McDonald’s: Is the Fast Food Icon Reaching

the Limits of Growth?

Stefan Schmid and Adrian Gombert

Abstract
McDonald’s is often considered the archetype of an American company. The
present case study outlines how McDonald’s started its business in the United
States before expanding abroad. It shows how the company stuck to its core ideas
while being responsive to local differences and to changing environmental trends
over time. The case study also discusses major challenges that McDonald’s faced
and how the company reacted to them.

1 An All-American Restaurant

The story of McDonald’s starts in the 1940s, when Richard and Maurice McDonald,
two brothers from Manchester, California, created a new concept for a fast food
restaurant.1 Their idea was to place simplicity and speed above everything else. The
menu consisting of only nine items (hamburger, cheeseburger, chips, five different
drinks and a pie) was not only easy to remember, but it also allowed rapid and
low-priced production.2 Neither dishes nor cutlery were required for the meal, which
saved costs for purchasing and washing, and the facilities used the most modern
technologies to enable fast production.3 In terms of distribution, the McDonald
brothers combined current trends (like the drive-in concept) with their own ideas
(self-service).4 In short, they reduced ‘dining-out’ to its very core.

1
See Love (1986, p. 24).
2
See Love (1986, p. 28).
3
See Love (1986, p. 32) and Schneider (2015, p. 24).
4
See Love (1986, p. 22) and Schneider (2015, p. 10).
S. Schmid (*) · A. Gombert
ESCP Europe Berlin, Berlin, Germany
e-mail: sschmid@escpeurope.eu; agombert@escpeurope.eu

# Springer International Publishing AG, part of Springer Nature 2018 155

S. Schmid (ed.), Internationalization of Business, MIR Series in International Business,
https://doi.org/10.1007/978-3-319-74089-8_7
156 S. Schmid and A. Gombert

The new concept struck a chord with American customers. Attracted by the
brothers’ success, the milkshake seller Ray Kroc saw an opportunity for expansion
and persuaded the McDonalds to open additional restaurants with him.5 He
negotiated an agreement with them that granted him the exclusive right to sign
franchisees throughout the United States.6 In 1955, the three men founded the
McDonald’s System, Inc., and the McDonald’s concept soon began to spread around
the country.7 The use of a franchise system enabled rapid growth without the burden
of major risks. All franchisees had to adhere to a detailed catalogue of routines,
which restrained their own initiative but created an impression of uniformity in the
customers’ eyes.8 Kroc valued quality and demanded hard work and strict obedience
to the rules from the franchisees.9 McDonald’s image thus became an archetype of
bureaucratic organization and even Taylorism.10 Like the franchisees, the suppliers
also had to adhere to strict principles. All ingredients from vegetables to beef had to
meet a detailed catalogue of criteria.11 Suppliers who did well in Kroc’s eyes were
granted long-lasting contracts and given advice on technological improvements.12
Those who did not, however, were relentlessly dislodged from the McDonald’s
system.13
An interesting feature that distinguished McDonald’s from other franchise
operators was the practice of renting real estate to the franchisees. This measure
allowed McDonald’s to impose higher rents on its franchisees, as legislation gave
landlords more rights than franchisees.14 In its financially restricted beginnings,
McDonald’s rented the properties only to sublet them to the franchisees. Later, the
company could easily afford to buy real estate, which made it one of the world’s
biggest landlords.15
The expansion was accompanied by an extensive marketing campaign, making
the brand of McDonald’s famous throughout the country. The concept was deemed
lucrative by many potential franchisees. By 1956, one year after the company was
established, 14 McDonald’s restaurants were in service, after five years over
100, and after 10 years more than 700.16 However, the successful development did
not occur without internal struggles. In 1961, the McDonald brothers and Kroc

