CASE 7
McDONALD S: FROM BIG MAC TO P'TIT PLAISIR
Sam DeMarie, Pam Manhart. Charles B. Shrader
Iowa State University
Introduction12-3
Jim Skinner, CEO of McDonalds Corporation, sat in his
office and reflected on his company's recent experiences. The
firm had overcome many obstacles in its quest to be viewed as
a valued business partner in each of its operating regions. The
future looked bright.
Was it only a few short years ago that McDonalds had
been the focus of demonstrations and sometimes violent
protests? McDonalds had doggedly used its tried and true
business practice of standardisation to create a consistent
customer experience throughout the world. This allowed the
company to become the worlds largest fast-food restaurant
business. Yet somehow this previously sound business
strategy had unintentionally led the company to become an
icon for much of what was wrong with global business. Those
were challenging times, and rebuilding the global brand of
McDonald's had required significant changes.
As Skinner considered his company's situation, the phone
rang. It was Cindy Goody, director of nutrition for the company
Goody told Skinner about a troubling commercial she had
just finished watching on US television. In the commercial the
iconic golden arches appear shackled over the feet of a dead
man with the caption, '1 was lovin' it'. A hamburger is clutched
in his hand, and a woman weeps over his body Goody knew
this was exactly the type of thing she and Skinner thought
they had defeated. The commercial, developed by the non
profit group, Physicians' Committee for Responsible Medicine,
was the latest in a series of attempts to blame fast-food
consumption for increasing rates of heart disease and obesity.
Frustrated but resolute, Goody knew the company was now
committed to providing balanced menu choices for customers,
and that many of its menu items were healthy while being
reasonably priced. She felt confident that the company's new
menu not only reflected traditional American tastes but also
incorporated foods from around the world. The new, more
expansive menu now included everything from one-dollar
burgers and snack wraps to moderately priced salads and was
appealing to an ever-widening range of customers.
Goody was instrumental in developing the healthier
and more international menu over the past few years. Her
work entailed travelling the world for menu ideas, infusing
the menu with healthier items, and hiring a company chef,
Dan Coudreaut. Coudreaut, or Chef Dan as he was known
in the company, was a graduate of the Culinary Institute of
America and former head chef of the Four Seasons Resort in
Dallas, Texas. Chef Dan held the title of Director of Culinary
Innovation at McDonalds and supervised a staff of 16 that
evaluated as many as 1800 potential new menu ideas each year.
Goody realised Chef Dan's operation had breadied valuable
life into the old traditional burger and fries menu and had
helped the company grow during the recession.
Goody and Skinner considered the company's recent
performance. The new dollar menu was a success. The new
salads and healthier menu options were appealing to a wider
range of customers. Net income for September 2010 increased
12 per cent on a 5 per cent increase in sales. McDonald's
competitors Wendy's and Burger King were struggling with
their menus, experiencing low growth and dealing with
the possibility of being acquired. With foreign demand
for McDonald's at an all-time high, nearly 65 per cent of
McDonalds sales now came from overseas. McDonald's was
rated by the Wall Street Journal in the top five of the Dow 30
with the largest overseas revenue.
Skinner told Goody that they would have to keep in close
touch over the next few mondis. In a comforting tone he
said, 'Don't worry, we are on the right track.' This seemed to
mollify Goody and they hung up, but in the back of his mind,
Skinner started to mull things over. Was McDonald's current
performance merely a natural response of increased demand
for low-priced fast food during the slow economy? Should
the firm continue developing its menu with the multicultural
approach to which McDonald's attributed its recent success,
or go back to a simpler and more standardised set of options?
Could the company retain its long-standing burger and
fries menu and simultaneously be at the forefront of healthy
eating? Should the firm worry about health? How should
 PART FOUR CASE STUDIES
c the company continue to grow internationally? Was the
business environment changing again and, if so, would these
changes affect McDonalds in its efforts to achieve strategic
K
competitiveness?
Company history
I
McDonald brothers4
Brothers Mac and Dick McDonald opened their first restaurant
in California in 1940. It was built during the car-hop craze
I
and attracted a limited market of teenagers. Plagued with the
common problems of the car-hop business - labour-intensive
work, high turnover, waitresses dating customers, silverware
theft and grounds strewn with litter - the brothers decided to
try a new business approach: self-serve. Barbecue and other
items were removed to simplify the menu and eliminate the
59^1
p! need for silverware. An all male crew was hired, each of whom
was trained to perform a single task, which was enabled by
the new limited menu. It was in 1954 that the brothers' newly
designed operation caught the attention of Ray Kroc, who
was to become the founder of McDonalds Corporation. Kroc
was selling multi-mixers used for mixing multiple shakes
at once. Because of the large volume each five-spindle unit
could process, Kroc seldom had large sales. After selling 10
separate machines to the McDonald brothers, he went to
San Bernardino to personally investigate the situation. He
immediately saw the potential for expansion and negotiated to
become the brothers' franchising agent.
Ray Kroc4
The 1950s was an era marked by the rapid growth of
franchises. Kroc's multi-mixer business had exposed him to
sizeable franchises like Dairy Queen and Tastee Freeze. From
this experience, he concluded that die way for a corporation
to make money was to ensure that its franchisees made
money. The widespread practice at the time was to charge
considerable franchising fees, sell territory rights and require
store operators to purchase equipment and supplies from the
corporation at cripplingly high margins. This caused many
franchisees to cut corners to earn a profit, which hurt the
reputation of other franchisees. Kroc saw this as detrimental
to the corporation overall. This conclusion became legendary
due to Kroc's perpetual insistence that every McDonald's
store conform to die corporate tradition. He believed that
lack of orthodoxy would not only damage the brand image,
but would result in operational inefficiencies as well. He
created standardised menus, foolproof production processes,
470
common suppliers, consistent training and unwavering
cleanliness directives, and required a minimum advertising
budget to ensure the longevity of both the corporation and
the franchisee. McDonald's Corporation provided a business
model to the entrepreneur and in return earned royalties
based upon the success of that formula. Kroc opened his
first store in 1955 in suburban Chicago, and in 1961 bought
the company for US$2.7 million. In 1985, when McDonald's
launched its initial public stock offering, Kroc's share of the
firm was valued at USS32 million.
Marketing4,5
Early on, teenagers were McDonald's primary customers;
however, Kroc's objective was to target the larger, more
profitable family market. Accordingly, promotions such as
Happy Meals were aimed at children so that they would appeal
to their parents to go to McDonald's. Newspaper ads featuring
Rockwellesque paintings were provided by McDonald's
Corporation to franchisees for use in their local media. The
Yellow Pages and newspaper ads were the most common
advertising medium in the 1950s, but these ads were ineffective
in terms of reaching kids. Ronald McDonald was created and
broadcast during children's shows when spots were cheaper.
Creating this company 'spokesperson and using it during
children's shows flew in the face of convention during a time
when television advertising was never used by restaurants.
This approach proved successful, though, and contributed
to a rapid increase in sales of roughly 30 per cent. By 1985,
McDonald's had the largest and most powerful promotional
budget of any brand.
The company was also considered a pioneer when it
advertised during the first Super Bowl. At the time, devoting
heavy expenditures to television advertising during the game
was unproven; as such, it was also reasonably inexpensive. In
1967, it was estimated that 60 million viewers tuned in to the
championship game and advertising cost about US$80000
for a 60-second spot. Super Bowl ads have since become a
phenomenon and McDonald's 1993 Super Bowl ad, called
The Showdown' and featuring Michael Jordan and Larry Bird,
is today regarded as one of the top Super Bowl ads of all time.
McDonald's operations
Standardisation4
One of McDonalds greatest concepts has been its strict
adherence to operating standards, known as QSC&V (quality,
service, cleanliness and value). Because of standardisation,
 CASE SEVEN McDONALD'S: FROM BIG MAC TO P'TIT PLAIS

