McDonald’s — Company History

In 1954, Ray Kroc, malted-milk mixing machine salesman, acquired the exclusive

franchising rights to a successful California-based hamburger chain from brothers Dick and

Maurice (Mac) McDonald. He had visited the brothers at their first restaurant in San

Bernardino, California, after hearing that their restaurant used eight multi-mixers – more

multi-mixers than any other similar size restaurant. Kroc bought out the McDonald brothers’

interest in the business in 1961.

Raymond Albert Kroc 1902-1984:

He was the founder of McDonald's. Basically he was a salesman of multi-mixers.

Where it all began:

Ray Kroc opened the Des Plaines restaurant in 1955. First day's revenues-$366.12! No longer

is a functioning restaurant, the Des Plaines building now a museum containing McDonald's

memorabilia and artifacts, including the Multimixer!

In 1965 McDonald's went public with the company's first offering on the stock exchange. A

hundred shares of stock costing $2,250 dollars that day would have multiplied into 74,360

shares today, worth over $2.8 million on December 31, 1998.

The business began in 1940, with a restaurant opened by brothers Richard and Maurice

McDonald at 1398 North E Street at West 14th Street in San Bernardino, California. Their

introduction of the "Speedee Service System" in 1948 furthered the principles of the

modern fast-food restaurant that the White Castle hamburger chain had already put into

practice more than two decades earlier. The original mascot of McDonald's was a man with a

chef's hat on top of a hamburger shaped head whose name was "Speedee". Speedee was

eventually replaced with Ronald McDonald by 1967 when the company first filed a U.S.

trademark on a clown shaped man having puffed out costume legs.

McDonald's first filed for a U.S. trademark on the name "McDonald's" on May 4, 1961, with

the description "Drive-In Restaurant Services", which continues to be renewed through the

end of December 2009. In the same year, on September 13, 1961, the company filed a logo

trademark on an overlapping, double arched "M" symbol. The overlapping double arched

"M" symbol logo was temporarily disfavoured by September 6, 1962, when a trademark was

filed for a single arch, shaped over many of the early McDonald's restaurants in the early

years. Although the "Golden Arches” appeared in various forms, the present form as a letter

"M" did not appear until November 18, 1968, when the company applied for a U.S.

trademark.

The present corporation dates its founding to the opening of a franchised restaurant by Czech

American businessman Ray Kroc, in Des Plaines, Illinois, on April 15, 1955, the ninth

McDonald's restaurant overall. Kroc later purchased the McDonald brothers' equity in the

company and led its worldwide expansion, and the company became listed on the public

stock markets in 1965. Kroc was also noted for aggressive business practices, compelling the

McDonald brothers to leave the fast food industry. The McDonald brothers and Kroc feuded

over control of the business, as documented in both Kroc's autobiography and in the

McDonald brothers' autobiography. The San Bernardino store was demolished in 1976 (or

1971, according to Juan Pollo) and the site was sold to the Juan Pollo restaurant chain. It now

serves as headquarters for the Juan Pollo chain, as well as a McDonald's and Route 66

museum. With the expansion of McDonald's into many international markets, the company

has become a symbol of globalization and the spread of the American way of life. Its

prominence has also made it a frequent topic of public debates about obesity, corporate

ethics and consumer responsibility.

Some Main Products

"Big Mac"

Introduced system wide in 1968, the Big Mac was the brainchild of Jim Delligatti, one of Ray

Kroc's earliest franchisees, who by the late 1960s operated a dozen stores in Pittsburgh.

"Happy Meal"

Since 1979 the Happy Meal has been making kids visits that much more special. Children are

mostly interested to collect Happy Meals toys and boxes.

McDonald’s Vision

McDonald's vision is to be the world's best quick service restaurant experience. Being the

best means providing outstanding quality, service, cleanliness and value, so that they make

every customer in every restaurant smile. To achieve their vision, they are focused on

three worldwide strategies:

1-Be the Best Employer:

Be the best employer for their people in each community around the world.

