Principles of management in McDonalds

Mcdonalds is the largest and most well known global foodservice retailer, which was founded in 1955 by Ray Kroc; head quarter in Oak Brook, Illinois, US. Mcdonalds has more than 32.000 restaurants (19% operated by the Company and 81% of restaurants operated by franchised restaurants) in 117 countries, serving more than 60 millions people each day (McDonalds, 2009).

Recently, many of Vietnamese people still think that fast food services are small business that are not worth to do business. After studying Mcdonalds, my point of views about fast food industry have been changed considerably.

Serving fast foods only, Mcdonalds receives annually almost 23 billions USD, that is equal about 27% of GDP or 71% total revenues of all types of services of Vietnam on 2009 (Vietnam General Statistic Office, 2009) and Mcdonalds ranks 153 biggest companies in the world (Forber, 2010).

This study aims to analyze management of the Company in the past few years and strategy in the next decade, which help us to understand the reasons that lead Mcdonalds to the success.

1. Core business

1.1. The main products and services

The products of Mcdonalds are fast foods of wide range of choices, such as: hamburgers, chicken, french fries, soft drinks, coffee, milkshakes, salads, deserts and breakfast with varies of famous in the world brands (Big Mac, Quarter Pounder with Cheese, Filet-O-Fish, Chicken McNuggets, Chicken Selects, Snack Wraps, McFlurry, McCafe, …) which meet requirement of customers of different ages. Mcdonalds fast foods have became necessary daily foods for the numbers of people not only in the US but in other countries also. Therefore, Mcdonalds brand name became so popular, that many investors in the world willing to deal with Mcdonalds to open restaurant under franchised agreement

1.2. Business generates the most revenue

Mcdonalds revenues mainly come from its own restaurants and from restaurants operated by franchisees. In accordance with the Mcdonalds Corporation Annual Report 2007, 2008, 2009, revenues of the Company in 2007, 2008 and 2009 are 22.8 billions USD, 23.5 billions USD and 22.75 billions USD respectively. Most of Company’s revenues come from the restaurants operated by the Company, which has percentage in 2007, 2008 and 2009 are 73%, 70% and 68% respectively; the rest of revenue are from franchised restaurants. Obviously, the percentage of revenue of Company’s operated restaurants has been decreased while percentage of revenue of franchised restaurants increased (McDonalds, 2009).

Source: Mcdonalds Corporation Annual Report 2009

1.3. Business generates the most profit

In 2007, 2008 and 2009, consolidated net incomes of Company are 2,395, 4,313 and 4,551 millions respectively. In accordance with Mcdonalds Corporation annual Report 2009, the most profit of the Mcdonalds has been generated by franchised restaurants, which in 2007, 2008, 2009 holds about 64%, 65%, 66% of the total profit of the Company respectively. The second place of profit has been generated by restaurants operated by the Company (McDonalds, 2009).

Franchised margins

Franchised margin dollars represent revenues from franchised restaurants less Company’s occupancy costs (rent and depreciation) associated with those sites. Franchised margin dollars increased $254 millions of 4% (7% in constant currencies) in 2009 and $695 millions or 14% (11% in constant currencies) in 2008. The franchising strategy contributed to grow in franchised margin dollars in 2009, 2008 and 2007 (McDonalds, 2009).

Company-operated margins

Company-operated margin represent sales by Company-operated restaurants less the operating costs of these restaurants. Company-operated margin dollars decreased $101 millions or 3% (increased 3% in constant currencies) in 2008. Company-operated margin dollars were negatively impacted by this transaction in 2008 and 2007 and by the enfranchising strategy in 2009 and 2008 (McDonalds, 2009).

Source: Mcdonalds Corporation Annual Report 2009

1.4. Business will drive growth in the next decade

In order to keep sustainable growth in the next decade, for the last few years, McDonalds has differentiated the brand and enhanced efficiency of investment in expansion of restaurants chain in the world, mainly in the type of franchised restaurants. In accordance with McDonalds annual Report 2009 and report of Jim Skinner (2009) “To our valued shareholder: To state the obviuos, 2009 was a tumultuous year economically”, these strategies will continue drive growth in the next decade.

Regarding to the strategy of differentiation of products, due to criticism in the society to McDonalds fast foods as the cause to obesity, McDonalds has launched new lines of products, which contain low fat, low calories or more fruit and vegetable, healthy alternative for the customers, which have been in great success for the last few years with some famous brands, such as: Fremium Fiesta Salad, New man’s Own Low Fat Balsamic Vinargrette… These types of foods will be developed in the next decade.

Regarding to efficiency of investment, McDonalds will concentrate into expansion of restaurants in the world, mainly in the type of franchised restaurant, which have many advantages compare with restaurants operated by Company type.