customers initially were and today still are certain of the necessary mass volumes. A supplier determined how to obtain
experience they will receive, regardless of the McDonald's significant volumes of a single type of fish, and developed the
location they visit. Thus, a Big Mac is sure to be the same process to repeatedly create a consistent filet size and shape
in Chicago as in Cheyenne. Quality is reliable. Service is suitable for standardised cooking at all restaurant locations.
always fast and courteous. Stores and restrooms are clean As a result, company store managers were able to outsource
at every location. Uniformity has allowed for greater cost much of the labour to suppliers.
control through greater economies of scale that in turn allow
Menu 4A7
McDonald's to maintain low prices. Value is also maintained
The menu has traditionally been one of the most tightly
through price controls. Customers pay the same amount in
controlled aspects of McDonald's business operations. Too
each store they visit. QSC&V are consistent company-wide
many menu variations can create several problems including
to protect the brand image, so that no single franchisee can
disruptions in the supply chain, inconsistent quality, increased
damage the reputation of units located in other markets.
expenses due to inefficiencies, and uncertainty in consumers'
Supplier relationships4 minds. Pricing is also strictly restrained to manage demand
For McDonalds, supplier relationships are a key component and maintain fairness between franchisees. Table 1 (on the
in its efforts to control costs. To this end, the firm has next page) details major menu developments over the years.
traditionally maintained very strong relationships with a small
Global expansion4,8-9
handful of suppliers. Each supplier's processes are scrutinised
To continue growing and as a foundation for competitive
for compliance to McDonald's standardised procedures. For
success, McDonald's transported its business strategies to
example, each burger must weigh the same and have identical
other countries (see Table 2 for a timeline of McDonald's
proportions of beef to fat to facilitate die automated cooking
global expansions). To enter new markets, McDonalds utilised
process. Unique clamshell-style griddles were developed to
the formula that had proven so successful over the years. The
cook both sides at once and create a perfectly cooked burger in
strategy in entering foreign markets was 'one world, one taste'.
as little time as possible. A non-standard burger would either
In this regard, the firm was committed to the standardised
be under- or overcooked. The process is designed to be error-
formula that was the bedrock of its success. The goal was
free by eliminating variation. Suppliers with proven process
to offer US fast food at a reasonable price. 'One world, one
controls are rewarded with McDonald's exclusive business and
taste' was reinforced by the decision to begin expansion with
volumes that almost guarantee profits.
English-speaking countries that were more accepting of the
As a result, suppliers willingly share their expertise with the
USA. US businessmen and tourists frequented company
company Suppliers create unique process designs knowing their
restaurants for a familiar taste of home while overseas. The
efforts will be rewarded by the company In addition, they are
company was selling American culture.
confident their loyalty will be rewarded. The exclusive nature of
McDonald's top management believed that 'if we
the supplier relationship fosters a par mering of ideas. For example,
incorporate their food we lose our identity', but the company
a supplier solved the challenge of producing a consistent french
underestimated the impact of its restaurants on the cultures
fry McDonald's had experimented with various temperatures
of the host countries. This made the company vulnerable to
and cooking times but still experienced unpredictable results.
much resentment. The original American' appeal eventually
Inconsistency in the potato supply chain complicated matters.
wore off and concerns grew regarding fatty diets. Scares over
The pioneering supplier found a potato that could be obtained
bovine spongiform encephalopathy (BSE; known colloquially
year-round and then environmentally controlled the storage
as mad cow disease) and a growing anti-US sentiment
process to regulate the conversion of starch into sugar.
strengthened the negative image of McDonalds as a global
Although it was a franchisee who thought of the Filet-O-
'powerhouse' in terms of food. Attacks and protests directed at
Fish, a supplier found a way to successfully make the fillets.
the company increased.
Originally, fillets were sliced, battered and fried by hand in
Additionally, there were operational problems with
each restaurant. Availability issues led to the use of various
executing this standardised approach. The company was
types of fish, thus the fillet patties lacked uniformity The
growing and the infrastructure necessary to support the
filleting process was too lengthy and varied to replicate in the
restaurants was not in place. Careful scrutiny and supervision
PART FOUR CASE STUDIES

