You are on page 1of 22

FRANCHISING MEANING Franchising is the practice of using another firm's successful business model.

The word 'franchise' is of Anglo-French derivation - from franc- meaning free, and is used both as a noun and as a (transitive) verb. For the franchisor, the franchise is an alternative to building 'chain stores' to distribute goods and avoid investment and liability over a chain. The franchisor's success is the success of the franchisees. The franchisee is said to have a greater incentive than a direct employee because he or she has a direct stake in the business.


COMPANY PROFILE McDonalds is a leader in convenient foods and beverages, with revenues of about $23 billion and over i.6 million employees serving the customer’s worldwide. The company consists of the snack business of Beverages and Foods. PepsiCo brands are available in nearly 115 countries having more than 24,500 restaurants in the world providing 24 hour service. Having about 1 billon customers to be served all over the world. McDonalds’s success is the result of superior products, high standards of performance, distinctive competitive strategies and the high integrity of our people. McDonalds is continuing to expand and introduce new alternative beverages in the market. Approximately 85% of McDonald’s restaurant businesses world-wide are owned and operated by franchisees .All franchisees are independent, full-time operators. McDonald’s was named Entrepreneur’s Number-one franchise for 1997 McDonald’s corp. is currently one of the most successful consumer products company in the world with annual revenues exceeding $23 million and has more than 1.6 million employees.


McDonald’s products are recognized and are most respected all around the globe. Currently, its divisions operate in all over the world in beverages, snack foods, and restaurants. The corporations increasing success has been based on high standards of performance, marketing strategies, competitiveness, determination, commitment, and the personal and professional integrity of their people, products and business practices. McDonald’s believes their success depends upon the quality and value of their products by providing a safe, whole some, economically efficient and a healthy environment for their customers; and by providing a fair return to their investors while maintaining the highest standards of integrity.

McDonald's worldwide is well known for the high degree of respect for the local customs and culture. McDonald’s has developed a menu especially for India with vegetarian selections to suit Indian tastes and preferences. Keeping in line with this, McDonald's does not offer any beef or pork items in India. In the last decade it has introduced some vegetarian and non-vegetarian products with local flavours that have appealed to the Indian palate. There have been continuous efforts to enhance variety in the menu by developing more such products.

McDonald's has also re-engineered its operations repeatedly in its 11 years in India to address the special requirements of a vegetarian menu. Vegetable products are 100% vegetarian, i.e.
  

They are prepared separately, using dedicated equipment and utensils. Only pure vegetarian oil is used as a cooking medium. Cheese and sauces are completely vegetarian and egg less.


Separation of vegetarian and non-vegetarian food products is maintained throughout the various stages of procurement, cooking and serving.

Restaurant Count McDonald’s has 132 restaurants in India of which 79 are in North & East India and 53 in West & South India. In India, nearly half a million customers visit McDonald'sTM family restaurants spread across India every day.


McDonald’s Finance Department has two key areas of responsibility:  financial reporting and  management accounting. Although each of these functions has different priorities, working together ensures the best financial position for the company now and for the future.



McDonald’s has two sources of profit: • Sales made by company-owned restaurants • Rental and royalty income from franchised restaurants. RESTAURANT SALES McDonald’s retains all of the profit earned by company-owned restaurants. An example Profit & Loss Statement for a restaurant is shown left and highlights how food and labour constitute a restaurant’s largest costs. In addition to variable costs, which increase or decrease depending on the level of sales, McDonald’s also incurs costs that are largely fixed, for example utilities and advertising, which need to be paid for even before the restaurant makes any sales. Increasing sales and controlling costs are fundamental to ensuring the profit of each restaurant is either maintained or increased.