5
See Love (1986, p. 44).
6
See Love (1986, p. 53).
7
See Schneider (2015, p. 21).
8
See Anonymous (2005).
9
See Kroc (1977, p. 59).
10
See Ritzer (1995, p. 48); Taylorism, a term named after Frederick Winslow Taylor, refers to a set
of standardization, planning and measurement techniques aimed at controlling employee behaviour
in the workplace. See also Sheldrake (2003, p. 14).
11
See Love (1986, p. 136) and McDonald’s (2016).
12
See Love (1986, p. 120).
13
See Love (1986, p. 120).
14
See Love (1986, p. 159).
15
See Schneider (2015, p. 71).
16
See Gross (1996) and Schneider (2015, p. 26).
McDonald’s: Is the Fast Food Icon Reaching the Limits of Growth? 157

parted company, because the founders had less ambitious plans for expansion than
Kroc.17 Kroc bought the brothers out for a sum of $ 2.7 million and was solely in
charge of the company from there on.18

2 McDonald’s Internationalization

Having achieved remarkable and ongoing growth within the United States,
McDonald’s soon started to consider going abroad. Pursuing the idea that ‘what
works in their home country would also be profitable in other countries’, the company
entered Canada and opened its first restaurant outside the United States in a suburb of
Vancouver in 1967.19 The next country to be targeted was Costa Rica, where
McDonald’s proved in 1970 that its American meal was also popular in countries
that were culturally more distant.20 Only 10 years later, McDonald’s was present in
24 countries, including Germany, Australia and Japan.21 After continuous expansion
with only a few withdrawals (namely, in the markets of Bermuda in 1995, Bolivia in
2002, Barbados in 2005, Jamaica in 2005, and Iceland in 2009), McDonald’s now has
approximately 36,000 restaurants in 118 countries worldwide, 81% of which are
operated by franchisees.22 The ubiquity of McDonald’s even inspired the British
Economist to measure a country’s purchasing power parity based on the price of its
Big Mac.23 Figure 1 shows the most important countries in numbers of restaurants as
well as the year of entry for each of the countries.
Despite its massive expansion, the company strove to maintain the core principles
which ensured success in the first place. All procedures were standardized, the menu
offered only a limited number of items and the speed of delivery was considered
vital. This is especially remarkable as the ingredients which McDonald’s used were
always bought from local suppliers.24 However, the international expansion did not
always allow an exact replication of the American model. In some markets,
customers disapproved of McDonald’s because of different flavour preferences or
simply a negative feeling towards ‘American’ products.25 The company attempted to
bridge these differences by offering burgers that were adapted to local preferences;
for example, McDonald’s took religious demands, such as meat needing to be kosher
or halal, into account.

17
See Love (1986, p. 198).
18
See Schneider (2015, p. 28).
19
See Schneider (2015, p. 37).
20
See Bundeszentrale für politische Bildung (2010, p. 4).
21
See Bundeszentrale für politische Bildung (2010, p. 4).
22
See Peterson (2015) and Schneider (2015, pp. 40–41).
23
See Munshi (2014).
24
See Schneider (2015, p. 60).
25
See Schneider (2015, p. 50).
158 S. Schmid and A. Gombert

United States (*1954) 14,157

Japan (*1971) 3,279
China (*1990) 1,705
Germany (*1971) 1,440
Canada (*1967) 1,417
France (*1972) 1,258
United Kingdom (*1974) 1,208
Australia (*1971) 896
Brazil (*1979) 731
Italy (*1985) 456
Spain (*1981) 439
Mexico (*1985) 402
Taiwan (*1984) 387
Philippines (*1981) 376
Russia (*1990) 356
Poland (*1992) 301
India (*1996) 300
South Korea (*1988) 292
Malaysia (*1982) 245
Rest of the World 4,847
0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000

* Year of entry in the respective market.

The number to the right of each bar indicates the number of McDonald’s restaurants in the respective market.