TABLE 1 McDonald's menu over the years

Year US menu change Status Comments

1948 Menu reduced to support drive-thru Repeatedly

1949 French fries replace potato chips Current

1949 Shakes Current

1963 Hula burger Flop Catholic abstinence on Friday

1964 Filet-O-Fish Current Catholic abstinence on Friday

1968 Big Mac Current

1973 Quarter Pounder and Quarter Current

Pounder with cheese

1975 Egg McMuffin Current

1979 Happy Meals Current

1980 Chicken McNuggets Current

1981 McRib Off/on Barbecue sauce 1981, 1994 and 2005; farewell
tours 2006, 2007 and 2008; available 2011

1985 McDLT Flop

1987 Salads Continuous
revisions

1989 McPizza, lasagna and spaghetti Flop Attempts for supper; preparation took too long

1991 Big N Tasty sandwich Current

1991 McLean Deluxe Flop 91% fat free; attempts at lean menu; dry

1992 McJordan Flop Bacon and barbecue sauce

1996 Arch Deluxe Flop Attempts to appeal to adult tastes; loo distant
from McFamily tradition

2002 McAfrica Flop Massive famine in Africa; considered an

insensitive campaign

2003 Premium salads Current

2003 Dollar menu Current Key driver of sales and customer traffic

2004 Phase out supersize Current Simplify menu; support balanced choices

2006 Snack wrap Current

2009 McCafe Current

Source-. http://en.wikipedia.org/wiki7List_of_McDonald%27s_products.

had been the key to success, but many overseas operations
were joint ventures and difficult to supervise. Foreign
operations often did not have the qualified suppliers that were
the key to standardisation. As a result, overseas locations were
less profitable on average than their domestic counterparts.
Broadening global appeal610'1112131415
In 2003, management adopted a strategy called 'Plan to
Win that shifted emphasis from increasing the number of
store locations to improving existing locations. Rather than
promoting what American customers expected, McDonald's
 CASE SEVEN McDONALD'S: FROM BIG MAC TO P'TIT PLAISIR

TABLE 2 International expansion timeline

Year Markets entered

1967 Canada, Puerto Rico

1970 Virgin Isles, Costa Rica

1971 Guam, Japan, Netherlands, Panama. Germany. Australia

1972 France, El Salvador

1973 Sweden

1974 Guatemala, England

1975 Hong Kong, Bahamas

1976 New Zealand, Switzerland

1977 Ireland, Austria

1978 Belgium

1979 Brazil, Singapore

1981 Spain, Denmark, Philippines

1982 Malaysia

1983 Norway

1984 Andorra, Wales, Finland

1985 Thailand. Aruba, Luxembourg, Venezuela, Italy, Mexico

1986 Cuba, Turkey, Argentina

1987 Macau, Scotland

1988 Serbia, South Korea, Hungary

1990 Soviet Union, China, Chile

1991 Indonesia, Portugal, Greece, Uruguay, Martinique

1992 Czechoslovakia, Guadeloupe, Poland. Monaco, Brunei, Morocco

1993 Marianas. Iceland, Slovenia, Saudi Arabia

1994 Botswana, Kuwait, New Caledonia, Oman, Egypt, Bulgaria, Bahrain, Latvia. United Arab
Emirates

1995 Estonia, Romania, Malta, Colombia, Slovakia, South Africa, Qatar, Honduras, Saint Martin

1996 Croatia. Samoa, Fiji Islands. Liechtenstein, Lithuania, Cyprus, India, Peru, Jordan, Paraguay,
Dominican Republic, French Polynesia, Belarus
1997 Ukraine, Yemen, Republic of Macedonia, Ecuador. Reunion, Isle of Man. Suriname

1998 Moldova, Nicaragua, Lebanon. Pakistan, Sri Lanka

1999 Georgia. San Marino. Gibraltar, Azerbaijan

2000 French Guiana

[Continued]
PART FOUR CASE STUDIES

TABLE 2 International expansion timeline (Cont/nued)

[Year Markets entered

2001 Mauritius

2003 Kazakhstan. Mayotte

200A Montenegro

2006 Algeria, Kenya, Iraq

2011 Bosnia and Herzegovina. Trinidad and Tobago

Source: http://www.sec.gov/cgi-bin/srch-edgar; http;//en.wikipedia.org/wiki/List_of_countries_with_McDonald%27s_franchises.

attempted to become more relevant to local and regional Multi-domestic Strategies

