McDonald’s

Behind The Golden Arches

By Rahul Sengupta
 The McDonald’s Story – Genesis
The story of McDonald’s started in 1954, when its founder
Raymond Kroc saw a hamburger stand in San Bernardino,
California and envisioned a nationwide fast food chain. Kroc
proved himself as a pioneer who revolutionized the American
restaurant industry. Today McDonald’s is the world’s largest
fast food chain serving 47 million customers daily.
McDonald’s is now one of the most valuable brands globally,
worth more than $25 billion. The Golden Arches and its
mascot Ronald McDonald have gained universal recognition.
Though the company has roots in the US, McDonald’s today
has become an accepted citizen of the world.
 History
• 1955 - Ray Kroc opens his first restaurant.
McDonald’s Corporation is created
• 1957 - Quality, Service, Cleanliness and Value (QSC
& V) becomes company motto
• 1963 - Ronald McDonald makes debut
• 1965 - The company goes public
• 1968 - Big Mac is introduced
• 1970 – 1600 restaurants
• 1974 – Happy Meal Launched
• 1980 - 6000 McDonald’s Restaurants
• 1996 - McDonald’s opens in India, the 95 country
th
 History Continued

 1994 - Kuwait City, Kuwait

 2002 - Forty seven years after
– 30,000 locations
– 2000 new restaurants
– World Wide Web
– McDonald’s a recognized Brand
Name
 McDonald’s Mission

Be the best quick service restaurant

experience. By providing quality, service,
cleanliness and value that make every
customer in every restaurant smile.
 3 World wide strategies

 Bestemployer
 Operational Excellence
 Continue to grow and be profitable
 Business Model
 Franchise Model – Only 15% of the total number of restaurants
are owned by the Company. The remaining 85% is operated by
franchises. The company follows a comprehensive framework of
training and monitoring of its franchises to ensure that they
adhere to the Quality, Service, Cleanliness and Value
propositions offered by the company to its customers.
 
 Product Consistency – By developing a sophisticated supplier
networked operation and distribution system, the company has
been able to achieve consistent product taste and quality across
geographies.

 Act like a retailer and think like a brand – McDonald’s

focuses not only on delivering sales for the immediate present,
but also protecting its long term brand reputation.
 McDonald’s in India
 McDonald’s entered India in 1996. McDonald’s
India has a joint venture with Connaught Plaza
Restaurants and Hard Castle Restaurants. Connaught
Plaza Restaurants manages operations in North India
whereas Hard Castle Restaurants operates
restaurants in Western India. Apart from opening
outlets in the major metros, the company is now
expanding to Tier 2 cities like Pune and Jaipur.
 Challenges in Entering Indian Markets
 Regiocentricism: Re-engineering the menu - McDonald’s has
continually adapted to the customer’s tastes, value systems, lifestyle,
language and perception. Globally McDonald’s was known for its
hamburgers, beef and pork burgers. Most Indians are barred by religion
not to consume beef or pork. To survive, the company had to be
responsive to the Indian sensitivities. So McDonald’s came up with
chicken, lamb and fish burgers to suite the Indian palate.
 
 The vegetarian customer – India has a huge population of vegetarians.
To cater to this customer segment, the company came up with a
completely new line of vegetarian items like McVeggie burger and
McAlooTikki. The separation of vegetarian and non-vegetarian sections
is maintained throughout the various stages.
 Segmentation, Targeting and Positioning
 McDonald’s uses demographic segmentation strategy with age as the
parameter. The main target segments are children, youth and the young
urban family.
% of kids who influence what FMCG brand their
family buys

80% 71%
70% 59%
60% 52%
50%
40%
30%
20%
10%
0%
Biscuits Burgers & Pizzas Fruit Juices
 Segmentation, Targeting and Positioning
As shown in the bar chart , kids reign supreme in FMCG purchase
related to food products. So to attract children McDonalds has :
1. Happy Meal with which toys ranging from hot wheels to various Walt
Disney characters are given (the latest in this range is the toys of the
movie Madagascar).
2. ‘Play Place’ special facility - where children can play arcade games,
air hockey, etc. This strategy is aimed at making McDonald’s a fun place
to eat. This also helps McDonald’s to attract the young urban families
wanting to spend some quality time while their children have fun at the
outlet.
3. To target the teenagers, McDonald’s has priced several products
aggressively, keeping in mind the price sensitivity of this target
customer. In addition, facilities like Wi-Fi are also provided to attract
students to the outlets like the one at Vile Parle in Mumbai.
 “Mc Donald’s mein hai kuch baat”