2-Deliver Operational Excellence:

Deliver operational excellence to their customers in each of their restaurants.

3-Achieve Enduring Profitable Growth:

Achieve enduring profitable growth by expanding the brand and leveraging the strengths of

the McDonald's system through innovation and technology.

Mission and Objectives

MCDONALD'S MISSION

McDonald's will be a unique multinational organization, that has grown from a small shop in

a U.S.A town to twenty Nine thousand stores in 121 countries, but still do not have any stated

mission.

OBJECTIVES

“We are the world’s favourite restaurant because we give customers what

they want — great food and great experience.”

Michael Quinlan, Chairman McDonald’s

McDonald's objective is to attain QSCV at all of its restaurants, where:

Q is Quality

S is Service

C is Cleanliness

V is Value

Quality

A quality standard regarding each and every aspect of food and service is documented, to

provide consistency and to achieve the high level of quality at all the McDonald's restaurants.

It is due to documentation that a consumer will get the same taste from a McDonald's

whether he is in New York or Moscow or in Lahore.

The raw materials acquired are required to pass a stringent specification test about factors

from the freshness to vitamins contained in them. Then there is documented recipe and

cooking requirement regarding utensils to temperature.

Service

At McDonald's everyone serves quickly with a smile. There is less than a minute the time the

customer orders and the food served to him. If somebody has any problem, it must be sorted

before coming to the counter.

It is the McDonald's culture that the customer is doing them a favor by being there and not

the staff so he should be received and returned this feeling the same way.

Cleanliness

McDonald's is cleanliness fanatic. There is even a joke that explains McDonald's philosophy

that, “If there is the time to lean then there is time to clean.”

The restaurant is thoroughly cleaned and sanitized after the closure, the cooking utensils are

disassembled every night for washing and then reassembled, and the floors, washrooms, etc.

are cleaned every half hourly during the restaurant timing.

Value

McDonald's has an open-door culture; any employee can go to the Restaurant Manager and

can discuss any problem or new ideas for the improvement of the restaurant. Nobody has any

hang-ups; everybody does everything.

McDonald's also believes in value to the customer, that is, why prices are value oriented as

Amin Mohammad Lakhani put it in his word; “… nothing sells forever unless it is value for

money.”

SWOT Analysis

On the basis of environmental analysis of McDonald's, the structural analysis of fast food

industry, and the assessment of internal resources of the company, following strengths,

weaknesses, opportunities and threats are there for McDonald's:

STRENGTHS

McDonald’s in Pakistan is inherited by a lot of strengths which includes:

A strong image well reputes organization.

No compromise on quality of products.

Self-service criteria save a lot of cost.

Different incentives and packages for children.

Quality raw material (ingredients) in all the products.

McDonald's strong financial position, growing cash flow, solid international presence

makes McDonald's one of the consumer products with a high growth rate.

Working environment in McDonald's is very friendly and all the employees of the

company are treated as members of McDonald's family.

McDonald's has menu, which has more breadth and depth than any other fast food

franchisee in Pakistan.

Well documented fair and strict criteria for recruitment of employees.

Updated training programs of employees.

Flexible workforce, which can work on more than one job at a time.

Skied and motivated workforce.

Sufficient funds to invest in marketing efforts.

Excellent relations between management employees.

Secured jobs.

Good working conditions.

Career opportunities for employees.

Care for the thoughts and moods of customers.

Celebrations of main events e.g. independence day etc.

WEAKNESSES

Along with a lot of strengths there are some weaknesses also by which McDonald’s suffers:

Management of McDonald’s does not consider other fast-food chains or outlets in

Lahore as its competitor e.g. KFC Pizza Hut & local burger market which are their

competitors in real sense.

With the passage of time the expenses of McDonald’s are increasing. The reason is

the big part of fixed costs e.g. fixed overheads & fixed salaries of all the employees,

which increases directly with the decrease in “production.”

McDonald’s main target market is a child. But McDonald’s should also consider the

fact that birth rate in Pakistan has been decreased from about 2.3% to 2. % p. a. In

other words the population of children is decreasing gradually so McDonald’s should

also attract the people who belong to aged class.