Figure 1 McDonald’s most important target markets in 2013. Source: Based on Chalabi and
Burn-Murdoch (2013) and Schneider (2015, pp. 40–41)

3 McDonald’s and the Fast Food Industry

McDonald’s was at no time the only burger brand in the United States, nor was it the
only one seeking efficiency and rapid expansion. In the 1950s, the market already
consisted of many small and individual restaurants courting guests in their respective
regions.26 But soon enough, the rapid expansion of fast food chains like
McDonald’s, Burger King and later Wendy’s led to a situation of few but powerful
actors. During the 1980s, the increasingly intense competition between these chains
culminated in a confrontation, which was later called the ‘Burger Wars’.27 Expen-
sive marketing campaigns were launched, and price reductions took place to under-
cut competitors. While all the burger chains were hurt, the damage was greater for
Burger King and Wendy’s than for McDonald’s. In 1987, when Burger King had to
lay off employees and Wendy’s publicly announced its first loss, the ‘Burger Wars’
were declared to be over with McDonald’s as the winner.28
This outcome may be considered an indicator for competition in international
markets as well. Especially Burger King set foot in many countries—reaching a total

26
See Kroc (1977, p. 69).
27
See Fryar (1991), Helmer (1992) and Rindova et al. (2004).
28
See Shiver (1987).
McDonald’s: Is the Fast Food Icon Reaching the Limits of Growth? 159

of about 14,000 restaurants in 97 countries as of today29—yet it scarcely approached

the size and popularity of McDonald’s. Figure 2 provides an overview of different
international fast food chains, including not only burger restaurants, but also other
types of fast food outlets (such as pizza and taco restaurants).
The symbolic value of the ‘Burger Wars’ in the United States may have prevented
battles of comparable intensity in other country markets. However, the competition
between McDonald’s and other restaurants in markets around the world has been
fierce ever since. In some countries, regional fast food chains became serious
competitors, such as Quick in Belgium and France, Joey’s and Nordsee in Germany
and Yoshinoya in Japan.30 But other competitors have also proven to be challenging
to McDonald’s. In countries like Germany and France, McDonald’s is competing
with bakeries, increasingly offering snacks or salads, as well as with butcher shops
that provide dishes of the day. Furthermore, Turkish or Arabic kebab outlets or
individual Italian, Thai or Chinese fast food outlets are very popular, especially in
bigger cities like Berlin and Paris. In Japan, McDonald’s is suffering from rivalry
with convenience stores like 7-Eleven, which sell ready-to-eat meals, lunch boxes

Operating
No. of Restaurants Revenue Profit
Chain Countries Worldwide (m US$) Employees
(m US$)

Yum!
Brands* 128 40,000 13,084 1,798 539,000

McDonald's 119 35,429 28,106 8,764 440,000

Subway 110 44,384 19,800** n.a.** 400,000

Burger King 97 13,667 1,146 522 > 400,000***

Starbucks 62 19,767 14,892 - 325 182,000

Wendy's 30 6,557 2,487 135 37,000
n.a. = not available
* Yum! Brands, Inc. is the parent company of restaurant chains like KFC, Pizza Hut and Taco Bell.
Yum! Brands does not provide information on the revenue, operating profit and employee count of
each of its single brands. However, it publishes information on the number of countries and worldwide
restaurants run by all brands. In 2013, KFC operated in 118 countries, Pizza Hut in 91 countries and
Taco Bell in 21 countries. See Yum (2013).
** Subway has a strict information policy concerning revenues and profits. The given revenues are
estimated by Forbes (2016). There is no comparable estimation for the operating profit.
*** The exact number of Burger King employees is not available.

Figure 2 International fast food chains as of 2013, sorted by the number of countries in which they
operate. Source: Based on Burger King (2014, 2016a), Forbes (2016), McDonald’s (2013),
Starbucks (2014), Subway (2015a, b), Wendy’s (2014) and Yum (2013)

29
See Burger King (2016b) and Statista (2015a).
30
See Anonymous (2015a), Euromonitor International (2015), Euteneuer (2014) and
Zagdoun (2015).
160 S. Schmid and A. Gombert

and cheap coffee, as well as from the rising popularity of pizza restaurants such as
Napoli’s Pizza. In some countries, like Japan and China, McDonald’s image suffered
during recent food scandals.31 While McDonald’s did a lot to regain trust by
improving its supply chain management, the bad publicity benefited local firms in
these countries.32