McDonald’s as a place for the whole family to enjoy. When

McDonald’s entered in India it was mainly perceived as
targeting the urban upper class people. Today it positions itself
as an affordable place to eat without compromising on the
quality of food, service and hygiene. The outlet ambience and
mild background music highlight the comfort that McDonald’s
promises in slogans like “You deserve a Break Today” &
“Feed your inner child”. This commitment of quality of food
and service in a clean, hygienic and relaxing atmosphere has
ensured that McDonald’s maintains a positive relationship
with the customers.
 Customer Perception and Customer Expectation

Customer perception is a key factor affecting a product’s success. Many potentially

revolutionary products have failed simply because of their inability to build a healthy
perception about themselves in the customers’ minds. McDonalds being an internationally
renowned brand brings with it certain expectations for the customers.

Target Segment What is McDonald’s for me?

A Family with children
Urban customer on the move
Teenager
A treat to children, a fun place to be for the
children.
Great taste, quick service without affecting the
work schedule
Hangout with friends, but keep it affordable.

Customers expect it to be an ambient, hygienic and a little sophisticated brand that respects
their values. The customer’s expect the brand to enhance their self-image. Customer responses
obtained at the Vile Parle, Mumbai outlet confirmed the fact that they connect strongly with
the brand. However, fulfilling some of the customer expectations like a broader product
variety provide McDonald’s a great scope for improvement.
 McDonalds Marketing Mix (7 P’s)

After segmenting the market, finding the target segment and positioning itself, each
company needs to come up with an offer. The 7 P’s used by McDonalds are:
1. Product
2. Place
3. Price
4. Promotion
5. People
6. Process
7. Physical Evidence
 PRODUCT
How should the company design, manufacture the product so that it enhances
the customer experience?
 PRODUCT
Product is the physical product or service offered to the consumer. Product includes
certain aspects such as packaging, guarantee, looks etc. This includes both the
tangible and the non-tangible aspects of the product and service.

McDonalds has intentionally kept its product depth and product width limited.
McDonalds studied the behaviour of the Indian customer and provided a totally
different menu as compared to its International offering. It dropped ham, beef and
mutton burgers from the menu. India is the only country where McDonalds serve
vegetarian menu. Even the sauces and cheese used in India are 100% vegetarian.
McDonalds continuously innovates its products according to the changing
preferences and tastes of its customers. The recent example is the introduction of the
Chicken Maharaja Mac.

McDonalds bring with it a globally reputed brand, world class food quality and
excellent customer specific product features.
 PLACE
Where should be the product be available and the role of distribution channels?

The place mainly consists of the distribution channels. It is important so that the
product is available to the customer at the right place, at the right time and in the
right quantity.

Nearly 50% of U.S.A is within a 3 minute drive from a McDonald’s outlet.

There is a certain degree of fun and happiness that a customer feels each time he dines
at McDonalds. There are certain value propositions that McDonalds offer to its
customers based on their needs. McDonalds offers hygienic environment, good
ambience and great service.

Now McDonalds have also started giving internet facility at their centres and they
have been playing music through radio instead of the normal music. There are certain
dedicated areas for children where they can play while their parents can have some
quality time together.
 PRICE

What should be the pricing strategy?

 PRICE
Pricing includes the list price, the discount functions available, the financing
options available etc.

It should also take into the consideration the probable reaction from the competitor to
the pricing strategy.

This is the most important part of the marketing mix as this is the only part which
generates revenue.
All the other three are expenses incurred. The price must take into
consideration the appropriate demand-supply equation.

McDonald’s came up with a very catchy punch line “Aap ke zamane mein ,baap ke
zamane ke daam”. This was to attract the middle and lower class consumers and the
effect can clearly be seen in the consumer base McDonalds has now.