preferences. Skinner felt the company needed to become more connected
To begin, the company started utilising local suppliers. to a global customer base. Over time, this resulted in
McDonalds provided incentives for local suppliers to upgrade significant variance in strategic actions in different countries.
their operations, and some US suppliers built plants overseas The examples that follow highlight key variations in country-
to serve stores in foreign markets. Regional distribution centres level strategies.
were established as the foundation for distributing indigenous France16'17'18,19,20'21
foods to multiple stores within a region and to support more
In France, McDonald's was fondly referred to as McDo,
customised menus.
pronounced 'McDough'. After the rebrand, France became
The company encouraged regional experimentation
McDonald's second most profitable market in the world. As
with the menu to align with local tastes. When McDonald's
mentioned earlier, McDonald's was not always well received
experienced success with a menu item in one region, it would
in France; in fact, the company often was the focus of protests,
then leverage diat experience in other regions. One example of
sometimes resulting in violence. The company's French
this was McCafe, an upmarket coffee concept that originated
leadership redesigned the brand so it would not be seen as
in Germany Ultimately, this concept was instrumental to the
an American company subverting the French culture of high
turnaround of US stores. Another was the P'tit Plaisir, a line of
cuisine. The company touts, 'Yes, we were born in the US, but
mini-size snack foods developed in France that is now served
we are made in France'. McDonald's now features premium
in 12 different countries.
ingredients, 75 per cent local sources, eco-friendly stores
The company also took purposeful actions aimed
and nutrition content significantly better than the country's
at becoming a valued member of its local communities.
traditional choices featuring high-fat cheeses and potatoes
For example, McDonalds in France hosted an open-door
soaked in duck fat. McDonalds was also an active participant
community event after one of its stores was destroyed by a
in the premier agricultural show, Salon de 1'Agriculture, which
protestor. This strategy is now used in other countries as well
features premium, locally sourced foods.
and offers customers the opportunity to tour the kitchen and
The new menu in France offers many choices not familiar
meet executives and suppliers. Finally, stores were redesigned
in the USA, such as the P'tit Plaisir (mini snack foods), Little
to be more modern, comfortable and amenable to overseas
Mozza (tomato and mozzarella salad), Croques Monsieurs
expectations. The new fast-food idea was to encourage patrons
(grilled ham and cheese) and Jambon Beurre (ham and butter
to linger and relax; to be a destination, not just a drive-thru.
on a crusty baguette). In addition, stand-alone McCafes carry
Ambiance and comfort were improved with upholstered vinyl
traditional French sweets such as macaroons, fruit tarts and
chairs, tables of various sizes and shapes, subdued lighting,
flan, and serve beverages in ceramic mugs.
and decor appropriate to local customs. Individual franchisees
Although 70 per cent of Americans traditionally order
have created some very unique designs. Outlets and free wi-fi
food to go, dining is a particularly social event in France.
for customers to work on laptops while eating have also been
People are likely to come in groups and spend more money,
added.
 CASE SEVEN McDONALD'S: FROM BIG MAC TO P'TIT PLAISIR
but expect to dine in, linger and have at least two courses.
McDonalds prospered in France by positioning its restaurants
as primarily takeaway, offering quality options without the
time commitment. This strategy delivers a direct cost benefit
to the consumer; traditional restaurants are required to tax
patrons at a rate of 19.6 per cent, while McDonalds is only
required to tax patrons 5.5 per cent. This makes inexpensive
food even more reasonable in a sluggish economy with high
unemployment.
Germany22,23'24-25
Early on, McDonalds located its German restaurants on
properties owned by German brewers to facilitate the
selling of local beers. While this feature attracted a bar
crowd, it deterred the families McDonalds preferred. Local
management understood the German market to be very price
sensitive so they increased beer prices and developed a coffee
bar. This later evolved into the concept known as McCafe.
With die recent addition of more locations, McDonald's
has become the most popular restaurant brand to Germans
aged 12 to 18. This is due in part to the firms commercials
starring Heidi Klura, a German supermodel. Her ads combat
the obesity image associated with McDonalds. In addition,
stores are simply decorated and focus on the essentials typical
of German design. Most stores feature televisions tuned to
the McDonalds German Network, a very popular in-store
television network. It carries branding, entertainment, leisure
content and advertising.
Germany is considered one of the most environmentally
conscious countries in the world. Sensitive to this, a typical
German McDonalds store converts used oil into biodiesel fuel,
buys solar-powered air conditioners and uses refrigerators that
operate without harmful chlorofluorocarbons. McDonald's
also developed a prototype store that uses 25 per cent less
energy. Staff patrol the grounds for garbage and the firm
displays anti-litter slogans on trash cans. To reduce waste,
wrappers are made from 72 per cent recycled paper, while
other disposables such as tray liners, napkins and toilet paper
are made from 100 per cent recycled content. The firm even
redesigned McFlurry lids to save, of all things, hedgehogs.55
McDonalds also improved its local sourcing in Germany. In
response to government pressure, McDonald's started adding
locally raised, organic beef to its patties.
McDonalds marketing executives also identified a German
fascination with Mexican culture and a love of that culture's
spicy foods. Accordingly, McDonald's Germany added Los
Scharfos (fried cottage cheese and jalapeno snack), El Pikanted
(beef patty, pita and picante sauce) and a big bacon burger
topped with jalapenos. The popular Mexican food items were
tied to a promotion drat used Facebook and YouTube to allow
patrons to enter a sweepstakes.
Russia 26.27,28.29.30.31
After 14 years of negotiations that began at a meeting during
the Canadian Olympics, McDonalds was allowed to enter the
former Soviet Union market. Despite being a very challenging
economy that prompted many other international businesses
to leave, McDonald's did not retreat. Because there were
few individuals with the resources necessary to become
franchisees, one of the keys to McDonald's early success was
participating in a 51 per cent joint venture with the Moscow
City Council.
Historically, Russians had difficulty obtaining permission
to leave the country Thus, patronising a US company in Russia
became a cheap and easy way to get a glimpse of the USA. In
addition, McDonald's was an attractive alternative to the poor
service consumers were accustomed to, as quite often they had
to stand in line for hours for food at other vendors. Fast food
had very little competition because restaurants for the average
citizen were rare. Most traditional restaurants were very fancy
and exclusively targeted the rich. Remarkably, the fast-food
diet was not an issue. Due to basic food scarcity, McDonald's
instead got complaints chat the fat content in the mayonnaise
was not high enough. The menu in Russia was augmented
with simple foods unique to local tastes such as cabbage pie
and kvass (alcohol from fermented brown bread).
The average family income level in Russia also worked
in McDonald's favour. While McDonalds was sometimes
criticised in the USA for low wages, Russians were very