4 An Unforeseen Change of Expectations

Despite the immense success McDonald’s has experienced for several decades, the
company was hit by harsh criticism at the beginning of the twenty-first century.
Aside from other allegations about its exploitation of employees and the environ-
mental damage the company causes, health concerns have been raised and publicly
addressed.33 In the context of alarmingly high rates of obesity and other nutrition-
related diseases, the world’s most famous producer of burgers and chips was quickly
forced on the defensive. In the United States, the company was sued over obesity34
and the documentary ‘Supersize Me’ (2004) underscored the unflattering associa-
tion.35 In addition, customers complained about diminishing standards of cleanliness
in McDonald’s restaurants. The basic restaurant interior, which had long been
considered humble and economical, now appeared uneasy and cheap to many
customers in the United States and elsewhere.36
Some of the former strengths of McDonald’s had turned into weaknesses. As
times changed, customers not only demanded tasty meals but also wholesome food,
and the experience of dining quickly lost its attraction compared with dining
comfortably.37 Owing to the massive loss of popularity, McDonald’s fell behind
competitors like Subway, which promised healthy and fresh products, and
Starbucks, which offered a relaxed and cosy atmosphere. This situation was not
only the case in the U.S. market, but also in many foreign markets, especially in
Europe. In 2003, the McDonald’s Corporation had to report a company loss of over
$340 million—the first loss ever in its history.38
With such extensive changes in the company’s environment, it was obvious to
many observers that the McDonald’s business model would have to undergo major
reforms. The rigor of these reforms, however, surprised even the experts.39 The new
concept initiated a remarkable comeback story which is fascinating to managers and

31
See Schroter (2015) and Team (2014).
32
See Schroter (2015) and Team (2014).
33
See Schneider (2015, p. 138).
34
See Frank (2006).
35
See Sheehan (2005, p. 67).
36
See Kotler (2011, p. 61).
37
See Kotler (2011, p. 61).
38
See Hage (2014).
39
See Schneider (2015, p. 138).
McDonald’s: Is the Fast Food Icon Reaching the Limits of Growth? 161

business scholars alike.40 In a fundamental rethinking of its core model, the com-
pany decided to directly address its weaknesses by adapting to environmental trends
in several ways. In order to respond to the criticism of poor nutrition, McDonald’s
broadened its product range and included several new products, such as lower-fat
burgers, salads and fruit.41 The company also engaged in marketing campaigns
promoting sports and a healthy lifestyle.42 While burgers or french fries remained
unquestioned, some of the rather conspicuous products—like the controversial
‘Supersize Menu’ in the United States—were taken off the menu.43
Another major step for McDonald’s was the renewal of its interior design. In the
U.S. market, customers had complained about the lack of hygiene in the restaurants.
Introducing the new motto ‘Being better, not just bigger’, McDonald’s changed its
focus from expansion to improvement of the existing restaurants. The endeavour
included a noticeable effort to meet hygiene standards and a major redesign of the
outlet. An entirely new interior, designed to make customers feel more comfortable,
was introduced in the restaurants.44 Furthermore, a new slogan (‘I’m lovin‘ it’),
partially adapted in foreign countries and accompanied by a musical jingle by
pop-singer Justin Timberlake, was intended to make the brand appear more
youthful.45
An even more direct response to its competitors’ success was the launch of
McCafé. In aiming to provide a comfortable environment, McDonald’s not only
began offering Premium Roast Coffee, but it also set up convenient seating
accommodations just like Starbucks.46 Interestingly, each of these measures
originated from different parts of the world. While the initiative to improve cleanli-
ness was mainly based on criticism in the U.S. market, the concept of McCafé was
mostly supported by countries far from home, such as Australia and Germany.47 The
implementation, however, was carried out worldwide, which led to different forms
of competition in different countries. In Germany, for example, Starbucks was not a
major player at that time and the newly introduced McCafés soon exceeded the
number of Starbucks stores. In the United States, in contrast, Starbucks and
McDonald’s engaged in an extensive fight for market predominance often referred
to as ‘Coffee Wars’.48

