Slide 1: Presentation on
McDonald’s Submitted By:
Sarika Taneja Slide 2: Objective Reasons for McDonald's expansion globally
Why Vietnam is particularly attractive for investment & business?
What would it take, in terms of cost, preparation & effort, to set up a franchise?
If they had an option, would they choose any country for this purpose(which one & why)?
If there are exciting worldwide opportunities, why does Mc Donald’s not exploit these itself instead of looking for franchises? Slide 3: .
As word of their success spread, franchisees started showing interest. However, the franchising system failed. McDonald's was started as a drive-in restaurant by two brothers, Richard and Maurice McDonald in California, US in the year 1937. The business, which was generating $200,000 per annum in the 1940s, got a further boost with the emergence of a revolutionary concept called 'self-service.' The brothers used assembly line procedures in their kitchen for mass production. Prices were kept low. Speed, service and cleanliness became the critical success factors of the business. By mid-1950s, the restaurant's revenues had reached $350,000. McDonald’s History Slide 4: At this point, Ray Kroc (Kroc), distributor for milkshake machines expressed interest in the business, and he finalized a deal with the McDonald brothers in 1954.
He established a franchising company, the McDonald System Inc. and appointed franchisees.
In 1961, he bought out the McDonald brothers' share for $2.7 million and changed the name of the company to McDonald's Corporation. In 1965, McDonald's went public... Currently McDonald's operates in 121 countries & having more than 30000 restaurant and serving 53 Mn customers everyday McDonald’s History Franchise System-The backbone of McDonald’s Success : SWOT
Analysis Problems Alternatives Rec. I Rec. 2 Rationale Q&A Franchise System-The backbone of McDonald’s Success Slide 7: Franchise System is the Backbone of McDonald’s Success
The backbone of McDonald’s success and most of other fast-food chains is its franchise. In other words, one of the many reasons that McDonald’s has been able to expand so quickly and achieve its reputation/brand recognition has been its effective franchising business model. Not only does the business model allow the company to expand quickly both domestically and internationally, the franchise system, having uniform operations, has made the McDonald’s restaurants one of the most standardized in the world. Not only do all McDonald’s seek to offer the same product offerings, they intend to offer the same food experience for all of its customers – no matter what part of the world you are in.
Today, McDonalds franchise network is the world’s leading food service retailer, with more than 30,000 franchise restaurants serving 52 million people in more than 100 countries. Of those stores, more than 70 percent are owned by independent operator franchisees. Reasons for going international : Reasons for going international Build more brand and shareholder value
Add revenue sources and growth markets
Reduce dependence on your home market
Leverage existing corporate technology ,Supply chains, know-how and intellectual property
Award more franchises in the home country by being global Slide 9: Success Factors Mission statement
New meal for kids
Formulate a strategy
Happy meal with toy
Implement the strategy
Toys were related to movie and characters. Slide 10: DECISION MAKING Recognize the need for decision: happy meals were unpopular
Generate alternatives : End, change the toy or continue
Evaluate options: More popular or High cost
Choose an option: Relate with movie
Implement option: Star Trek
Learn from feedback: mighty kid meals So, an operationally focused "Plan to Win". It focuses on people, products, place, price and promotion. Business Strategies : Business Strategies McDonald’s has pursued two strategies since 2003. To keep up with rapidly changing consumer preferences, demographics and spending patterns, McDonald's has introduced new items (Premium Chicken sandwiches and the Angus Beef Burger) and campaigns to create more healthy foods (Premium Salads). The strategy reflects the philosophy that novelty, as opposed to loyalty to traditional products, is the key determinant of sales in the fast food industry.
McDonald’s has also focused on increasing sales at existing restaurants instead of opening new ones. To do so, McDonald's has remodelled many restaurants, kept stores open longer and increased menu options. Nevertheless, new McDonald’s restaurants are still opening around the world at a rapid rate, and continues to grow its new restaurants at a 1%-2% rate each year.
McDonald’s successfully employs a unique type of corporate strategy, transnational strategy, which allows them to compete through standardization while simultaneously adapting to local customs when deemed necessary and appropriate. Slide 13: McDonald's size has three key advantages:
Uniform menu offerings can be mass produced,
lowering production costs.
Bargaining power with suppliers lowers input costs and boosts margins.
Large advertising budget means lots of domestic and international exposure. Reasons for not entering in Vietnam : Reasons for not entering in Vietnam Under Vietnamese law, franchising agreements involving licensing and royalty payments or training and consulting services are regarded as technology transfer and require statutory approval.
An anti-Western political backlash in Vietnam that began in 1996 or when the Asian financial crisis hit in 1997-98.
Beef is not widely raised in Vietnam, or of particularly good quality, and McDonalds would have to invest in a cattle-raising industry from scratch, including breeding stock, feed, grazing land and meat processing.
Vietnamese catfish could serve as input materials for McDonald's, the world's leading fast food producer, if the issue of antibiotic residue is settled, according to the head of Vietnam's organisation for basa catfish processors.