Dominant class in Pakistan is middle- income class for which it is difficult to afford

the menu – items of McDonald’s or at least middle-class cannot enjoy McDonald’s

product more frequently.

McDonald's has product portfolio (menu) of greater width and depth; this broad array

of products allows attacks from niche players.

Some of the products of the company are not competitively priced.

All the raw materials are imported from different countries; this increases their cost of

production.

OPPORTUNITIES

The marvellous growth in number of stores outlets all over the world in the result of great opportunities granted to McDonalds.

McDonalds has the following opportunities:

Macdonald’s can get a big market share by expanding its business to the other cities included in its territory e.g. Peshawar, Mardan, Gujranwala, Multan, Sargodha, Sialkot etc. because a big portion of their target market resides within these areas.

McDonald’s is the single international quality- burger chain operating in Pakistan, so it has more profit potential in Pakistan uptil now.

By Increasing consciousness about low fatty foods which are being provided McDonald's (using vegetable oil).

Increasing disposable income in upper and upper-middle social classes of urban areas,

which are target market of McDonald's.

By strengthening the marketing efforts, company can have more sales as compared to

existing sales.

THREATS

McDonald’s people say that there is no threat for them and it can also be a big threat

for them.

Threat of new entrants is also working there because industry is growing at a rapid

speed and a lot of attraction is there for new- comers. Entry barriers are also low in

Pakistan so this threat really works for McDonald’s.

Threat of substitutes is also working there for McDonalds. Substitutes for products of

McDonald’s KFC, Pizza Hut products. A big domestic market can also break at least

a little market share of McDonald’s.

Double digit inflation prevailing in the country, which in turn increases the cost of

production.

Continuous devaluation of rupee that has increased the import bill of raw materials.

Imposition of heavy taxes on fast food industry including Sales Tax and

Entertainment Tax.

Complex rules and regulations imposed by government.

McDonald's Franchising

We Have Always Been A Franchising Company

McDonald's has always been a franchising Company and has relied on its franchisees to play

a major role in its success. McDonald's remains committed to franchising as a predominant

way of doing business. Approximately 70% of McDonald's worldwide restaurant businesses

are owned and operated by independent businessmen and women, our franchisees.

A Recognized Premier Franchising Company

McDonald's continues to be recognized as a premier franchising company around the world.

Perhaps the fact that McDonald's management listens so carefully to its franchisees has

something to do with McDonald's being perennially named as Entrepreneur Magazine's

number one franchise.

A Partnering Relationship

McDonald’s franchising system is built on the premise that the Corporation can be successful

only if our franchisees are successful first. We believe in a partnering relationship with our

owner/ operators, suppliers and employees. Success for McDonald's Corporation flows from

the success of its business partners.

McDonald’s Pakistan

McDonald's has 2-joint ventures in Pakistan:

First for the territory including the provinces of:

Sindh

Baluchistan

Second for the territory including provinces of:

Punjab

N.W.F.P.

For second venture (for the territory of Punjab and NWFP), McDonald's has made franchise-

contract with "Ghouse Akbar", who is now the president of McDonald's -Lahore.

Uptil now there are six stores of McDonald's, operating in Lahore. Currently McDonald's-

Lahore is planning to expand its business to other cities by following preferences:

Sialkot

Faisalabad

Gujranwala

Peshawar

Multan.

McDonald's Lahore is a joint venture between McDonald's Corporation U.S.A and GAM

Corp (Pvt.) Ltd. McDonald's made its debut in Pakistan on 19th September 1998 when its

Grand Country Opening was held in the provincial metropolis of Lahore. This made Pakistan

the 113th country on the globe where the world renowned Golden Arches were unfolded.

After Lahore, McDonald's made Golden Arches glitter in other cities of Pakistan, Faisalabad

is already open, soon to be followed by other cities.