happy with McDonald's jobs. Each new store opening created
approximately 100 new jobs. Most families were poor and
very few owned cars, so McDonald's did not need drive-thru
windows. Store owners instead developed walk-up windows.
In Russia there was little infrastructure and few
suppliers. Out of necessity, McDonald's chose to build
their McComplex food processing facility while developing
a domestic supplier network. When McDonald's started
in Russia, the state of affairs was in such infancy that, for
instance, there was not machinery available to mass harvest
potatoes in the necessary volumes. Additionally, health and
safety standards lagged. After significant contriburions to the
food service, processing, agriculture and business industries,
PART FOUR CASE STUDIES
today 80 per cent of supplies are sourced domestically It is
estimated that die McDonalds supply chain network alone
created over 100000 new jobs in Russia.
Currency management was another new challenge to
which McDonalds had to adapt. Rubles were not always
easily convertible, but McDonald's stores only accepted rubles,
the local currency, to make it easy for the local public to spend
their money. Because of the difficulty in converting the rubles
back to dollars and the difficulty obtaining loans, McDonalds
strategy was to buy local real estate to spend the rubles, then
charge rent from those properties and collect in hard currency
This gave the company money to import the supplies it could
not source locally The approach has paid off. McDonald's early
real estate investments have appreciated about 40 per cent and
land is now almost impossible to acquire today. Consequently,
as competitors attempted to enter the market, they were faced
with exorbitant rents.
China32'33,34-35
The Chinese market was also challenging for McDonald's in
terms of real estate. McDonald's US site selection is calculated
down to a science and emphasises the suburbs because that
is where most American families spend their time. Generally
speaking, McDonald's found China's inner cities were less
deteriorated than US inner cities, and made them the primary
target markets. McDonald's also decided that the best way to
expand was to build groups of stores simultaneously, thereby
achieving economies of scale in construction, sourcing,
training and distribution. The firm secured locations in
growing areas that would become prime real estate in the
future. Similar to the experience in Russia, the firm took the
risk to buy low and have that presence when property prices
started to appreciate.
In contrast to Russia, China was experiencing tremendous
economic growth; consequently, more and more Chinese were
driving cars. New drivers seemed to enjoy driving everywhere
possible. McDonald's was the first fast-food provider to offer a
drive-up lane in China, and the concept proved very popular.
Trying to further take advantage of the growing car ownership
in China, McDonald's closed a deal with the Chinese state-
owned oil company allowing the company to open stores at
its gas stations.
The Chinese tend to not dine out nearly as often as
Americans. However, when they do dine out, they are typically
not looking for their traditional cuisine, but something more
novel. Going to McDonald's provides the opportunity to
experience the outside world to which China has only recently
become open. In China, McDonald's food is expensive for the
average citizen, so the firm's pricing is tiered by district based
on the income of local consumers.
The American experience offered by McDonald's is a
popular dining choice; therefore, the traditional Western-style
menu is still the basis of McDonalds Chinese menu. Even so,
the Chinese menu does have some unique selections. In the
Chinese culture, beef is associated with strength and energy,
so China is home to the 'Mega Mac' with four beef patties.
The new quarter pounder in China had cucumbers instead
of pickles. There are also inexpensive, traditional Chinese
choices on the menu such as a corn cup, a pork sandwich, and
seafood and vegetable soups.
During traditional festivals, people tend to gravitate
towards conventional Chinese restaurants. McDonald's hoped
to reverse this tendency by celebrating Chinese national
holidays as well. Given this objective, the firm decorates stores
with cultural emblems of Fu (happiness), magpies and twin-
fishes symbols to recognise and show respect for Chinese
traditions and culture.
Food safety is a major issue for McDonald's in China.
McDonald's relies heavily on suppliers to minimise service
time in the store, but safe food handling practices were not
common. To remedy this, the firm held Chinese suppliers
to the same high standards as US suppliers and frequently
dropped in unannounced for inspections. McDonald's worked
hard to establish local supply chain networks in order to be
less vulnerable to restrictive governmental trade policies.
Australia22'36'37'38-39'40'41'42
McDonald's in Australia is often called 'Maccas'. McDonald's
emphasises premium Angus beef and has positioned itself
as a high-end fast-food outlet. They call this approach
'masstige' - prestige for the masses, premium but affordable.
The beef McDonald's uses in Australia is 100 per cent Angus
and locally sourced. Two of the more popular sandwich
choices are the grand Angus and the mighty Angus. Quality
is important and Australia's internationally recognised
livestock identification system provides strong traceability
and safety in terms of quality control. There has been such
a strong interest in healthy menu choices in Australia that
McDonald's has offered as many as 16 products on its 'light
choice' menu, nine of which are approved by the Australian
National Heart Foundation. Even the french fries in Australia
have been altered to adapt to local regulations and do not
 CASE SEVEN McDONALD'S: FROM BIG MAC TO P'TIT PLAISIR
contain wheat or milk. McDonald's officials indicate that the
firm worked for a full year to develop products in ways that
would result in approval by the National Heart Foundation.
Environmental concerns have been very important in
Australia as well. McDonalds efforts in this area include
changing from foam to paper packaging, increasing the recycled
content of paper products, comprehensive waste recovery
and composting. The firm encourages suppliers to reduce
their environmental impact as well. For example, all coffee is
certified sustainable by the Rainforest Alliance. A McDonald's
team is working with the marine stewardship council on fish-
fanning sustainability. Additionally, McDonalds has helped
its carton board supplier work supportively with the Forestry
Stewardship Council.
The company has exhibited a strong commitment to
employees in Australia. Casual employees have the same
12-month parental leave as full-time employees. Wages are
above the federal minimum. In 2001, McDonald's was voted
the employer of choice for women and identified by Institute
Australia as a 'Best Company to Work For' in 2008.
Japan36'4W5'i6
McDonalds has found the Japanese market to be challenging
and dynamic. The firm's early marketing strategy emphasised
the appeal of US style products. This approach was successful
at first, but has recently experienced difficulties. McDonald's
initially used a low-price strategy that was not well received
in Japan. Although the market is very price sensitive, it is also
susceptible to fashion and trends. In response, promotions
have been used to appeal to the younger generation. For
example, various mega-burgers have been offered for a limited
time only The company also used a creative and bold strategy
to tout the future release of a 'top secret' sandwich. A select
few high-profile stores were temporarily closed and re-opened
with the top-secret burger: the Big Mac, which was not
available at other McDonald's restaurants in Japan. One of the
few items unique to Japan to consistently remain on the menu
is the teriyaki burger.