McDonalds has certain value pricing and bundling strategies such as happy meal,
combo meal, family meal etc to increase overall sales volumes.
 PROMOTION

What is the suitable strategy and channels for promotion of the product?
 PROMOTION
The various promotion channels being used by McDonald’s to effectively communicate
the product information are given above. A clear understanding of the customer value
helps decide whether the cost of promotion is worth spending.
There are three main objectives of advertising for McDonald’s are
1.To make people aware of an item
2. Feel positive about it
3. Remember it.

The right message has to be communicated to the right audience through the right
media. McDonald’s does its promotion through television, hoardings and bus shelters.
They use print ads and the television programmes are also an important marketing
medium for promotion.
 
Some of the most famous marketing campaigns of McDonald’s are:
1.“You Deserve a break today, so get up and get away- To McDonald’s”
2.“Aap ke zamane mein ,baap ke zamane ke daam”.
3.“Food, Folks, and Fun”
4.“I’m loving it”.
 PEOPLE
How to converge the benefits of internal and external marketing?

McDonald’s understands the value of both its employees and its customers. It
understands the fact that a happy employee can serve well and result in a happy
customer.
McDonald continuously does Internal Marketing. This is important as it must
precede external marketing. This includes hiring, training and motivating able
employees. This way they serve customers well and the final result is a happy
customer.
The level of importance has changed to be in the following order (the more
important people are at the top):
1. Customers
2. Front line employees
3. Middle level managers
4. Front line managers

The punch line “I’m loving it” is an attempt to show that the employees are loving
their work at McDonalds and will love to serve the customers.
 PROCESS
The food manufacturing process at Mc Donalds is completely transparent i.e. the
whole process is visible to the customers. In fact, the fast food joint allows its
customers to view and judge the hygienic standards at Mc Donalds by allowing
them to enter the area where the process takes place. The customers are invited to
check the ingredients used in food.

PHYSICAL EVIDENCE
Mc Donalds focuses on clean and hygienic interiors of is outlets and at the same
time the interiors are attractive and the fast food joint maintains a proper decorum
at its joints.
 The McDonald’s Experience
McDonald’s has excelled due to its ability to successfully integrate the customer’s
perspective in its products and operations in a comprehensive manner. The
revamped menu in India is an example of McDonald’s strategy of integrating the
customer’s perspective in its products. And, the operational integration is evident
from McDonald’s emphasis on its suppliers as its customers as well as its treatment
of its consumers as co-producers of services.

Service Delivery Process

Core Product

Supplementary Process
 Moments Of Truth – The Service Encounter
During the Service Delivery Process, each moment of interaction between the firm
and the customer, called “Moments of Truth”, helps understand the opportunities
that a firm has to win or lose the customer. For example, these “moments of truth”
are created for McDonald’s every time the guard at the McDonald’s outlet meets
the customer, every time an attendant takes down the order from the customer
waiting in the queue, every time the cashier interacts with the customer, every time
the attendant helps the customer guided the customer towards the table, every time
the attendant cleans the table, etc.
Customer Customer
  

Service Provider Service Delivery Points

 McDonaldizing the Suppliers
McDonald’s has changed the nature of not only the food service industry but also the
food processing industry as well. McDonald’s realized that the battle between fast food
chains would increasingly be one of efficiency of supply, lower cost production and greater
desire to innovate. It pioneered with innovative and sophisticated food distribution and
packaging systems when the traditional food processors were unwilling or unable to supply
food items that McDonald’s demanded.

McDonald’s also started with tiny suppliers and grew with them displaying great loyalty.
Some of McDonald’s classic food items like Filet-o-Fish, French Fries, Chicken Nuggets etc.
are results of supplier innovation. Interestingly, it took KFC more than three years before in
finally introduced its own version of chicken nuggets. Thus supplier technological expertise
had given McDonald’s a product which was not a mere marketing innovation but a technical
one.

