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Unless you’re standing in one of the most remote regions on the planet, chances are there’s a McDonald’s branch within a few minutes’ drive from you.
McDonald’s Corporation is the world’s largest chain of fast food restaurants serving primarily American-style hamburgers. And in nearly every country it has appeared in, McDonald’s dominates its local fast food industry.
It’s hard to imagine how such a food empire could have grown from a small 1940s burger stand in California. But grow McDonald’s did, using a super-sized business formula, which it had perfected.
Targeting Market Needs
Brothers Mac and Dick McDonald started a barbecue restaurant in 1940, but they didn’t see any major success in sales until 1948, when they switched to selling hamburgers from a stand, but prepared and cooked them using simple assembly line techniques—instead of usual sit-down restaurant style procedures.
At that time, assembly line-style production was something that was more associated with the automobile industry than with food. But Mac and Dick chose to produce their hamburgers this way because they realized that hamburger-eating customers were hungry and a bit short on time and money. The last thing these people wanted was to pay for food that wasn’t delicious enough for the money they paid for—and to wait for it for several minutes.
So the whole concept to their hamburger shop was based on delivering the best hamburger for as low (back then) as fifteen cents. Or, as Dick McDonald put it, “speed, lower prices, and volume.”
Basically, they analyzed the whole preparation and cooking process, stripped down every stage into the fewest amount of steps possible. They created a food serving system where their customers could order their food directly from a service window or counter; if they could, at some point, serve themselves, they would.
As a result, by 1954, the McDonald brothers had a small burger drive-in at San Bernardino, which consistently garnered long customer lines, but with a fast turnover rate. People were buying their food quickly, and liked the quality they got, much better than what they would get from other hamburger joints.
McDonald’s still makes it a point to study and listen to what the market needs and wants, and to build their products and operations accordingly. You’ll notice that, in every country McDonald’s touches, it systematically incorporates dishes that are similar to local cuisine or that appeal to local customer sensibilities, alongside its main hamburger menu.
Aggressive and Strategic Franchising
The brothers’ success attracted the attention of Ray Kroc, a tenacious businessman from Illinois who was in constant pursuit of the best business to invest in (anywhere from real estate to milkshake machines).
And he had a penchant thinking big. Kroc had a vision for the little burger restaurant: hundreds of copies of the same McDonald’s burger joint, sprinkled all over the United States in areas where they would be within easy access of local consumers.
So Kroc approached the McDonalds with this idea: they would franchise their restaurant model to other entrepreneurs. These people would do all the hard work of raising enough capital, build the actual restaurant, hire people, and manage the day-to-day operations. The only thing the McDonalds themselves would have to deal with was making sure the satellite restaurants had the right “branding.” Then they would regularly collect royalties from the franchise operators.
The McDonalds agreed, and Kroc went on board. Later on, Kroc and the McDonald’s modified this franchising model to add more sources of profit. McDonald’s Inc. would eventually also take a percentage of net sales, and in some cases be the majority owner of the actual franchise operation.
Thus, McDonald’s Inc.’s franchising grew. As it did, another brilliant innovation which they added to their franchising model was real estate rent. The company would purchase the actual land a planned franchise would be built on. Then they would lease it to the franchise operator (the monthly rent would be calculated based on sales). This real estate leasing became so profitable that a separate corporation (Franchise Realty Corporation) was set up just to manage McDonald’s landlord activities.
In 1959, on top of their main franchising operations, McDonald’s Inc. decided to build and operate a few of their own branches. They financed the start of such branches with a deal with insurance companies, who provided them with US$1.5 million in loans in exchange for a percentage of company stock. This fueled the 1960s rapid expansion of McDonald’s branches all throughout the United States. Their aggressive growth wasn’t dampened much during the energy crisis and slow American economy during the 1970s. Though retired, Kroc was still very active in the company by this time, and his attitude towards the crisis was that it was an opportunity to have expenditures when everything was priced cheaper—“When times are bad is when you want to build!” he bullishly said. They even began franchising in other countries. Thus, by the 1980s, the McDonald’s empire was 8,000 branches strong, stretching across 32 countries around the world.
And it’s still the undisputed global fast food industry leader in terms of actual sales. By 2008, McDonald’s actual sales amounted to more than US$70 billion, brought in by 21 billion customer visits. That’s like saying nearly every person on the planet bought something from McDonald’s at least 3 times in 2008.
Systematically Duplicating Perfection
What keeps customers coming back to McDonald’s? The secret lies in their recipe for consistently generating the same food quality and the same selling success, every single time.
When Kroc first approached the McDonald’s with his franchising idea, the very first test branch he put up was his own. Kroc took the brothers’ assembly-line food production style, and extended the idea of systematizing all the way to building a franchise operation—much like a design template that had to be exactly the same as that of the original McDonald’s restaurant.
Everything had to be defined and done in the same manner. The same food suppliers, the same food preparation procedures, and the same kitchen layout system for griddles and frying vats, had to be in place. The same time-and-motion-saving mechanisms from taking orders and cooking to packaging and handing the food over to the customer, all had to be the same. Even the product marketing and branding (i.e., “the golden arches” logo) had to remain the same.
Thanks to Kroc’s attentiveness to detail, his first McDonald’s branch in Illinois made money on the first day it opened to the public. With that success in hand, Kroc set out to have all subsequent McDonald’s branches adopt the same detailed system of operations.
Sixty years later, that same uniformity can still be seen underneath all the “golden arches” across the globe. With that kind of consistency, it’s no wonder that millions have come to rely on McDonald’s food and quick service.
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