McDonald’s is not in Vietnam now because it has not found a suitable partner for franchising and low level of development of supply-chain infrastructure, and the lack of locally produced ingredients. Slide 15: Cost of setting up a franchise An expert in franchising analyses that investment in each restaurant of McDonald’s is not less than $1 million, around $500,000 for one of Pizza Hut, $300,000-400,000 for a Lotteria and around $200,000 for KFC restaurant. The total investment would be very large for most small- and medium-size enterprises of Vietnam.
According to the expert, such a restaurant must have revenue of over VND20 million ($1,250) per day to have profit. However, the biggest challenge is management and quality control to meet the standards of the parent firms. Steps for setting up a franchise : Steps for setting up a franchise Slide 17: Why McDonald’s went for franchising Lower Failure Rate
Help with Start Up and Beyond
Profits Slide 18: McDonald’s criteria for Franchising A strong and successful background with an emphasis on interpersonal skills and financial management.
Approximately $175,000 of non-borrowed personal resources.
High personal integrity
An entrepreneurial spirit and strong desire to succeed
A proven ability to motivate and train people
The ability to manage financial resources.
A willingness to complete a comprehensive training program and become proficient in all aspects of operating a McDonald's restaurant business. Slide 19: Facts About McDonald’s Franchise Slide 20: Location: South eastern Europe (bordering Montenegro, Albania, Macedonia and Serbia)
Area: 10,908 km2
Population: 2.1 million
National name: Republic of Kosovo
Languages: Albanian, Serbian, Bosniak, Turkish
Ethnicity/race: Albanians 88%, Serbs 7%, other 5%
Religion: Muslim, Serbian Orthodox, Roman Catholic
Economic summary: GDP/PPP $4 billion (2007 est.) President: Fatmir Sejdiu (2006)
Prime minister: Hashim Thaçi (2007)
Monetary unit: euro (EUR); Serbian Dinar (RSD) is also in circulation Overview of Kosovo Slide 23: Reasons to invest in Kosovo Central location: Location- in heart of the Balkans, Pristina is 1hr driving distance to any neighbouring country. Ongoing infrastructure projects include modern highway connections to Albania, Serbia and Macedonia. By the end of 2009 the driving distance to the Albanian Port of Durres will be reduced to 3 hrs. Pristina International Airport offers air connections to main European capitals.
Young, educated, multilingual and dynamic population youngest population in Europe. Familiar with English Through engaging in smaller workshops and private businesses during the 1990s and through vocational training programs established in the last 10 years, Kosovars have gained skills, which are highly appreciated by foreign investors.
Kosovo and Croatia sign free trade agreement. Slide 24: Modern Telecommunications: Offers modern telecom systems. offering the latest and most modern technologies, including VOIP, GPRS, Wireless, and Cable, with lower prices than in any other European Country.
Kosovo-Sweden sign development cooperation agreement: Toward European integration, stability and economic growth in Kosovo.
Joined the International Monetary Fund and the World Bank in June.
Modern, EU-compatible legislation: Since 1999 Kosovo’s legal system has been re-built and is now completely compatible with the EU legislation. has a installed the International Standards for Financial Reporting., Kosovo’s legislation offers “national treatment” for foreign investors. Reasons Contd… Slide 25: Sound banking system Kosovo’s financial sector has been built on completely new foundations. The Central Bank of the Republic of Kosovo is an independent body, which regulates and supervises the Kosovo financial market. There are 8 licensed banks, 2 pension funds, 19 other financial intermediaries, 27 financial auxiliaries and 10 insurance companies in Kosovo. 6 out of 8 banks in Kosovo are foreign-owned.
Currency: Euro is the official currency eliminating the currency and exchange rate risk. Euro gave a considerable advantage over its competitors in the region by making it more attractive to foreign investment and by bringing financial and macroeconomic stability.
Free access to EU-market: US-market and CEFTA(Central European Free Trade Agreement) members. Kosovo derives 3 major benefits from the trade liberalisation, namely 1. improved export possibilities 2. a better investment environment 3. stable relations with its neighbours, member of CEFTA & it also benefits from non-reciprocal, customs-free access to the EU market based on the EU Autonomous Trade Preference (ATP) Regime.
Since the end of a 1998-1999 conflict, Kosovo has received about 3 billion Euros in aid and is expecting to receive another billion Euros from international donors by 2011.
. Slide 26: How will McDonald’s benefit Kosovo 1. will develop a market by providing technological, management and marketing expertise to local entrepreneurs enabling them to establish a known restaurant in different areas that creates jobs translating into income to due to the hiring of local employees and the purchasing of raw materials from the local farmers and businesses
2. incurs less risk, w.r.t to other industries, because food and drinks is a necessity and if the company can offer an affordable, alternative source of food then it can gain a significant portion of the market.
3. expects continuous growth in long run, although fluctuating, in Eastern European countries due to development and opening of investment opportunities drawing the continuing F.D.I. positively affecting employment and income
4.there are relatively less multinational restaurants in Eastern Europe giving the establishment of McDonalds in the region a competitive edge in terms of consumer share and market leadership
5. consumption culture in Eastern Europe is changing due to its involvement in international trade introducing the Eastern Europeans to the fast food culture. The entry of McDonalds in Eastern Europe is timely. Slide 27: Thank You!!!