McDonald’s has set the ball rolling in Pakistan with two modern, state-of-the-art restaurants,

one in Lahore and Karachi each. The McDonald's Lahore Restaurant is located on Gulberg’s

Main Boulevard while the one in Karachi is situated on the Main North Nazimabad

Road. The Lahore McDonald's has scored another first in Pakistan with its Drive-Thru – a

modern customer service concept in quick service restaurants that has been introduced for the

first time in Pakistan. The customer simply drives into McDonald's, places the order and pays

at one window and collects the food within a minute at the next – all without leaving the car.

Analysing Competitors

As the McDonald has captured very large market in terms of fast food items it is due to its

large number of franchisees and better quality products and services to its potential

customers. At the same moment the competitors are also increasing their operations in either

way locally or joint venture with the foreign and local investors. Local investors are also

putting pressure on McDonald and they are also increasing their branches by offering low

cost products to the customers and that’s why they are attracting the large number of

customers and it will lead to high competition in the market and everyone will be competing

on the low cost of offering. In this dynamic and uncertain environment McDonald is

sustaining its operations smoothly and effectively. McDonald major competitors are

1. KENTUCKY FRIED CHICKEN (KFC)

Kentucky Fried Chicken, better known as KFC, is the largest chicken restaurant chain

worldwide with almost 10,000 outlets located in well over 70 countries. Headed by CEO,

David Rodgers, it is part of the Artal Group, which is a large multibillion-dollar food

conglomerate.

Said to be the second most famous and largest fast food franchise in the world is No. 1 brand

in Asia with market leadership in Japan, China, Malaysia, Indonesia and Korea.

KFC Arrives in Pakistan

In 1998, KFC entered the market under the banner of Artal, a European food conglomerate

that has invested heavily in the food sector in Pakistan. This unique step was taken out of

special concern for middle and lower-middle class income groups who had so far being

neglected by brand name franchises in their areas.

Entrance of KFC in food industry has resulted in numerous positive developments in various

areas. Each KFC restaurant employs roughly 50 local people, which would total to about 500

direct employees in all – taking in all 10 restaurants in Pakistan.

2. PIZZA HUT

It was started by two American brothers who were stationed in Italy and while there they got

to love Italian cooking particularly pizza. So they setup a small place, but after having put the

billboard and having painted the word ‘Pizza’ on it, they ran out of space and all they could

add was the Hut. So, we had Pizza Hut and the name just got on and it is now known in 83

countries throughout the world as franchisee.

Pizza Hut Arrives in Pakistan

1st foreign franchisee came to Pakistan and became regular business in our country. It now

has 4 branches in the city, Clifton, Tariq Road, I. I. Chundrigar Road, and Gulshan, and 2 in

Lahore, on the Mall, and in Gulberg. But be it Karachi or Lahore two cities with distinctively

different vibes, Pizza Hut pizza, and tastes just the same, and costs the same too. Manzar Riaz

who is one of the three entrepreneurs responsible for bringing Pizza Hut to Pakistan under the

banner of MCR (Pvt.) Ltd., comments, “Pakistan has great potential, we have a huge market

of young people and our spending power is growing. Now Pizza Hut just took the plunge and

others got on to the bandwagon.

Target Market

Target market of McDonald’s

“Do not buy market share Figure out how to earn it”

Broad speaking McDonald’s wants to attract as many customers as it can. But the main

targets of the efforts by McDonald’s are following groups:

Children

Youngsters

High –income groups

Families

Broadly speaking, McDonald’s want’s to attract the whole market. McDonald’s was targeting

the high –income social class uptil now but now McDonald’s is introducing some new

product’s to penetrate into low income groups e.g. McDonald’s cone for Rs. 15/- is an effort

to attract middle income class and lower –income class as well.

Currently, market of McDonald’s is local market. So we can say that McDonald’s is involved

in local marketing i.e. its marketing programs are being tailored to the needs and wants of

local customers groups.