The company targets the youth market segment as having
the highest profit potential and, in so doing competes directly
a Japanese convenience stores. The company also now
naphasises coffee sales to leverage its large pricing advantage
over Starbucks and appeal to price-sensitive consumers.
One of the keys to future growth is to eliminate the
competition by converting convenience store locations into
McDonald's restaurants. Locations McDonald's has targeted
include train stations and other busy sites with heavy traffic
throughout all hours of the day
Because of relatively fewer natural resources, the Japanese
have not required local sourcing as much as other countries.
Superior imports are considered acceptable. Thus, McDonald's
has formed key partnerships to create viable supply chains.
For example, beef is not domestically produced but comes
from Australia.
India48
India is the worlds most populous democracy and the third-
largest economy in Asia, just behind China and Japan. Given
this, it is no surprise that McDonalds was one of the first
American fast-food chains to enter the Indian market, with its
first restaurant established in New Delhi in 1996. McDonalds
franchises, while not as widespread as in other parts of Asia
and the Pacific Rim, are now found in many parts of India.
In June 2009, the company announced expansion plans for
40 new restaurants across India, increasing the total number
of Indian locations to over 200. The current franchise growth
rate is higher in India than any other Asian country Entry is
typically accomplished through the use of joint ventures with
Indian firms.
Initially, McDonald's experienced difficulty in India due
to environmentalists and animal welfare activists. Religious
and anti-Western sentiment also presented challenges to
the company Over 40 per cent of the Indian population is
vegetarian. Out of respect for the local religion and culture,
McDonald's serves no beef or pork products in India. Instead,
McDonald's developed a special line of vegetable, fish and
chicken sandwiches. The company developed both vegetarian
and non-vegetarian menus with separate kitchens and service
crews. McDonald's also offers kitchen and restaurant tours to
assure customers the staffs are separate.
Seventy-five per cent of the McDonald's menu is localised
for India. This represents a much larger portion of the total
menu than for other Asian countries. The Chicken Maharaja
Mac - two grilled chicken patties with smoke-flavoured
mayonnaise, cheddar cheese and vegetables - has become
one of the most successful choices on the localised menu.
The popularity of the chicken nuggets and sandwiches
caused some restaurants to run out of supplies. The high
demand for this sandwich has led the company to also offer
it in a lamb version. McDonald's continues to reach out to
local communities to improve its image. It has engaged in
partnerships with Indian communities to support schools,
477
PART FOUR CASE STUDIES
gardens and parks. The company has also made donations to
the Bhuj, Gujarat and Latur earthquake relief efforts.
Brazil49'50'51
McDonalds in Brazil is among the most popular fast-food
restaurants in a country that loves fast food. At first, growth
proceeded quickly and franchises were often opened too
close to existing outlets, sometimes causing franchisees to sue
the company. The owners' concerns were cannibalisation of
existing stores' sales and growing without consideration of the
areas served by existing locations. Some Brazilian store owners
also complained about the extremely high rents charged by
the company.
Over time, McDonald's developed several social
initiatives to improve its image and to better fit the Brazilian
environment. One was the McHappy Day (McDia Feliz)
partnership with the Ronald McDonald Institute that raised
approximately 38 million Brazilian real (US$21 million) for
the purpose of treating teenagers and children who have
cancer. Other community-oriented activities include training
courses, clothing and book donations, and rehabilitation of
green areas in Brazilian communities.
McDonald's eventually chose a strategy in Brazil that was
somewhat unusual for the company In 2007, McDonald's sold
its businesses in Brazil and 13 other Latin American countries,
totalling almost 1600 restaurants, to a licensee organisation.
This arrangement allows McDonald's to receive royalties
in Brazil rather than operating sales and rents. The licensee
group has agreed to pay monthly royalties at a rate of 5 per
cent of gross sales as well as to grow the business by paying
fees for opening new restaurants and committing funds to
improve existing ones. McDonald's has a 20-year royalty and
fee agreement with the licensee group.
Current situation
With continuing growth, the magnitude of McDonald's
impact on national and world culture has become increasingly
significant. The presence of the golden arches is often seen as
evidence of US hegemony It has become the quintessential
example of efficiency, standardisation and bureaucracy
Because of its size and influence, McDonald's has received
more than its share of public attention, both positive and
negative. The company has high brand exposure, a large
dependence on natural resources and a considerable impact
on the environment. McDonalds operations require a
significant amount of packaging materials, and it is no
secret that McDonalds can generate a great strain on the
infrastructure everywhere it operates. McDonald's began to
experience increasingly frequent incidents of violence and
vandalism because the firm was a symbol of Western culture.
To combat this international backlash, McDonald's engaged
in a series of socially responsible activities.
Corporate responsibility52 53 54
Kathleen Batman, manager of corporate social responsibility
for McDonald's, emphasised six general areas in terms of
corporate responsibility: community employment experience,
environmental responsibility, governance and ethics, nutrition
and well-being, and a sustainable supply chain. Bannan
implemented a strategy that allowed the company to consider
more social and environmental issues in the areas where it
did business. As part of this strategy, the company identified
a set of key performance indicators centred on sustainability
concepts. For example, in the supply chain area, die company
charted the worldwide percentage of firms that affirm the
Code of Conduct created for McDonald's suppliers. The
firm also set goals and standards in the areas of animal
welfare and packaging. In terms of employment, McDonald's
charted employee development, internal promotions
and advancement opportuniries for women. In addition,
community philanthropic activities and in-restaurant
nutritional information were supported worldwide. The firm
tracks improvement relative to the above stated goals areas on
an annual basis.
McDonalds also entered into several productive
relationships with non-governmental organisations (NGOs).
The company works actively with NGOs in an attempt
to improve and better track the effects of its operations
on both suppliers and customers. Packaging, for example,
has been a huge environmental issue. In conjunction with
Environmental Defense in Europe, the company developed
an alternative to polystyrene packaging called the 'clamshell',
a cardboard container that keeps the food warm but is not as
environmentally harmful as polystyrene.
The large industrial cattle operations needed to supply
the company have a sizeable environmental footprint as well.
McDonald's has also worked with NGOs and suppliers to
better understand the firm's impacts on water pollution, waste
management and soil erosion. As part of its collaborations,
the company has engaged in pilot projects with beef suppliers
in an attempt to establish sustainability goals and metrics.
The result has been improved environmental practices that
 CASE SEVEN McDONALD'S: FROM BIG MAC TO P'TIT PLAISiR