1.5. How successful would you say this company has been since 2007?

Cumulative total shareholder returns from 2007 to 2009 has been increased, higher than average of that of S&P 500 index and Dow Jones Industrials (McDonalds, 2009).

– Net income is increased.

Source: Mcdonalds Corporation Annual Report 2009

At the result of implementation of strategy “Plan to Win”, income and dividends were increased during period from 2007 to 2009, while revenue has been decreased.

The number of restaurants operated by the Company decreased from 6,906 in 2007 to 6,262 in 2009, while franchised restaurants is increased from 24,471 in 2007 to 26,216 in 2009 (McDonalds, 2009)

2. Corporate Responsibility

In accordance with the commitment to social responsibility, McDonalds focuses primarily on animal welfare, education, environment, people, quality, safety and Ronald McDonald House Charities (RMHC).

Regarding to the animal welfare, Mcdonalds recognizes that its responsibility as purchaser of food products includes working with their suppliers to ensure good ” animal handling” practices. Thus, it buys all its beef, fork and poultry products from suppliers who maintain the highest standards and share Mcdonalds commitment to animal welfare.

Regarding to the education, Mcdonalds mould the future of the society and therefore, is committed to the education of the youths. Thus, they support school-age employees in their reaching of educational goals.

Regarding to the people, Mcdonalds recognizes the importance of the employees, who is driving force to the Company’s success. So, Mcdonalds is committed to creating an environment that value and respects their employees, recognizes and rewards their performance, as well as providing them with meaningful growth opportunities.

Regarding to the quality and safety, Mcdonalds has set strictly enforcing high-quality and safety standards – often exceeding those standards established by industry and governments, quality and safety are the most important items on Mcdonalds menu of success, because they give customer confidence to Mcdonalds.

Regarding to the Ronald Mcdonalds House Charity (RMHC), Mcdonalds supports RMHC by providing free goods and services, covering 100 percent of management and general costs for RMHC’s global office. Therein, RMHC works to improve the health and well-being of children by awarding grants to organizations and supporting 206 RMHC worldwide.

Recently, Mcdonalds has many CSR initiatives; and these seem to focus mainly on the areas in which they ware accused. For example, on allegations of rainforest deforestation, Mcdonalds response was CSR initiatives in the field of environment. Where they were being accused of bad working conditions, they responded that “Mcdonalds has been a leader in setting and strictly enforcing high-quality and safety standards – often exceeding those standards established by industry and governments and contributing to this cause.

Fortune Magazine has even ranked Mcdonalds as “one of the most admired socially responsible company”.

3. Crisis management

Mcdonalds manages to overcome the crisis occurred for the last few years, such as: CSR case (McLibel trial) and economical crisis from 2008-2009.

– From the case McLibel

In the middle of 1980’s London Greenpeace began a campaign focusing on Mcdonalds as a high profile organization, symbolizing everything they considered wrong with prevailing corporate mentality. In 1986 London Greenpeace produced a 6-sided fact sheet called “What’s wrong With Mcdonalds? Everything they don’t want you to know”, which accused Mcdonalds of exploiting children with advertising, promoting an unhealthy diet, exploiting their staff and being responsible for environmental damage and ill treatment of animals. In 1990, Mcdonalds served libel writs against the five activists who came up with the “What’s wrong With Mcdonalds leaflet. Three of the five activists took the former suggestion, while Dave and Helen chose the former. On 28th June 1994, the McLibel trial began and the verdict was announced on 19th June 1997 in favour of Mcdonalds, which stated that Helen and Dave had not proved the allegations against Mcdonalds on rainforest deforestation, heart disease and cancer, food poisoning, starvation in the Third world and bad working conditions. However, they had proved that Mcdonalds “exploited children”” with their advertising, falsely advise their food as nutritious, risk the health of their most popular, long term customers, are “culpabably responsible” for cruelty to animals, are “strongly antipathetic” to unions and pay their workers low wages”. Justice Bell ruled that Helen and Dave had libelled Mcdonalds, but because they had proven many of allegation true, they would only pay half of the claimed damages, that was ₤60.000. However, both Dave and Helen’s litigation fee and the damages had to pay were donated by the public.

Recently, Mcdonalds has many CSR initiatives; and these seem to focus mainly on the areas in which they ware accused, such as through animal welfare, education, environment, people, quality and safety and Ronald Mcdonalds House Charity (RMHC), Mcdonalds has tried to do a lot of good to the community.

– Economical crisis from 2008-2009

During economic crisis from 2008-2009, the prices on energy, foods and commodities were high, financial market was frozen, rate of GDP of almost countries were low, high rate of unemployment, many companies in fast-food industry suffered loses, such as income have been turned down.

