - everything is done on an open accounting, handshake trust...
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