40
See Hage (2012).
41
See Schneider (2015, p. 138). It should be noted that, while some healthy products had already
been part of the menu before the makeover, this was to negligible amount.
42
See Schneider (2015, p. 181).
43
See Kaufmann (2004).
44
See Kotler (2011, p. 61).
45
See Rowley (2004).
46
See Wright et al. (2007).
47
See Wright et al. (2007).
48
See Hage (2014).
162 S. Schmid and A. Gombert

Most of the above-mentioned measures can be assigned to the ‘Plan to Win’

concept. This strategic concept from the year 2003 was created by then-CEO Jim
Cantalupo and refined by his successors.49 Even though not all steps were sketched
from the beginning, they all fit into the general approach of reinventing McDonald’s
by offering higher quality in terms of convenience and healthfulness. The company
maintained its new course despite several incidences such as the sudden death of
Cantalupo and the withdrawal of his successor Charlie Bell, who was diagnosed with
cancer shortly after taking over as CEO. It also managed to settle internal quarrels,
for example, when several franchisees balked at installing the new interior because
they had to finance it themselves for the most part.50
The success that followed this strategic manoeuvre is more than remarkable. The
new offerings were widely accepted among customers, and McDonald’s soon found
itself on a winning streak which exceeded the expectations of experts by far. Within
9 years, the market value quintupled, and competitors such as Burger King or
Wendy’s fell further behind.51 But even though the new strategy yielded success,
McDonald’s still generated most of its turnover by selling its original burgers and
french fries.52 For instance, salads account for a marginal part of the restaurants’
sales –and it is unlikely that this number will ever increase significantly.53 It might
have been healthier products that changed the public’s perception of the company,
but it was the classics that yet again nurtured the company.

5 Coping with New Challenges

McDonald’s renewed success continued for nearly a decade. It was not until
2011–2012 that the first signs of a new crisis became visible. Profits and guest
numbers declined in Europe and the United States alike, and new product offers
found scant approval.54 The decline was by far less dramatic than the fall-off at the
beginning of the century, and yet, it caused concern,55 especially as competitors
were not experiencing the same difficulties.56 Figures 3 and 4 illustrate the develop-
ment of McDonald’s stock price and guest numbers in recent years, and Figure 5
gives an overview of the financial results. As Figure 4 shows, McDonald’s lost
customers all over the world in a year-to-year comparison in 2013 and 2014. The

49
See Schneider (2015, p. 138).
50
See First (2009) and Schneider (2015, p. 193 and p. 209).
51
See Hage (2014).
52
See Rajakumari John (2014).
53
See Patton (2013).
54
See McDonald’s (2015a, p. 13).
55
See Schneider (2015, p. 227).
56
This becomes obvious if we compare McDonald’s to the main competitor Yum! Brands, which is the
mother company of restaurant chains like Burger King, KFC and Pizza Hut. See Yum (2013, 2014).
McDonald’s: Is the Fast Food Icon Reaching the Limits of Growth? 163

McDonald's
200

180

160

140

120

100

80

60

40

20

McDonald's

Figure 3 Stock price of McDonald’s corporation (in US$), 1990–2016. Source: Based on S&P
Capital IQ (2017)

2011 2012 2013 2014

6%
4.3% 4.5%
4% 3.7%
3.3% 3.4% 3.0%
1.9% 2.2%
1.6%
2%
0.4%
0%
–0.5%
–2%
–1.6% –1.5% –1.5% –1.9%
–2.2%
–4%
–3.8% –3.6%
–4.1%
–4.7%
–6%
U.S.A. Europe Asia/Pacific/ Other Total
Middle East