Existing Strategies

OPERATIONAL LEVEL STRATEGY

Product Strategies

Menu

1. Big Mac

2.  Filet-o-Fish

3.  Quarter Pounder with Cheese

4. McChicken with Cheese

5.  Beef Burger

6.  Cheese Burger

7.  Filet-o-Fish Meal

8. McChicken with Cheese Meal

9. Quarter Pounder with Cheese Meal

10. Big Mac Meal

11. Happy Meal

12. Fries

13. Cold Drinks

14. Tea

15. Coffee

16. Hot Apple Pie

17. Milk Shakes

18. Cones

19. Sundaes

Pillars For Its Success – QSCV – Quality, Service, Cleanliness And Value.

No organization can deliver its products without quality even to a child who is a potential

customer or target client of that organization. It is consistency which which reigns supreme

everywhere in the world.

a) QUICK SERVICE

Everybody serves quickly with a smile. There is less than a minute between the time

customer orders and the food served to him. If somebody has any problem, it must be sorted

before coming to the counter. It is the McDonald's culture that customer is doing them a favor

by being there and not the staff so he should be received this feeling the same way.

b) CLEANLINESS

McDonald do provide cleanliness in all its products and services offering. So they maintain

cleanliness at all times. The restaurant is thoroughly cleaned and sanitized after the

closure. That’s why more customers are becoming loyal to this organization as compared to

the other organizations competing in the same industry.

c) QUALITY

All required supplies and raw materials are imported from abroad and conformed according

the strict rules and regulations regarding the requirement and specifications of McDonald's,

e.g., for Pakistani market, all McDonald franchisees are importing Halal meat from South

Africa, Dubai and Malaysia.

d) VALUE

The customers receive the same value from McDonald’s wherever they go in this world. A

customer gets the same taste of burger and similar level of service, wherever he goes. Thanks

to documentation from recipe of burger to the heating temperature that McDonald's is able to

deliver the same taste throughout the world. This is not in the case of local fast food

restaurants because they lose a lot of customers due to change in food taste.

Functional Area / Marketing Strategy

PRICING STRATEGIES

McDonald's main concern is to sell in volume and maintain it on long-term basis. They are

charging a price, which they think is a fair value to the customer, and not on the basis of

competition. McDonald's have MacIndex, and they don’t increase prices even in crisis.

McDonald's worldwide has the same concept of giving food of high quality at low prices. In

England, the prices of their meals are the same for the last five years. It’s simple Economics

that when price is constant, the demand grows and when the demand grows, their input price

comes down and when input price comes down, they can afford to maintain the price as the

volume grows. Even the total cost may grow, but the volume is so much that the prices

remain stable. So selling on cheap price has a valid justification.

McDonald's has a strict policy of selling at the same price to whoever purchases and

whatever quantity he buys, and they just don’t give any kind of discount.

PLACE STRATEGIES

The first restaurant of McDonald's started its operations in Main Boulevard, Lahore on

September 19, 1998 and so in the following week, the second restaurant started in North

Nazimabad, Karachi on September 26, 1998. The plan is to have 20 restaurants in the country

out of which seven will be in Lahore and rest in Karachi. In Lahore, the expansion plan

included the branches at Jail Road, Fortress Stadium, Defence and at LDA Plaza.

But why did he choose Main Boulevard, Gulberg, for opening? Ghous Akbar said, “Lahore

as a whole is a family city and Gulberg is a central area and Main Boulevard is the single

most artery of Lahore which is accessible to people of all income levels. We also have

customers who come from Faisalabad, Gujranwala, Sialkot, etc. It is three thousand square

yard. So the side corners are also included. It’s diagonally opposite to Home Economics

College and other academic institutions also surround it. We had 30,000 customers a day in

the beginning.”

It was a thoughtfully selected location as it is located near to offices, posh shopping centres

and the population of Gulberg, itself, is a good market for fast food.

On the other hand, Amin Lakhani, CEO McDonald's, Karachi too has strong reasons and

arguments about selecting the site of North Nazimabad. “It is a strong, education and family

oriented middle class area. Most of the families living here have joint family system. I have

not seen so many families hanging around as I did in North Nazimabad at the launch of

McDonald's. The area is inhibited by several million peaceful people who want to take their

children out, but there aren’t so many places for the purpose. We are cleaning the area and

the people out there are very happy and the government functionaries are cooperative with

us.”

