McDonald : I’m loving it

Every month my seven year old son makes a trip to  McDonald(he would love to go every weekend but we put our foot down )  to buy a Happy Meal (toys are really amazing) and saying  “I’m loving it “.  This article is dedicated to McDonald and understanding what makes it stand apart. Since 1955, McDonald’s have served the world some of its favorite food. And along the way, they’ve managed not just to live history, but create it, from drive-thru restaurants to Chicken McNuggets  and much more.

Some interesting facts about McDonald’s

  • They  64 million customers each day around the world daily in 119 countries.
  • Today there are over 33,000 McDonald’s over the world.(Find out more at McDonald’s map)
  • McDonald’s serves 1% of the world’s population every day
  • McDonald’s sells more than 75 hamburgers every second
  • McDonald’s is the world’s largest distributor of toys, with one included in 20% of all sales
  • McDonald’s’ $24 billion in revenue makes it the 90th-largest economy in the world
  • Counting $32 billion in revenue from franchise stores, McDonald’s claims the 68th biggest economy, bigger than Ecuador
  • McDonald’s hires around 1 million workers in the US every year
  • According to company estimates, one in every eight American workers has been employed by McDonald’s
  • McDonald’s’ iconic golden arches are recognized by more people than the cross
  • The Queen of England owns a McDonald’s near Buckingham Palace as part of her vast real estate portfolio
  • For the next three years, McDonald’s is going to open one restaurant every day in China

McDonald’s Corporation (NYSE: MCD) is the world’s largest chain of hamburger fast food restaurants. It sells hamburgers, cheeseburgers, chicken, french fries, breakfast items,soft drinks, shakes and desserts. In the midst of global economic concerns, McDonald’s has maintained a firm grasp on the industry because their core strategy remains unchanged – The company sells moderately priced meals that offer the convenience of a full-service restaurant, but are still within reach of people. So while some squeezed consumers may be cutting back on more expensive restaurants, McDonald’s is still affordable. It makes money for stock investors too  $2,000 worth of stock in 1965 would translate to more than $3 million worth in 2011.

History of  McDonald

How did McDonald start and became such a large empire. McDonald’s history can be traveled at McDonald’s time line.

It started In the 1930s, brothers Richard James “Dick” McDonald and Maurice James “Mac” McDonald of Irish origin , were struggling to make a living running a movie theater in California when they noticed that a nearby hot dog stand always seemed to do a lot of business. With a $5,000 loan, the McDonald brothers started the Airdrome hot dog stand in 1937 as a car-hop restaurant(A carhop is a waiter or waitress who brings food to people in their cars at drive-in restaurants) . By 1940, they moved it from Arcadia to San Bernardino and changed the name to McDonald’s Barbeque.

History of McDonald

History of McDonald

In 1948 Dick and Mac McDonald shut down their restaurant for three months for alterations. In Dec it reopens as self-service drive in restaurant. The menu is reduced to nine items: hamburger, cheese burger, soft drinks, milk, coffee, potato chips and a slice of pie. The staple of the menu was 15 cent hamburger.  The brother adopted the assembly line process similar to the auto industry, to prepare their food and improve the efficiency of the restaurant. They called it the Speedee System.  To advertise the fact that McDonald’s was so quick to serve the customer, the company chose to use Speedee as a mascot which  was eventually replaced with Ronald McDonald by 1967 when the company first filed a U.S. trademark .

Mascots of McDonald

Mascots of McDonald

In 1954 Ray Kroc, the salesman of mixer,  was surprised by a huge order for 8 multi-mixers from a restaurant in San Bernardino, California.  They produced a limited menu, concentrating on just a few items—burgers, fries and beverages—which allowed them to focus on quality at every step. Ray pitched his vision of creating McDonald’s restaurants all over the U.S. to the brothers. In 1955 he founded the McDonald’s Corporation, and 5 years later bought the exclusive rights to the McDonald’s name. By 1958, McDonald’s had sold its 100 millionth hamburger.