• Before buying any McDonalds franchise outlet it is crucial for businesses to have information regarding the  location,   accessibility demand

 and other relevant factors which enable businesses to decide upon which is the best McDonalds franchise to buy in order to get fast foods that are demand driven  THE CRITERIA FOR CHOOSING PREMISES
A: Generally we prefer to be in a location convenient to people. We look for the following generators to support our business: home, shopping, work, entertainment, education and transit points such as stations or bus depots. We look to have support from all generators or a combination of at least 4 of these generators to open a restaurant.In terms of space: Minimum of 2,500 – 3,000 square feet carpet area on the ground floor with a clear height of 11 feet and a frontage of at least 35 to 40 feet.



• First we need to fill up the online form of the company. Apart from this, the individual is also required to have a $ 1,00,000 as cash. One should remember that the franchisee has to pay around$5,00,000 to 10,00,000 to get started with the business which includes the cost of setting up the business. The company gets an annual fee of $45,000 on yearly basis including a royalty of 12.5% which includes the McDonalds franchise application • If the franchisee is not comfortable in paying the whole amount in one go, then he has the option of paying 25% of the amount on cash and the rest of the amount can be forwarded in a period of 7years. The company norms stare that every franchise has to hire at least 20 who fully trained with the processing of the McDonalds fast food. • In order to equip the training program, the company also facilitates an inhouse training program which enables the franchise in managing the business in a suitable manner • McDonalds also provides full support in publicity of its franchise world over and it also remains in touch with its franchisee through Internet and other source of information. As famous McDonalds system will support in various areas like training, marketing, and operating. Before an owner makes a franchise successful it completes it training programme. This is for nine months.


• The franchise of McDonalds is purchased by combining personal finance along with bank finance. It is stated that an individual should have minimum 25%of total purchased price in the form non borrowed funds • The agreement of McDonalds franchise is for 20 years in this agreement the property is owned by McDonalds and the equipments of restaurant kitchen are owned by the owner • . Franchises have the responsibility to maintain the standard of restaurant and décor



1-Conventional Franchise: This includes the price based on the profitability of restaurant i.e. a candidate should have at least25% of the price in non borrowed funds. 2:-Business facilities lease:This is provided rarely by Mc Donald's in this all the people who are unable to meet financial requirements and are unable to excess all the other things then McDonald's grant the business facility lease to those people. McDonalds Franchise Information on ongoing fees For the use of property McDonalds charge monthly rent. And this is based on various levels of monthly sales and vat is deducted from the amount. Financial Requirements/Down Payment An initial down payment is required when you purchase a new restaurant (40% of the total cost) or an existing restaurant (25% of the total cost). The down payment must come from non-borrowed personal resources, which include cash on hand; securities, bonds, and debentures; vested profit sharing (net of taxes); and business or real estate equity, exclusive of your personal residence. Since the total cost varies from restaurant to restaurant, the minimum amount for a down payment will vary. Generally, we require a minimum of $500,000 of non-borrowed personal resources to consider you for a franchise. Individuals with additional funds may be better prepared for additional or multi-restaurant opportunities.

FINANCING It require that the buyer pay a minimum of 25% cash as a down payment toward the purchase of a restaurant. The remaining balance of the purchase price may be financed for a period of no more than seven years. While McDonald’s does not offer financing, McDonald’s Owner/Operators enjoy the benefits of our established relationships with many national lending institutions. We believe our Owner/Operators enjoy the lowest lending rates in the industry. Ongoing Fees During the term of the franchise, you pay McDonald’s the following fees:

Service fee: a monthly fee based upon the restaurant’s sales performance (currently a service fee of 4.0% of monthly sales).

Rent: a monthly base rent or percentage rent that is a percentage of monthly sales.