McDonald's does not offer home delivery as they are very much conscious about the

freshness of their burgers. Presently, Drive-Thru facility is available only at the Main

Boulevard Gulberg Branch, Lahore, but both GAM and Size groups have in their plans to

have this facility in their new branches, which are going to open in future.

PROMOTION STRATEGIES

McDonald's Main Boulevard Gulberg Branch started its operations on September 19, 1998,

but quarter-page advertisement about its opening started appearing in different newspapers in

the second last week of August.

But the real strength of promotion of McDonald's was seen on its opening day when it used

almost all the media to tell people that McDonald's was there with them to stay. On its

inauguration day, full page advertisements appeared in The News, The Dawn, announcing its

opening. On that day, McDonald's also ran a grand program of twelve hours “McDonald's

Fun Day” on FM-100.

On the same day, a live road show was also conducted at the restaurant, in which the leading

Pakistani singers and groups participated. This show was attended by a large number of

people. Also a well-decorated float carrying musical band, hundred children and Ronald

McDonald, the official spokesman to children, ran all the day on the roads of the city. The

leaflets about the opening of the restaurant were distributed in the whole city.

Major medium used by McDonald's is billboards, which are made by MMT to promote their

brand. It will be a matter of pride for Lahories that they have the biggest “M” sign in their

city (it is one of only five big “M” in the world). This “M” is imported from Singapore and is

made up of Pylone.

McDonald's around the world put much emphasis on Television commercials, they have

produced very expensive TV commercial with such bright stars of show business and sports

as Naomi Campbell and Ben Johnson. But presently in Pakistan, McDonald's is not using

television medium, as they don’t have sufficient information about television viewers, also

the cost of television commercials is prohibitive in using this medium.

The advertising agency working for McDonald's in Pakistan is Manhattan Communications

(Pvt.) Ltd., which is a subsidiary of Manhattan Leo Burnnet, USA. This company handles the

promotion of McDonald's in all those countries where its branches, subsidiaries or

partnerships are present.

As a part of its public relations policy, McDonald's has constructed a beautiful fountain at Jail

Road in Lahore with a huge investment of one million rupees. Similarly the company has

spent huge sum of money in renovating public places, building green belts and placing

dustbins to keep environment good looking, healthy and clean.

Business level Strategy

Differentiation

McDonald’s has “Broad Target” and it wants to achieve competitive strategy

adopted by McDonald’s is “Differentiation” i.e. Mc Donald’s wants to a make

its products unique and highly differentiated.

Corporate level Strategies

McDonald is horizontally integrating itself by increasing the number of outlets. At current

timing there are nine outlets operating only at Lahore and they have Twenty one outlets in all

over Pakistan. They are also planning firstly to go into the Metro Areas like Islamabad and

Rawalpindi and then they will look toward Multan.

Global diversification

McDonald is operating more than 121 countries which mean it is following global diversification strategy.

Societal Level Strategies

Community Service

McDonald's is firmly committed to give back to the community where we operate. We are

happy to become involved because we recognize that organizations have a role to play in

helping communities to work successfully.

Social Responsibility and Welfare

McDonald's is actively involved in the welfare of the community, wherever it is

operating. In Lahore, McDonald's has granted one million rupees to the Mental

Hospital and gifted computers to Jinnah Foundation.

As a part of RMCCS (Ronald McDonald's Children Charities), they have plans to

introduce part-time jobs concept on daily basis and for summer holidays.

Ronald McDonald House Charities provides “homes-away-from-home” for families

of seriously ill children being treated at nearby hospitals. The first Ronald McDonald

House was established in Philadelphia in 1974. Today, the program has nearly 200

Ronald McDonald Houses in 16 countries. More than two million families have

stayed at a Ronald McDonald House with nearly 100,000 families each year.