Ray Kroc, Mcdonald’s, And The Fast Food Industry

Ray Kroc, Mcdonald’s, And The Fast Food Industry

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Introduction
This assignment first gives an insight to McDonald’s corporation history and current situation. Then it describes the management features that are inherited from the founder, Ray Kroc and how the performance is impacted by the founder.

I. An Introduction to McDonald’s Corporation
McDonald’s holds the biggest name in the world’s fast food industry today. Since it’s foundation in 1954, McDonald’s has satisfied the customers with its main product, hamburger. With having more than 35,000 restaurants located in US, Europe, Canada, Asia Pacific, Meddle East and Latin America; it serves 52 million customers daily (McDonald’s 2006 Annual Report, 2007).

1954 was the year that reshaped the concepts of fast food industry. Fifty two year old milk shake salesman, Ray Kroc envisioned the idea of creating a hamburger product and delivering it to customers in very short time; when he visited his client McDonald’s. By that time, McDonald brothers were operating a restaurant which sold burger, French fries and milk shakes and was efficient but was limited to small scale operation. Kroc made a deal with McDonald brothers to sell McDonald’s franchises for a lower price.

He started duplicating the McDonald brothers’ single store in 1955 and introduced discipline to it. He took great pain to introduce a system to produced same quality hamburgers with fast delivery mechanism that can be replicate easily while maintaining the quality and standards. By 1960, there were more than 200 outlets around the country. Ray Kroc used different advertising methods at different levels to make a famous brand name. With the great success and saturation of the local market, in 1970, McDonald’s started an energetic push to make McDonald’s a global presence.

Today, most of the restaurants out of 35,000 located in more than 100 countries are operated as franchises and affiliates. “More than 70% of McDonald's restaurants worldwide are owned and operated by independent local men and women.” (mcdonalds.com). These restaurants are being fuelled by local staff of 1,600,000 around the world.

In resent past McDonald’s achievements are spread in different areas. In January 2007, company opened its first drive-thru restaurant at a Sinopec gas station location in Beijing. This was a result of the strategic partnership McDonald’s formed with the China’s largest oil producer. Because of the success McDonald’s company has been listed in the Dow Jones Sustainability index recently. The marketing campaign it ran, “i am lovin’ it”, is horned with one of advertising’s most prestigious awards † a Global EFFIE

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(McDonald’s 2006 Annual Report, 2007).

In 2006, McDonald’s made $21.6 billion revenue which is 9% increase compared to 1995 total revenue and generated $3.5 billion income. Cash from operations has averaged more than $4 billion per year for the last three years. “3-year compound annual return to shareholders of 24% was more than double the returns achieved by the S&P and the Dow Jones Industrial average.” (McDonald’s 2006 Annual Report, 2007). Dividends have increased every year since McDonald’s paid its first in 1976 and have nearly doubled since 2004 (McDonald’s 2006 Annual Report, 2007).

As the one of the biggest exporters in US, McDonald’s contribute a lot to countries economy. Same time it acts as the single largest buyer of meat in US while being the one of the largest buyer of potato and chicken. “McDonald's is the single largest beef purchaser in the U.S., nearly 1 billion lbs., at about $1.3 billion in value annually.” (http://beefmagazine.com).

II. Management Features inherited from the founder

1. Introducing discipline
Kroc introduced a system to produce products cheaper, with intended quality and deliver them to customers within 1 minute. This system was then fine tuned to work without any issues. The whole system could be easily replicable at any location and this gave McDonald’s a big advantage over other competitors. McDonald’s could grow faster while keeping the consistent product specification, quality and fast delivery irrespective of the location.


2. Use a different mechanism to reach customer easily and quickly
Rather than opening its own restaurants, Kroc preferred franchised or affiliated restaurants. McDonald’s provided the system to the franchisee and trained the local staff so that they could produce the same result as an ideal McDonald’s restaurant. This method enabled the company to grow quickly on global market.

3. Going global
When the local market was saturated, Kroc had to look over the boundaries of US. He started opening franchises in other continents and currently McDonald’s spreads over 100 countries. This gave the company stability as it didn’t have to depend only on local market.

4. Use Marketing to create a brand name
Kroc believed in advertising to maximise sales and create a big brand name. He spend huge sum of money for this purpose. For national advertising program, he spent 1 percent of his sales amount which amazed other business people. McDonald’s later made an agreement with Wall Disney to promote its products.

5. Welcome ideas of all levels
He welcome others ideas all levels of the company. New ideas of franchisees and other staff brought Franchise Realty Corporation and Big Mac in to the company. Kroc’s college, Sonneborn gave the idea which led McDonald’s to go in to real state business. The double décor burger, Big Mac is a idea of a franchisee and now has become a major product of the company.

6. Use real state to gain financial stability
Kroc established the subsidiary, Franchise Realty Corporation to buy land and act as landlord to franchisees. In short period, real estate became a high-margin contributor to McDonald’s.



III. Impact of Ray Kroc on the McDonald’s performance

1. Going Global
By inducing the idea of going global, Kroc managed to attract the fast food market, using Franchised Restaurants, Company Operated Restaurants, and Affiliated Restaurants. To attract the local market Ray introduced a concept of localising the products, so that they will cater to all verities of the local craving. This approach increased the revenue as well as the stability of the company.

2. Strategic partnerships
Kroc’s strategy of making partnerships with other businesses created huge success to the company. Going in the same successful path, current management has made partnerships with companies such as Wall-mart, Sinopec, and Wall Disney to reach more customers.

3. Promote brand name
From the start, Kroc put efforts to make a unique product. His aim was to create a popular brand name. To promote the product he adopted marketing strategies like “National advertising”. Brand name itself added a huge value to the company.

4. Quality product
His vision was to provide a hygiene and nutritious meal at a low cost price. He devised new methods and mechanisms to achieve his goal. These characteristics gave a huge attraction to the McDonald’s. This was one of the main factors which enabled the fast and successful growth of McDonald’s.


References:

PIM Course reading no 1

McDonald’s Corporation 2006 Annual Report.
Retrieved September 27, 2007 from
http://www.shareholder.com/visitors/dynamicdoc/document.cfm?documentid=1545&companyid=MCD

McDonald’s Corporation, McDonald's History
Retrieved September 27, 2007 from http://www.mcdonalds.com/corp/about/mcd_history_pg1.html

McDonald's Corp: Company Description
Retrieved September 28, 2007 from
http://www.investor.reuters.com/business/BusCompanyFullDesc.aspx?ticker=MCD.N&symbol=MCD.N&target=%2fbusiness%2fbuscompany%2fbuscompfake%2fbuscompdescr

Beef Magazine
Retrieved September 28, 2007 from
http://www.beefmagazine.com
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