Figure 4 Development of guest numbers in McDonald’s restaurants, 2011–2014. Source: Based

on Statista (2015b)

decline in guest numbers was particularly striking in the United States, but also gave
managers in other regions reason for concern. As displayed in Figure 5, both
McDonald’s company-owned and franchised restaurants had slight, yet continuous
increases in revenues from 2009 to 2013 onwards. In 2014, however, the company’s
revenue dropped compared to the previous year.
164 S. Schmid and A. Gombert

6-Year Summary 2014 2013 2012 2011 2010 2009

Company-operated sales $ 18,169 18,875 18,603 18,293 16,233 15,459
Franchised revenues* $ 9,272 9,231 8,964 8,713 7,842 7,286
Total revenues $ 27,441 28,106 27,567 27,006 24,075 22,745
Operating Income $ 7,949 8,764 8,605 8,530 7,473 6,841
Net Income $ 4,758 5,586 5,465 5,503 4,946 4,551
Cash provided by operations $ 6,730 7,121 6,966 7,150 6,342 5,751
Cash used for investing
activities $ 2,305 2,674 3,167 2,571 2,056 1,655
Capital expenditures $ 2,583 2,825 3,049 2,730 2,135 1,952
Cash used for financing
activities $ 4,618 4,043 3,850 4,533 3,729 4,421
Treasury stock purchases $ 3,175 1,810 2,605 3,373 2,648 2,854
Common stock cash dividends $ 3,216 3,115 2,897 2,610 2,408 2,235
Financial position at year
end
Total assets $ 34,281 36,626 35,386 32,990 31,975 30,225
Total debt $ 14,990 14,130 13,633 12,500 11,505 10,578
Total shareholders’ equity $ 12,853 16,010 15,294 14,390 14,634 14,034
Shares outstanding in millions 963 990 1,003 1,021 1,054 1,077
Per common share
Earnings-diluted $ 4.82 5.55 5.36 5.27 4.58 4.11
Dividends declared $ 3.28 3.12 2.87 2.53 2.26 2.05
Market price at year end $ 93.70 97.03 88.21 100.33 76.76 62.44
Company-operated 6,714 6,738 6,598 6,435 6,399 6,262
restaurants
Franchised restaurants 29,544 28,691 27,882 27,075 26,338 26,216
Total Systemwide 36,258 35,429 34,480 33,510 32,737 32,478
Restaurants
Franchised sales** $ 69,617 70,251 69,687 67,648 61,147 56,928
Dollars in millions, except per share data.
* Franchised revenues refer to the franchisees’ contribution to the company’s revenue “through the
payment of rent and royalties based upon a percent of sales, with specified minimum rent payments,
along with initial fees paid upon opening of a new restaurant or grant of a new franchise”. See
McDonald’s (2015a), p. 1.
** Franchised sales refer to the revenues recorded at all franchised restaurants. McDonald’s does not
register franchised sales as company-operated sales. Nevertheless, the company publishes franchised
sales figures as they “are the basis on which the company calculates and records franchised revenues
and are indicative of the financial health of the franchisee base”. See McDonald’s (2015a), p. 11.

Figure 5 Financial data of McDonald’s corporation, 2009–2014. Source: Based on McDonald’s

(2015a, p.11)

In contrast to the last crisis, the reasons were more difficult to identify. There were
no public campaigns blaming McDonald’s for bad nutrition, at least no more than
there had been in the years before. Nor were there dramatic changes in the market as
had been the case with the rise of Starbucks. Instead, an array of rather diverse
developments accounted for the new situation.
One reason was the worsening situation in the U.S. market. Increasing material
costs have made competition even fiercer and have also caused McDonald’s to
noticeably raise its prices.57 This move was especially risky as even small increases