NEW RESTAURANTS Relatively few first time Owner/Operators obtain a new restaurant. The costs associated with new restaurants are as follows: Initial Costs $45,000 Initial Fee paid to McDonald's


EQUIPMENT AND PRE-OPENING COSTS Typically these costs range from $1,012,200 to $1,840,000. The size of the restaurant facility, area of the country, pre-opening expenses, inventory, selection of kitchen equipment, signage, and style of decor and landscaping will affect new restaurant costs. These costs are paid to suppliers. The new Owner/Operators must pay forty percent (40%) cash of the total costs of a new restaurant, and may finance the remainder from traditional sources. While McDonald's does not offer financing, McDonald's Owner/Operators enjoy the benefits of our established relationships with many national lending institutions. We believe our Owner/Operators enjoy the lowest lending rates in the industry

Franchise Term 20 Years Ongoing Fees:  Service fee: a monthly fee based on the restaurant's gross sales (currently a service fee of 4.0% of monthly sales) Rent: a monthly base rent or rent based on a percentage of monthly sales


• In this method the franchisor makes his cash payment at the end of each month and the amount to be paid is fixed and does not depend on the daily income of the franchisee. • The monthly charge paid by the franchisee helps him updating his business strategy in daily basis. • This money paid is regarded to be security against the franchise you buy .The money paid in royalty to the franchisor makes it use the amount for any further development of the business you take up There are many structures that are followed by the franchisor to take payments from franchisee: • Some of the ways by which the payments can be made are flat fee, percentage on the sale of the franchisee and percentage of gross sale made by the franchisee. The amount to be paid in royalty is found to be negotiable McDonalds has been the foremost company to have started the business of franchising in the world. Its total investment has been around $506K to$1.6M • Before investing on any McDonalds Franchise it is necessary that you study the profit maximisation that the outlet has previously made if you are starting a new franchise with McDonalds it is necessary to know the amount of profit made for the annual year


HOW DO FRANCHISES WORK? To set up a franchise with McDonald's costs at least £200,000. Potential franchisees need to contribute at least a quarter of this sum. Partnerships are not allowed to set up a McDonald's franchise.

Would-be franchisees have to sign a franchise agreement with the firm. This gives them the right to operate a specific McDonald's restaurant, at a single address, for a period of 20 years. Under the franchise agreement, the company agrees to provide the McDonald's trademarks, restaurant decor, signage and equipment layout. In addition, the franchisee can use the recipes for the firm's products, their stock control, accounts systems, method of operation, and marketing. .


Prospective Owner/Operators must, at a minimum, have the following qualities:

Significant business experience; we are particularly interested in individuals who have demonstrated successful ownership or management of multiple business units or have managed multiple departments.

Individuals who possess the capability to grow rapidly with McDonald’s. The ability to develop and execute a business plan. An entrepreneurial spirit and strong desire to work hard and be part of an established franchise system.

Ability to manage finances including a thorough understanding of business financial statements.

Commitment to personally manage the day-to-day operations of the restaurant business.

Willingness to complete a comprehensive world class training program and become proficient in all aspects of operating a McDonald’s restaurant business.

The capability to effectively manage an organization that recruits, trains, and motivates restaurant employees who deliver an exceptional customer experience.

An acceptable credit history

Sufficient liquid assets (i.e., cash) to invest


Owner/Operator Perspective
McDonald’s has always been a franchising company and has relied on its Owner/Operators to play a major role in the System’s success. McDonald’s remains committed to franchising as a predominant way of doing business. Listen as four McDonald's Owner/Operators share their perspective in these areas: Training, McFamily, Customer Satisfaction, Social Responsibility and Support.

World Class Training
McDonald’s continues to be recognized as a premier franchising company around the world. We believe a major component of this is the world class training you receive prior to becoming an Owner/Operator. McDonald’s provides hands on training and the materials you need to be a success in your restaurant business. Their franchising system is built on the premise that McDonald’s can be successful only if their Owner/Operators are successful. They believe in a partnering relationship with our Owner/Operators, Suppliers and Employees. This relationship begins with world class training. Their training program is the best in the industry. You will become an operational expert focused on providing an outstanding experience for our customers every day.


Training Some of the highlights include:
    

9 – 18 months training in a restaurant close to your home Self directed, part time – 20 hours per week Seminars, conferences, one-on-one training sessions Success based on competency Operator training classes conducted by local training professionals 2 advanced 5 day courses at the Fred L. Turner Training Center at Hamburger University, Oak Brook IL.

