SOP om McDonald's Corporation i Afsætning A og Engelsk A

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Studieretningsprojekt

The use of the concepts of franchising and glocalization in the

HHX 3. år

School: Svendborg Erhvervsskole

Student: [navn fjernet]

Class: H3F

Cpr. Nr: 47

Studies: English and Marketing

Advisers:

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Context

Abstract ........................................................................................................................................................................................................................... 3 Initiation .......................................................................................................................................................................................................................... 3 Franchising and Glocalization .......................................................................................................................................................................................... 4 Franchising ................................................................................................................................................................................................................. 4 Glocalization ............................................................................................................................................................................................................... 6 The ............................................................................................................................................................................................ 8 Business description ................................................................................................................................................................................................... 8 History ........................................................................................................................................................................................................................ 9 Value chain ................................................................................................................................................................................................................. 9 Support activities .................................................................................................................................................................................................. 9 Primary activities................................................................................................................................................................................................. 11 Core competences .............................................................................................................................................................................................. 13 Micro ........................................................................................................................................................................................................................ 13 Macro (PEST) ............................................................................................................................................................................................................ 15 SWOT........................................................................................................................................................................................................................ 16 Ansoff’s growth matrix ............................................................................................................................................................................................. 17 Future Growth Possibilities for McDonalds.................................................................................................................................................................... 18 Upscale target group ................................................................................................................................................................................................ 18 Organic and healthy food ......................................................................................................................................................................................... 19 China ........................................................................................................................................................................................................................ 20 India ......................................................................................................................................................................................................................... 20 Product development in already existing restaurants .............................................................................................................................................. 21 Conclusion ..................................................................................................................................................................................................................... 22 Literature ....................................................................................................................................................................................................................... 22 Websites ................................................................................................................................................................................................................... 22 Books ........................................................................................................................................................................................................................ 23 Articles ..................................................................................................................................................................................................................... 23 Company profiles ..................................................................................................................................................................................................... 25 Appendix 1 Pros on cons for franchising ........................................................................................................................................................................ 26 Appendix 2: The Value-chain ......................................................................................................................................................................................... 29 Appendix 3: Generic strategies ...................................................................................................................................................................................... 29 Appendix 4: Ocean strategies ........................................................................................................................................................................................ 30 Appendix 5: The supply chain within McD ..................................................................................................................................................................... 30 Appendix 6: The PEST analysis ....................................................................................................................................................................................... 31 Appendix 7: The SWOT analysis ..................................................................................................................................................................................... 31 Appendix 8: The Ansoff’s growth matrix ........................................................................................................................................................................ 31 Appendix 9: Distribution strategies................................................................................................................................................................................ 32

Appendix 10: Pricing / quality strategies........................................................................................................................................................................ 32

Appendix 11: McDonald’s is moving towards a higher degree of market responsiveness (Article) ............................................................................... 33

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Abstract

This paper examines how McD [1] use franchising and glocalization as a part of their strategic planning, and how McD managed to become one of the biggest companies in modern history.

Over the years McD has become a world known brand, and it’s interesting to investigate how McD managed to become one of this world most known brand, and what kind of strategies they used to achieve their goals. By explaining the franchise system and the glocalization concept in basics, this paper managed to answer the question of how McD use franchising and glocalization as strategies.

By analyzing the internal and external environment within the McD, this paper showed that McD has been using a lot of franchising and glocalization within their strategic planning. Through the different analysis of McD, this paper have concluded that one of the reasons why McD has been able to become a big international brand, is because they successfully used the concept of franchising and glocalization as a part of their strategic planning.

Initiation

The FF [2] industry is just growing bigger and bigger that’s a fact and it will grow even bigger in the future. Lots of different FF chains are represented on hundreds of markets all over the world. The biggest brand within the FF industry is the McD. McD have existed for many years now, but over the past 20 years McD has experienced one of the biggest growths within modern history. This paper examines the reasons why McD has grown so much during the last 20 years. What is their secret? And why haven’t other companies managed to copy the McDonald’s idea? McD has been using a lot of different business strategies, and this paper will tell us how McD exactly used those strategies, and how the McD brand managed to become almost as popular as the crucifix. This paper will explain for the concepts of franchising and glocalization. The exposition of those concepts should contribute to an understanding of how McD uses those concepts in their strategic planning. There will be made an analysis of how exactly McD uses those concepts in their strategic planning, and how McDonalds has managed to become one of the biggest brands in the world. To analyze the strategic planning within the McD company, different models will be a part of the analyze part in this paper. By using marketing models like the value-chain analysis, the SWOT

1

McD = McDonald’s

2

FF = Fast-food

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4 analysis etc. it will be possible to analyze how McD use the concept of franchising and glocalization within their strategic planning. At the same time those models also tells us how McD differentiate themselves towards their competitors. Finally there will be made an evaluation of the McDonald growth potential worldwide, through the concepts of franchising and glocalization. The evaluation part of this paper will be divided into different opportunities that McD might use to grow even bigger. All the opportunities listed in the evaluation part, are opportunities represented in the SWOT analysis as well. The opportunities for growth mentioned in the evaluation part, are growth opportunities that has been identified by analyzing the external environment outside the McD

(PEST) listed in the analysis part of this paper.

Franchising and Glocalization

Franchising

”Franchising is a marketing channel structure intended to convince end-users that they are buying from a vertically integrated manufacturer when, in fact, they may be buying from a separately

owned company.”^{3} In a franchising chain we have the franchisors. The franchisors are the ones

supplying the franchisees. Franchisors are upstream manufactures of a product or originators of a given service. The franchisors write contracts with franchisees. Those franchisees, who are separate companies from the franchisor, are downstream providers of marketing channel flows.