m turn provide both defence against criticism and support of citizens who register to participate in CO, emission reduction
the company brand. McDonalds has required beef suppliers programs.
to document that their cattle do not have BSE, and it has
Conclusion
asked its chicken suppliers to reduce antibiotic use.
As Skinner reflected on the past and how McDonald's had
Through a process called 'anticipatory issues management'
systematically used its standardised business practices to
the company identified a potential problem: the batteries
create a consistent customer experience, he realised how this
included with some Happy Meal toys contained mercury
aspect of McDonald's approach to business contributed to
The batteries never became a big public relations problem for
the success die firm enjoyed, including becoming the largest
McDonalds because the company proactively identified the
fast-food restaurant in the world. But the old McDonald's
risk and eliminated all mercury batteries from the toys.
existed in a stable world diat changed very slowly. CEO
Together with Unilever, Coca-Cola, the United National
Skinner now felt as though the world that his firm competed
Environment Program and Greenpeace, McDonald's created
in was changing daily, and in significant ways. McDonalds
a natural refrigerant program that explored alternatives to
current multi-domestic strategy, including its unique and
ozone-depleting chemicals. This program, called 'Refrigerants
customised approaches to each country, allowed it to respond
Naturally', won an Environmental Protection Agency award
more quickly to this dynamic environment. New socially
in 2005.
In 2009, the company developed an interactive software
responsible initiatives would help maintain the company's
reputation abroad. Still, Skinner knew he was going to have
program named EcoProgress that enables its restaurants to
to condnually rethink his strategy for company growth. In
reduce energy consumption by up to 11 per cent. McDonalds
this regard, a major question lingered, 'What is our next move
also pioneered improvements in water management through
going to be?' Skinner knew that these were challenging times
its stormwater retention tank program. The goals of this
and continual effort would be required for McDonald's to
rogram are to save on water use not only in the restaurants,
but in communities as well. Additionally, McDonald's has compete successfully throughout what was a rapidly changing
world and competitive environment. While the firm's recent
started programs for transforming its used cooking oil into
financial results were positive (see Table 3), continuing to
biodiesel fuels and has installed electric vehicle charging
perform in this manner would challenge the firm, its managers
tadons at restaurants in certain locations. The firm has also
-rtnered with the Japanese government to offer discounts to and employees.