57
See Patton (2014).
McDonald’s: Is the Fast Food Icon Reaching the Limits of Growth? 165

damaged the reputation of McDonald’s as a low-priced restaurant.58 Recently,

Burger King launched an offer comparable to the standard McDonald’s menu for a
lower price, successfully luring customers away.59
Another reason for McDonald’s poor performance was the extension of the
product range. In contrast to the founding idea of a radically efficient production
system, the menu now has a striking number of additional offers. The primary nine
items were soon complemented by further products, reaching a total number of
33 items in 1990 and 121 items in 2004.60 The latter number was heavily influenced
by the addition of new, healthier products at the beginning of the century. But it did
not stop there. Counting on the excitement that new products might spark in
customers, the managers in charge continued extending the menu. It took until
2014 (when several new product launches in the United States failed) that the
growing complexity in product offerings was questioned. A common problem
with variety is a lack of efficiency in operations.61 The problem is compounded
when some products—like the healthy wraps—take considerably more time to
prepare than burgers. In some locations, the time it takes to deliver an order via
drive-in has reached over 3 min.62 Ten years ago, customers queuing up in the drive-
through lane had to wait about two and a half minutes for their order to be ready.63
Furthermore, one may also ask whether McDonald’s has simply reached the
limits of successfully developing its business model. The ‘Plan to Win’ aimed to
dispel any doubts about the food’s dangers but the business model hardly changed.64
Despite studies proving that the products of other fast food chains, such as Subway,
hardly differ in terms of their calorie content, people still link McDonald’s to highly
unhealthy nutrition.65 Figure 6 compares the calories of typical meals at McDonald’s
and Subway. The recent success of burger chains offering premium quality and table
service such as ‘Five Guys’ in the United States or ‘Hans im Glück’ in Germany also
seems to demonstrate that customers’ dining behaviour is about to change—at least
in some segments of the market.66 In addition, McDonald’s capacity to change is not
only limited by the rigid public image of McDonald’s, but also by its sheer size.
“Even if they wanted to go organic”, says restaurant expert Aaron Allen, “they
just wouldn’t be able to.”67 In May 2015, the new CEO Steve Easterbrook held a

58
See Kowitt (2014).
59
See Anonymous (2015b).
60
See Kowitt (2014).
61
See Huddlestone (2015).
62
See Fritz (2015).
63
See Wick (2015).
64
See Patton (2013).
65
See Lesser et al. (2013).
66
See Neate (2015) and Olbermann (2014).
67
Allen as cited in Neate (2015).
166 S. Schmid and A. Gombert

Difference of
McDonald’s, Subway, McDonald’s -
Variable* p Value
mean (SEM**) mean (SEM**) Subway, mean
(SEM**)

Calories (kcal) 1,038 (41) 955 (39) 83 (53) .11

(primary outcome)
Cost of meal ($) 4.46 (.20) 6.14 (.17) -1.67 (.24) <.01
Origin of calories
Main dishes 572 (28) 784 (31) -212 (39) <.01
Drinks 151 (16) 61 (11) 90 (18) <.01
Sides 201 (20) 35 (8.2) 166 (19) <.01
Condiments 63 (9.5) 46 (12) 17 (13) .19
Desserts 51 (16) 28 (13) 23 (21) .28
Nutrients
Carbohydrates (g) 128 (5.7) 102 (4.6) 26 (6.9) <.01
Fibre (g) 5.9 (.32) 6.7 (.35) -.84 (.44) .06
Sugar (g) 54 (3.9) 36 (3.3) 18 (4.6) <.01
Fat (g) 45 (2.1) 42 (2.5) 3.9 (2.9) .18
Saturated Fat (g) 12.6 (.65) 13.5 (.80) -.87 (.95) .36
Protein (g) 32 (1.4) 41 (1.8) -9.8 (2.1) <.01
Sodium (mg) 1,829 (99) 2,149 (93) -320 (120) .01
Types of food
Fruit (cups) .01 (.01) .01 (.01) 0 (.01) .95
Vegetables (cups) .15 (.02) .57 (.04) -.42 (.04) <.01
Drinks 64% (4.9) 28% (4.6) 36% (6.7) <.01
(% who purchased)
Sides purchased 58% (5.0) 13% (3.5) 44% (7.1) <.01
(% who purchased) (Fries) (Chips)

* The study observed “97 adolescents who purchased a meal at both restaurants on different days” and
“compared the difference in calories purchased by adolescents at McDonald’s and Subway”. As a result,
the researchers “found that, despite being marketed as ‘healthy’” adolescents purchasing a meal at
Subway order just as many calories as at McDonald’s. Although Subway meals had more vegetables, meals
from both restaurants are likely to contribute to overeating.” See Lesser et al. (2013), p. 441.
** SEM = standard error of the mean.