McDonald’s attempted to squeeze labour out of the stores by moving more preparation back
into the processing plant, creating the opportunity to develop unique products based on
suppliers’ processing skills. For the first time, McDonald’s suppliers became the focal
point of new product development. This converted the fast-food industry’s most
fragmented distributed system into more efficient one which helped McDonald’s reduce its
inventory and manage costs effectively.
 Importance of PLC in McDonalds
The requirements of customers change over time and thus the product offering has to be
changed accordingly. What is the fashion today may be out of market within few weeks.
Thus continuous innovation is required.

To counter these changes McDonalds has continuously introduced new products and has
phased out the old ones which were at the decline stage of their PLC. The introduction is
timed such that the new product does not cannibalize the product already in the maturity or
growth stage. Thus the secret lies in getting profits with different products in the different
stages of the PLC.
 A perfect example of revitalising a product in decline phase

The French Fries have been an important part of the McDonalds menu
worldwide. But now it was in the stage of decline and was actually not generating
proper return. In an attempt to revitalize it, a new variant was introduced namely
Shake Shake Fries. This is being served with chatpata spice mix which has
resulted in increase in the sales of French Fries and has elevated it from to the
decline stage. This is used to delay the decline of a well established product which
has the potential of generating further revenue.
 Competitors Analysis
McDonald’s has been a leading fast-foods outlet in Vile Parle. But the outlet understudy has
other competitors eating away into its market share. In addition to its traditional rivals—
KFC, Dominos, Pizza Hut—the firm encounters new challenges. Jumbo King competes
using a back-to-basics approach of quickly serving up burgers for time-pressed consumers.
On the higher end, the KFC has become potent competitor in the quick service field, taking
away customers from McDonald’s. Perhaps in the new environment, fast, convenient service
is no longer enough to distinguish the firm.
At this time, a new critical success factor may be emerging: the need to create a rich,
satisfying experience for consumers. This brings us to service and experience based
competition which McDonald’s can use for competitive advantage against Jumbo King.
Keeping in mind the demographics of the area, McDonald’s has Wi-Fi enabled the outlet to
cater to the student community. It is for this overall “Food, Fun & Folks” experience that
customers pay a premium over the other competitors.
Competition also reduces product lifecycle; inducing firms to revise their products
portfolios and to revisit their product market to understand changing needs, expectations and
perception of different market segments. The new McBreakfast would be introduced
between 6 to 11 am as a pilot project. This would open up a whole new revenue stream for
McDonald’s by tapping into the student and working population by providing a healthy and
wholesome breakfast. This shows how demographic shift can affect the demand for products
and services. McDonald’s has anticipated these changes to maintain its competitive edge.
Two Dimensional Perceptual Mapping
SWOT Analysis
 The Road Ahead
 Entry to Tier 2 and Tier 3 cities – The main target customer for
McDonald’s is the new urban Indian family. With the customer
demographics constantly changing and tectonic social and cultural
shifts being observed in Tier 2 and Tier 3 cities due to globalization,
the company is now expanding to Tier 2 cities like Pune and Jaipur.

 Rolling out McBreakfast across all outlets – In India, the company

has recently launched its entry into the breakfast food category. This is
now launched on a pilot basis on select stores. In Mumbai, it available
at the Vile Parle outlet. The company views this category as a key
growth driver in future.
 Exhibits
Vegetarian Non Vegetarian
McVeggie Chicken Maharaja Mac
McAlooTikki McChicken Burger
Paneer Salsa Wrap Shahi Chicken McCurry
Crispy Chinese Wrap Chicken Mexican
McCurry Pan Fillet-O-Fish
Pizza McPuff

Vegetarian Menu Non-Vegetarian Menu

 Survey Results
Q. Which is your favourite Q. Is the product line in McDonald’s
product at McDonald’s? adequate?

Favourite Product Is the product line adequate?

MAHARAJ MAC

MC CHICKEN
10% 6%
BURGER
8% MC VEGGIE 28%
18%
BURGER 38%
YES
FRENCH FRIES
12% NO
12% MC CURRY PAN AVERAGE

FILETO FISH
34% 34%
OTHERS
 Survey Results
Q. What is the main problem Q. Which area do you think needs
you faced at McDonald’s? the most improvement?