However, during this period, Mcdonalds took necessary measure to stabilize the business, on this, keep relationship with the suppliers to ensure the continuous supply of necessary ingredients for its foods at the reasonable price. Therefore, the prices on foods were stable, revenue was increased, income growled up. In fact, Mcdonalds net income in 2008 were 4,313 billions and was 4551 billions in 2009.

4. Strategy

-What markets has it forced on?

Over the past few years, McDonalds has focused on the emerging markets, such as China and Russia, where the rate of growth has been highest in the world, even in the time of economic downturn during 2008-2009, the revenue of McDonalds in China increased almost 16% annually, while in the same period, in US and in Europe the rate of growth decreased. Till now, China is the fastest market of McDonalds, where McDonalds operates 1.100 restaurants and plans to increase the number of its restaurants in China to 2.000 by 2013.

– What the core strength?

Brand name “McDonalds” with Golden Arches logo have became the symbol of retail of low – cost fast foods among the people, therefore McDonalds products are the first choice of customers in the market of fast foods services.

Process management have been established providing business activities efficiency helped secure the quality of products and reduce the cost, which can compete with other fast food companies.

Management’s staffs, employees of McDonalds are high qualified, quick respond to the changing of the market (products and service innovation, remodelling of restaurants, improvement of technology, management).

Mcdonalds economy scale and bargaining power dominance provide advantages in supplying of raw material (at low costs), that contribute to reduce the price on products lower than competitors.

– Would you describe the company as innovative?

McDonalds is a innovative company because of the following activities:

+ From 1973, Mcdonalds was the first company in the world to provide customers with nutrition about the products it’s offers.

+ In order to meet requirement of customers to avoid obesity, Mcdonalds created new line of low – fat products, in this “Salad” is one of the successful low fat bands.

+ In recent years, Mcdonalds has turned to new line of products, which are innovative and trendy, such as: coffee and beverage products with brand names “McGriddle”, “Snack Wrap”, premium coffee (take market share from Starbucks), “Strawberry-banana” and “Wild berry” (take market share from the fruity beverage sector).

5. Vision, Goals and how does it motivate its employees?

5.1. Mcdonalds mission statement

In every stage of development of the Company, the mission of the Company has been changed to meet new goal and adapt trend of the market, and at present, “Mcdonalds brand mission is to “be our customers’ favourite place and way to eat.”

To implement the mission, Company has reinvented global strategy which called the Plan to Win, which identifies five core drivers that are: people, products, place, price and promotion.

5.2. What’s are its goals?

As stated Jim Skimmer, Vice Chairman and CEO in annual report in 2009, the goals of the Company are improving the overall experience for customers of the Company.

In accordance with report of Andy McKenna, Chairman in annual report in 2009, the goal of the Company are elevation of industry leadership of the Company, enhancing long – term profitable growth, providing relevant offerings and supporting balanced lifestyles all contribute to the Company’s continued success.

5.3. How does it motivate its employees?

Mcdonalds recognizes the importance of the employees, who is driving force to the Company’s success. Therefore, Mcdonalds has taken necessary measures, such as: create good conditions for working, living, studying and promotion. For example, September 2006, Mcdonalds Europe introduced the “McPassport” program, designed to help employees move and work in other Mcdonalds restaurants across Europe with relative ease. Mcdonalds Singapore’s vision, “Every crew member can be a manager”. Mcdonalds offers a unique training opportunity through the Mcdonalds University Accredited Programme. Mcdonalds builds a caring, warm community for employees, offers a variety of programs that franchised and company-operated restaurant employees can participate in to grow and develop, both personally and professionally. Healthcare options for Mcdonalds restaurant employees.

6. Would you like to work for this company and why?

Studying Mcdonalds I would like to work for Mcdonalds for the following reasons:

– Mcdonalds is a qualified company managed by intellectual management teams, which has continuous developed with high rate and high profits. Therefore, Mcdonalds will secure the job for the long term.

– Mcdonalds encourages people to work creative.

– Mcdonalds provides good working conditions, social benefits, having a chance to education and of promotion.

– The company follow CSR initiatives.

7. Summary

Mcdonalds, with limited of fast-food menu, has served 60 million in almost 120 countries in the world every day and became the biggest company in the food industry and a one of 200 biggest companies in the world. The success of the Mcdonalds has shown the sample of efficiency management of MacDonald’s Board of Management and Directory, which are: strategy in motivation of people, innovation of product, CSR initiatives, creation in management. Although in its history of foundation and development, there were difficulties, but Mcdonalds has overcame and adjusted these in time contributed in its development. At present, Mcdonalds still faces many difficulties, such as there are different campaign against Mcdonalds in advertising towards to children, or accuse its products effect obesity, but I think Mcdonalds will take necessary measures to overcame this difficulties.