Ray Kroc wanted to build a restaurant system that would be famous for food of consistently high quality and uniform methods of preparation. He wanted to serve burgers, buns, fries and beverages that tasted just the same in Alaska as they did in Alabama and he was able to do it not because he had the best hamburger but because of the underlying systems.

A Better System than McDonald’s

Found an interesting excerpt in the book Cashflow Quadrant  by Robert Kiyosaki of Rich Dad Poor Dad fame.
Can you personally make a better hamburger then McDonald’s?”
So far 100% of the people I have talked with have talked with about their new idea have said “yes”. They can all prepare, cook, and serve a better quality hamburger then McDonald’s.
At this point , I ask them the next question: “Can you personally build a better business system than McDonald’s?”
Some people see the difference immediately, and some do not. And I would say the difference is whether the person is fixated on the left side of the Quadrant, which is focused on the idea of the better burger, or on the right side of the quadrant, which is focused on the system of business.
I do my best to explain that there are a lot of entrepreneurs out there offering far superior products or services than are offered by the mega-rich multinational corporations, just as there are billions of people who can make a better burger than McDonald’s But only McDonald’s has the system that has served billions of burgers.

If I had a brick for every time I’ve repeated the phrase Quality, Service, Cleanliness and Value, I think I’d probably be able to bridge the Atlantic Ocean with them.” —Ray Kroc

Hamburger University:McDonald’s Center of Training Excellence

In 1961, Ray launched a training program, later called Hamburger University, at a new restaurant in Elk Grove Village, Illinois. There, franchisees and operators were trained in the scientific methods of running a successful McDonald’s. Hamburger U also had a research and development laboratory to develop new cooking, freezing, storing and serving methods. Today, more than 80,000 people have graduated from the program. More about Hambuger University

Real Business of McDonald:Real Estate

An interesting excerpt from Rich Dad Poor Dad by Robert Kiyosaki – highlighting the fact the McDonald is in business of real estate.

In 1974, Ray Kroc, the founder of McDonald’s, was asked to speak to the MBA class at the University of Texas at Austin . A dear friend of mine, Keith Cunningham, was a student in that MBA class. After a powerful and inspiring talk, the class adjourned and the students asked Ray if he would join them at their favorite hangout to have a few beers. Ray graciously accepted.

“What business am I in?” Ray asked, once the group had all their beers in hand.

“Everyone laughed,” said Keith. “Most of the MBA students thought Ray was just fooling around.”

No one answered, so Ray asked the question again. “What business do you think I’m in?”

The students laughed again, and finally one brave soul yelled out, “Ray, who in the world does not know that you’re in the hamburger business.”

Ray chuckled. “That is what I thought you would say.” He paused and then quickly said, ‘ladies and gentlemen, I’m not in the hamburger business. My business is real estate.”

Keith said that Ray spent a good amount of time explaining his viewpoint. In their business plan, Ray knew that the primary business focus was to sell hamburger franchises, but what he never lost sight of was the location of each franchise. He knew that the real estate and its location was the most significant factor in the success of each franchise. Basically, the person that bought the franchise was also paying for, buying, the land under the franchise for Ray Kroc’s organization.

McDonald’s today is the largest single owner of real estate in the world, owning even more than the Catholic Church. Today, McDonald’s owns some of the most valuable intersections and street corners in America , as well as in other parts of the world.

Most  McDonald’s franchises are owned and operated by private entrepreneurs. McDonald’s Corp. simply owns the building and brands.  In May of 1955 Kroc was visited by Harry Sonneborn whose  financial innovations were responsible for the rapid growth of McDonald’s . Harry Sonneborn devised an arrangement whereby a local land owner would lease his land to McDonald’s, taking a second mortgage. Kroc and Sonneborn would then go to a bank and get a first mortgage loan on the building.  It was a technique which worked because in those days, the land owners did not have any other groups willing to lease the land.  Later, of course, competition for the fast food sties would make the arrangement impossible to implement.