Figure 6 Calories of typical purchases by adolescents at McDonald’s and Subway. Source: Based
on Lesser et al. (2013, p. 443)

23-min presentation primarily addressed to the business community and

McDonald’s franchisees on how he plans to deal with the problems. “No business
or brand has a divine right to succeed. And the reality is: Our recent performance has
been poor,” said Easterbrook in a sincere manner.68 To deal with the crisis, he
announced a restructuring of the organization, a further increase in the percentage of
franchise-operated restaurants and a stronger focus on customer demands (see
Figure 7 for selected statements by Steve Easterbrook).69 It will be interesting to
see if McDonald’s is yet again able to find an appropriate way of meeting customers’
expectations and expanding even further.

68
Easterbrook as cited in McDonald’s (2015b).
69
See McDonald’s (2015b).
McDonald’s: Is the Fast Food Icon Reaching the Limits of Growth? 167

“There is no doubt in my mind that McDonald's has built a powerful and enduring
economic advantage over the decades since Ray Kroc started the journey. We
have scale and reach like no other, more talent, more capital, more firepower
than any other rational business in the world by far. Franchising shares risk and
reward, it fuels the entrepreneurial spirit that is our engine.”
“But no business or brand has a divine right to succeed. And the reality is: Our
recent performance has been poor. The numbers don't lie. Which is why, as we
celebrate 60 years of McDonald’s, I will not shy away from the urgent need to
reset this business.”
“Our structures are too cumbersome, decision making too slow. We must make our
scale count by simplifying and getting closer to markets.”
“Reduce complexity for customers and crew! Focus hard on the fundamentals of
running great restaurants! Execute fewer things better!"
“We will be accelerating our franchising moving from our current state of 81%
franchise to about 90% franchise globally.”

Figure 7 Extract from Steve Easterbrook’s company presentation in May 2015. Source: Based on
McDonald’s (2015b)

Questions

1. A firm’s strategy is always linked in some way to its culture; and it is sometimes
also shaped by its home country (culture).
(a) Please describe the McDonald’s culture by referring to both elements of
the concepta and the percepta level of culture.
(b) Many people perceive McDonald’s as the archetype of an American
firm. In your view, what are the typical characteristics of an American
firm? How far does McDonald’s fulfil these characteristics?

2. Before developing a strategy, firms have to analyse their situation.

(a) What are the strengths, weaknesses, opportunities and threats for
McDonald’s in today’s U.S. market? Please use tools and frameworks
that help you to analyse a firm as well as the macro environment and the
micro environment.
(b) How much may the strengths, weaknesses, opportunities and threats
differ in comparison to other countries? In a first step, please argue in
general. In a second step, choose one country (other than the United
States) to provide examples and back up your arguments.
168 S. Schmid and A. Gombert

3. Which recommendations would you give to McDonald’s for its future strategic
development
(a) in terms of the Ansoff strategies?
(b) in terms of Porter’s competitive strategies?
(c) in terms of internationalization strategies?

4. At the beginning of the century, McDonald’s solved its severe crisis by offering
healthy food. However, salads and wraps never accounted for a large share of the
revenues.
(a) Do you find the changes that McDonald’s undertook in terms of offering
healthier food as part of the ‘Plan to Win’ convincing? If so, do you think
customers were convinced by them at the beginning of the century? Do
they believe in the firm’s health consciousness nowadays?
(b) If you think that the ‘Plan to Win’ was not convincing in the first place,
why did it save the company?

Please note that, for some of the questions, the case study is only a starting point.
You will have to search for additional information to answer the questions.

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