Problems Faced in McDonald's Improvement Required

Delivery Time
Long Queues 10% 10%
24% 6% Capaciousness
Rude Behavior of
40% Employees 20% Product Variety
Congestion
4% Prices
Other 30%
16% Offers and
No Problem discounts
16% 24%
Others
 Survey Results
Q. What is the first thing that strikes your mind about McDonald’s?

First Thing About McDonald's That

Strikes Customer's mind

22%
30% Burger
Golden Arches
4% Service
Value for Money
18% Fun

26%
THE FREE TOYS PROVIDED WITH HAPPY
MEALS (WALT DISNEY’S MADAGASCAR)
 KIDS PLAYING AT PLAY PLACE-
MCDONALD’S VILE PARLE (MUMBAI)
THE NEW BREAKFAST MENU STARTED AT
SELECT STORES IN MUMBAI.
career
opportunit
ies Training
Service
Enhancem
 Surpasses even the U.S. Army
ent  Provides career opportunities
Process
 Service Enhancement Process
Consistent
 Consistent through CD-ROMs
through
CD-
ROMs
 ReHIREment
 Program established for mature workers
 Ease of transition of older workers
returning to the workforce.
 Flexible scheduling so as not to jeopardize
their Social Security benefits.
 More than 40,000 older workers serve
McDonald’s customers on any given day
 McJobs
 Assistance to employees with mental and
physical disabilities.
 More than 9,000 workers went through the
program.
 Given formal graduation ceremony
 Management
Development Programs
 Crew Development
 Restaurant Management
 Mid-Management
 Executive Development
 Hamburger University
 Management Training
Center
 Worldwide Education
Program
 Technology
 200 per class
 65,000 managers
graduated to date
 Women and Minorities
 Soars above stereotype of average fast-food
joint
 Compose more than 50 percent of
McDonald’s current workforce
 Featured as the “The Best Companies for
Minorities”
 Technology
 McDonald’s in Sweden
– World’s First Snowmobile Drive-Thru

 McDonald’s & ExxonMobil???

– Speed pass invades McDonald’s
 Financial Agenda
• System Wide Sales

• McDonald’s Corporation Revenues

• Cash Flow

• Financial Ratios

• Stock Performance
System Wide Sales
In The Year 2000
$40.181 Billion
Affiliated Company
13% operated
Resturants
26%

Franchised
61%
 McDonald’s Corporation
Sales By Segment

Other
9%
Latin America
7%

U.S.
37%
Asia/Pacific
14%

Europe
33%
 Income
(in millions)
Net Net Earnings /
Revenues Income Share

$14,24 $1.44 $1.49

3
$1,947 $1,977
$13,25 $1.14
9
$1,550

$12,42
1

'98 '99 '00 '98 '99 '00 '98 '99 '00

 Cash Flow Statement
In (millions)
2000 1999

Net Income $1,977.3 $1,947.9

Net Cash Provided By Operating Activities $2,751.5 3,008.9
Net Cash Provided By Investing Activities (2,212.6) (2,261.8)
Net Cash Provided By Financing Activities (536.7) (626.8)

Cash and equivalents increase(decrease) $2.2 $120.3

Cash and equivalents at beginning of year $419.5 $299.2
Cash and Equivalents at end of year $421.7 $419.5
 Financial Ratios
Analysis McDonald Industry
P/E Ratio 21.42 25.49

Price to Sales 2.36 1.97

Price to Book 3.52 3.95

Quick Ratio 0.76 0.63

Inventory Turnover 109.28 32.44

Total Debt to Equity 0.89 0.64
Net Profit Margin 11.01 7.62
Return on Assets 7.54 8.67
Return on Investment 8.30 10.54
Return on Equity 17.62 17.65
Revenue/Employee 40,852 77,289
 Stock Performance
Mkt Cap 52-wk Range Last Trade
35.877B 24.75 - 31.00 Mar. 8 27.91

                                                                             
 Social Commitments
 “9-11” Relief Effort
 Environmental Concerns
 Educational Involvement
 Quality & Safety Procedures
 Ronald McDonald House
Charities (RHMC)
Making A Difference

We have an obligation to give

back to the communities that
give us so much."
- Founder Ray Kroc, 1955

THANK YOU