World Class Service
McDonald's Field Operations and Franchising staff work directly with you from the moment you enter our training program. The primary job of the Field Operations staff is to assist our Owner/Operators maximizing Quality, Service and Cleanliness which help you optimize sales and profits. McDonald's provides extensive support in Marketing and Advertising. McDonald's award winning advertising reaches around the world. To continually maintain and take advantage of our leadership position, each restaurant is required to spend a minimum of 4% of gross sales annually for advertising and promoting the business. Owner/Operators work with local agencies to place advertisements and, in some cases, produce their own creative material. In addition, through a voluntary U.S. cooperative of McDonald's Owner/Operators known as the Operator's National Advertising (OPNAD) Fund, the Company and its Owner/Operators combine to purchase national television advertising. The combined buying power of pooled funds has helped


McDonald's create a worldwide brand unmatched in the food service industry -an advantage beyond measure for your individual McDonald's restaurant. McDonald's has an extensive ongoing training system which includes Hamburger University, and 21 regional training departments. McDonald's provides the most up to date training materials in the industry. McDonald's Supply Chain department has developed an extensive network of the world's finest suppliers. McDonald's works closely with our suppliers to ensure our restaurants are provided with the highest quality products at the most competitive prices.

Being a McDonald’s Owner/Operator offers you many advantages – from the training, and the support of a solid organization, to the opportunity to own a thriving and successful business. Essentially, here’s what you receive when you become a McDonald’s Owner/Operator:

Own your own business and receive the rewards that come from being responsible for your own success. With McDonald’s unique approach to training and support, you are in business for yourself, but not by yourself.

Use of the trademarks and operating system of the number one brand in the world.


The tools to help you in your business: local and national support in the areas of operations, training, advertising, marketing, human resources, real estate, construction, purchasing, and equipment purchasing and maintenance. To be responsive to your needs and in support of a collaborative business environment, McDonald’s maintains divisional and regional offices throughout the U.S., along with our home office in Oak Brook, Illinois.

The enjoyment that comes from working with people, from your restaurant crew to your customers and community.

The opportunity to contribute to the success of McDonald’s: Big Mac, Filet-O-Fish, and Egg McMuffin sandwiches have all been developed by Owner/Operators.

Personal and business growth and satisfaction, both as an individual Owner/Operator and as a member of McDonald’s respected worldwide organization.

Personal growth and business knowledge from McDonald’s extensive training and from your experience as an Owner/Operator.

McDonald’s National Leadership Council, National Black McDonald’s Operator Association, McDonald’s Hispanic Operator Association, Women’s Operator Network, and Asian McDonald’s Operator Association provide a national forum for the exchange of ideas between the Company and its Owner/Operators. Divisional and Regional Leadership Councils, local advertising co-ops, and regional business meetings also provide valuable interaction at the local level.


As a McDonald’s Owner/Operator, you will experience a unique relationship with the Company – one that is unparalleled in the quick service restaurant industry. McDonald’s leadership position continues to be built on the respect the Company shows its Owner/Operators


CONCLUSION McDonald's views the relationship between franchisor, franchisee and supplier to be of paramount importance to the success of the business. Ray Kroc recognized the need very early on for franchisees that would dedicate themselves to their restaurants. He wanted people who had to give up another job to take on the franchise venture, relying on their franchise as their sole source of income and would therefore be highly motivated and dedicated. Consequently, McDonald's will not offer franchises to partnerships, consortia or absentee investors. The initial capital has to come from the franchisee as a guarantee of their commitment. The selection process is rigorous to ensure that McDonald's only recruits the right people. McDonald’s understands the value of an integrated accounting and finance function, extending from the restaurant floor up to the board of directors. Each individual McDonald’s restaurant is structured as an independent business, with restaurant management responsible for its financial performance.