TABLE 3 Selected financial data for McDonald's Corporation

Revenue (values in $US million) 2011 2010 2009

USA $8,529 $8,112 $7,943.8

Europe 10,886 9,569 9,273.8

APMEA 6,019 5,066 4,337.0

Other countries and corporate 1,572 1,328 1,190.1

Total revenue 27,006 24,075 22,744.7

Cost of revenue 13,952.9

Gross profit 8,791.8

Selling and administrative expenses 2,394 2,333 2,234.2

Impairment and other charges (4) 29 (61.1)

(Cont/nued)
PART FOUR CASE STUDIES

TABLE 3 Selected financial data for McDonald's Corporation (Continued)

Revenue (values in $US million) 2011 2010 2009

Other operating expenses (233) (198) (222.3)
Operating income 8,530.0 7,473.0 6,841.0

Interest income (expense) 493 451 473.2

Gain (Loss) on sale of assets - - (94.9)

Other, Net 25 22 (24.3)
Income before taxes 8,012 7,000 6,487.0

Income tax 2,509 2,054 1,936.0

Income after tax 5,503 4,946 4,551.0

Assets

Cash and short-term investments 2,335.7 2,387.0 1,796.0

Total net receivables 1,334.7 1,179.1 1,060.4

Total inventory 116.8 109,9 106.2

Prepaid expenses 615.8 692.5 453,7

Other current assets, total 0

Total current assets 4,403.0 4,368.5 3,416.3

Plant, property, equipment total - net 22,834.5 22,060.6 21,531.5

Goodwill, net 2,653.2 2,586.1 2,425.2

Total assets 32,990 31,975 30,224.9

Liabilities and shareholders' equity

Accounts payable 961.3 943.9 636.0

Current portion of LT debt/Capital leases 366,6 8.3 18.1

Total current liabilities 3,509.2 2,924,7 2,988.7

Total long-term debt 12,133.8 11,497,0 10,560.3

Deferred income tax 1,344.1 1,332.4 1,278.9

Minority interest 0
Other liabilities, total 1,612.6 1,586.9 1,363.1

Total liabilities, total 16,191.0

 CASE SEVEN McDONALD'S: FROM BIG MAC TO P'TIT PLAISIR
Notes
1. J. Lehart, 2010, Divided by a two-track economy, Wall Street Journal.
8 September.
2. J. Jargon & G. Chon, 2010, Burger King's latest pickte, Wait Street Journal,
9 September.
3. J, Cloud & 0. Brook, 2010, McDonald's has a Chef?, Time, 22 February.
i. J. F, Love, 1986, McDonald's Behind the Arches, New York: Bantam Books.
5. J. Alder, Super Bowl I, Afaouf.com.
6. List of McDonald's products, http./Aww.mcdonaids.com.
7. Creating new foods: The product developer's guide, New Zealand Institute
of Food Science and Technology Inc.
8. L, Lewis, 2003, Japan's fast food funk, Jldpan Inc, May.
9. T. Royte, 2000, Working for McDonald's in Europe, Routtcdge.
10. T, Howard, 1993, Local strategies edging out 'assembly-Line' menus.
Nation's Restaurant News, 19 July.
11. R. Tomkins, 1997, When the chips are down: McDonald's strategy of
opening more restaurants to compensate for fatting US market share has
backfired, Financial Times (London edition), 16 July.
12. McDonald's Corporation, Funding Universe, http.7/www.fundinguniverse,
com/company-histories/mcdonald-s-corporation-history,
13. Calculate Your Credits, http://www.mcdonald5.com, http://www1.
mcdonalds.com/coltege/pdfs/Calcutate_Coltege_ Credits.pdf.
14. McDonald's College Credit Connection, http://wvAV.mcdonalds.com,
http://www.aboutmcdonalds.com/mcd/corporate_careers/training_and_
devetopment/hamburger_university/cottege_credit_connection.htmL
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17. J. Gershman, 2007, McDonald's takes Paris, New York Sun, 2 July.
18. L. Schiffren, 2009, McDonald's in France, Naffonai Review Online, 1 July.
19. N. Audi, 2009, France, land of epicures, gets taste for McDonald's, New
York Times, 25 October.
20. A. Chalupa, 2009, France's shocking love affair with McDonald's. Daily
Finance. 6 October.
21. M. Steinberger, 2009, How McDonald's conquered France, Slale, 25 June,
22. When it comes to sustainable packaging and waste, less is more,
httpy/wAnw. mcdonalds.com, hftp://www.a boutmcdonalds.com/mcd/
sustainability/library/policies_programs/environmenlaL_responsibility/
sustainable_packaging_design.htmL
23. 2001, McDonald s using more organic meat in Germany - brief article,
Eurofood, 30 August.
24. 2009, McDonald's uses Facebook, MMS with German promotion, Burger
Business, 8 October.
25. J, S. Baskin, 2009, Branding and sustainabitity ... In Germany McDonald's
changes arches logo color to green, Social Media Today, 3 December.
26. 2007, As burgers boom in Russia, McDonald's touts discipline, Drovers
Cattle Network, October 16.
27. A. Blackman, 1990, Moscow's Big Mak attack, Time. 5 February.
28. K. Keeton, 2009, McDonald's walk up window in Russia!, Russian Photos
from Russia/, 24 March.
29. E. E. Arvedtund, 2005, McDonald's commands a real estate empire in
Russia, New York Times, March 16,
30. 2011, Capitalist triumph, National Post, 30 January.
31. 2010, McDonald's celebrates 20th anniversary in Russia, Marketwire,
1 February.
32. E. B. Colby, 2006, McDonald's expands in China, Sun-Times does its part,
Columbia Journalism Review. 4 October.
33. 2004, KFC and McDonald's - a model of blended culture, China Daily,
1 June.
34. W. Griffith, 2008, McDonald's has a big appetite for China, MSNBC.
15 August.
35. L. Jie, 2008, McDonald's growing in China, China Daily, 8 September.
36. Mezzio, 2007, McDonald's Australia: History, Everything 2, 10 April.
37. 2009, McDonald's Japan setts with Aus NLIS, kVesfem Farmer-Stockman,
8 April.
38. C. Atarcon, 2007, McDonald's gets tick of approval, B&T 19 February.
39. 2002 Award Sponsor - McDonald's, Australian Government: Equal
Opportunity for Women in the Workplace Agency.
40. Gary, 2008, McDonald's Australia (or, long live the king), Everything
Everywhere, 31 May.
41. 2006, McDonald's Australia French fries free of wheat and milk, Medical
News Today, 21 February.
42. I. Drake, 2009, McDonald's Australia gets boost from Angus burgers,
Australian Food News, 21 September.
43. 2005, McDonald's Japan: One chain's recovery from stagnant sales, NPD
Group, May.
44. J. Smerd, 2006, McDonald's Japan no longer serving up forced retirement,
Workforce, 5 September.
45. 2007, Recipe for success: Revamping the corporate menu at McDonald's
Japan, Japan Society, 11 January.
46. K. Worstey, 2009, McDonald's betting on coffee for profit growth?, Japan
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47. A. Rangnekar, McDonald's India Launch.
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30 June.
49. L. Luxner, 2002, Golden arches over Brazil, Latin CEO, Mar-Apr.
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51. Z, Shahan, 2009, McDonald's going green?, Matter Network. 20 August.
52. K. Bannan, How serious is McDonald's about sustainabitity?, McDonald's
corporate website fatog.
53. D. C. Esty and A. S. Winston, 2009, Green to Gold: How Smart Companies
use Environmental Strategy to Innovate, Create Value, and Build
Competitive Advantage, Hoboken, NJ: John Wiley Publishers.
54. http://www.mcd0nalds.ca/pdfs/hi5tory_finat.pdf,
55. Apparently, hedgehogs have a sweet tooth and would stick their heads in
the hole on the lid of a discarded McFlurry and often not be able to putt
it back out. This sometimes resulted in the animal starving to death. The
new lid with a smaller hole prevents the hedgehog from sticking its head
inside.
481