Sonneborn also developed a formula whereby the franchisee made monthly payments covering the mortgage payments plus a profit for McDonald’s. This became such a lucrative source of revenue that some observes called McDonald’s a real estate business with a fast food business sideline. In 1956 McDonald’s opened 11 franchised stores.  Twenty-five more were opened in 1957 and then there was no looking back.

Restaurants and Franchises of McDonald

Restaurants and Franchises of McDonald

In business for yourself, but not by yourself

Ray Kroc wanted to build a restaurant system that would be famous for food of consistently high quality and uniform methods of preparation. To achieve this, he  chose a unique path: persuading both franchisees and suppliers to buy into his vision, working not for McDonald’s, but for themselves, together with McDonald’s. He promoted the slogan, “In business for yourself, but not by yourself.” His philosophy was based on the simple principle of a 3-legged stool: one leg was McDonald’s, the second, the franchisees, and the third, McDonald’s suppliers. The stool was only as strong as the 3 legs.

It seems that strategy is working still as McDonald world over has the look and feel and same taste. Sujatha from Bangalore in her blog has talked about how finding McDonald in Chennai made her feel at home. Excerpt from the post:Chennai impression Part IV

I am no ardent fan of either KFC or McDonalds. I stay within 5-10 minutes’ walk of each of these outlets on New BEL Road in Bangalore. I go there to pick the Happy Meals burger only because Tan loves the toys that come with it! But I must confess: seeing McDonald outlet in Skywalk Mall in Arumbakkam made me feel at home! Like I was in familiar surroundings, in ‘my place’, a place I know & like! Tanvi & I spent more than an hour there, which is so rare I surprised myself. And that’s when I understood why some of my foreign students would always say a KFC/McDonalds/Pizza Hut in a new country makes them feel so much at ease that they can practically live there.

Big Mac Index

THE Economist’s Big Mac index is a fun guide to whether currencies are at their “correct” level. It is based on the theory of purchasing-power parity (PPP), the notion that in the long run exchange rates should move towards the rate that would equalise the prices of a basket of goods and services around the world. At market exchange rates, a burger is 44% cheaper in China than in America. In other words, the raw Big Mac index suggests that the yuan is 44% undervalued against the dollar.
The Big Mac index was introduced in The Economist in September 1986 by Pam Woodall as a semi-humorous illustration and has been published by that paper annually since then. The index also gave rise to the word burgernomics. More about Big Mac index.

Books on McDonald

Book Grinding It Out: The Making Of McDonald’s by Ray Kroc. About the book Philadelphia Sunday Bulletin says: He was past fifty(52) before he ever thought of getting into the fast food business. Within a decade he was a millionaire, and his odyssey is a classic success story!”
bookMcDonald’s: Behind the Arches Inspiring, informative, and filled with behind the scenes stories, this remarkable saga offers an irresistible look inside a great American business success.
The more I read about McDonald, the more impressed I was.  It has it’s challenges but by keeping true to it’s philosophy it has survived from earlier 1940’s.

6 Responses to McDonald : I’m loving it

  1. gaurav says:

    nice piece of information. thanks for sharing

  2. Manshu says:

    Wow what a detailed post about them! The one big difference I see is the perception and brand value of McDonald’s in US versus India.

    While it’s a low cost, fast meal place in the US which tends to do even better (relatively speaking) in recessionary times – in India it enjoys a perception of being a somewhat premium brand.

    • admin says:

      Thanks Manshu for comment…I wanted to cover all those in one post so became lon..g
      In India yes McDonald is considered a premium brand a) because it is from US b)it’s look and
      feel is much better, similar all across than local restaurants. It is quite popular among kids..

  3. sujatha sathya says:

    very nicely you’ve told the Mac story. something i didn’t know at all. success stories are enticing to read

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