Via contract and by the payment of fees, the franchisees pay for the right to market the franchisor’s brand, using the methods, trademarks, names, products, know-how, marketing and production techniques the franchisor has developed. The franchisor actually gives the franchisees a business format, a business system and licenses it to the franchisee to use on a given market area. By signing the contract the franchisee cedes a great deal of legitimate power to the franchisor. The franchisee has its own balance sheet and income statement. When the contract between the franchisor and the franchisee has been signed, franchisees stand by themselves. The franchisor will supply the franchisee, but the franchisees run their own business. It is theirs to alter, sell or terminate. But if a franchisee decides to sell the franchised shop, a new potential

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Marketing Channels

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5 franchisee has to make a new contract with the franchisor. [4]

The franchisee is his own boss, and if he wants to make a high turnover he has to work hard and disciplined. In the beginning the franchisor has to be supportive with information and accept. Starting a new business is a hard thing to do, even for franchisees. People might think that becoming a franchisee might be quiet easy, because everything is ready for them. But when the contract between franchisor and franchisee is signed, the franchisee is the boss of the franchised unit. If the franchisee doesn’t do well, the franchisor has the opportunity to cancel the franchise contract. A canceled contract means that the franchisee loses the right to market the franchisor’s brand, using the franchisor’s

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methods etc. “The franchisor will lose a shop but the franchisee will lose a business” This quote

really tells about the cons franchising can have for a franchisee. If the franchisee doesn’t do well he will become the biggest loser, and the franchisor would just sign a new contract with a new franchisee. It’s important that franchisee is dedicated to what he is doing because a lack of commitment to the franchise unit might force the franchisor to cancel the contract. Before the contract between the franchisor and the franchisee can be signed, the franchisee has to go through different courses set up by the franchisor. Through those courses, the franchisor gets the opportunity to see however a franchisee should become a part of the company or not. If the franchisor believes that the franchisee has the qualifications to become a franchisee of the company, he would be offered a contract [6].

At appendix 1 [7] you can see the most basic pros and cons of the franchising concept. If a company really wants make a franchising system works, the franchisor has to make sure that they have a good communication with the franchisees. Communication is crucial if a company wants to make franchise a growth strategy. The franchisees has to fulfill the contract made together with the franchisor, if the communication wasn’t good when the contract was signed, the franchisee might do things that might damage the franchisor directly. Franchising is a good way, for companies to become bigger, and by franchising they let the people become a part of the company. The strength about franchising is that the franchisees actually are dealing with their own money. The fact that they are dealing with other money makes the franchisees even more dedicated, to do a

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Marketing Channels

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Franchising

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Franchising I Praksis

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Appendix 1

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6 great job in their franchise unit. Franchisees also give new inputs to the company. Some franchisees might even get to much power. If the franchisor lets the franchisee buy more and more franchise units, the franchisee might suddenly rule a big part of the market. The knowledge and know-how he gets from the franchisor might make him go his own way someday. Then he uses the knowledge and turnover he got from his time as a big franchisee and then he develops a company who has a high degree of market potential. A former franchisee suddenly becomes a threatening competitor.

Glocalization

Glocalization is a combine between two already existing marketing words: Global and local. Every day the growing global arena meets the localized arena in all specks of life. The goal of Glocalization is to ensure and tell a globalized world is a stable and integrated placed, but at the same time glocalization protects the cultural heritage of local areas [8]. During the 1980’s in Japan glocalization was combined with the word business. Glocalization was the idea for international business to adapt a local product or service so that it could fit a local market. By year 2000 the term glocalization had become a major deal, and some of the big players worldwide, started to think that glocalization might be a great way, to make new target groups on new markets. When the companies adapted the local products, they knew that the local people would think that a potential new international brand could be a substitute to already existing local brands on the local market. The reasons why many big companies decide to become a glocalized company are because it’s easier for a glocalized company to satisfy the needs and want of any given local market and by that achieve a higher degree of market responsiveness. “With glocalization, a global corporation's goal isn't to say, "Here's a sandwich." Rather, the corporation asks, "How can we make a sandwich you'd like?" [9]

This quote is really the essence of glocalization. If companies want to become glocalized and be successful, they have to be closely connected to that quote.

Glocalization is all about adapting the needs and wants of any given local area. Therefore the companies, really has to listen to the locals needs and wants. A company cannot successfully use glocalization as a strategy if the companies don’t listen to the need and wants of the locals. For an

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The local market is a relatively simple concept, but in this connection a local market is an entire country and not only a small area of the country. Every country is a local market, when the countries are compared to each other.

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http://money.howstuffworks.com/glocalization2.htm

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7 example: It would be stupid to make burgers with shrimp if the Japanese didn’t want shrimp in their burger, but instead they wanted US meat. That wouldn’t make the sales go high, and the company might even get a bad reputation in Japan. But if the Japanese needed and wanted a burger with shrimp, then it would be a great glocalization opportunity for FF companies like McD and Burger King to introduce a shrimp burger on the Japanese market. Glocalization is for all kinds of businesses. At the FF business we have McD who is represented in many countries all over the world. In every restaurant, McD offers branding, but the menus in each restaurant meet the local culinary tastes and dietary requirements. The music business has as well become glocalized. The music-channel MTV has also become glocalized. MTV have channels in 20 different countries.

Those channels delivers international artist but as well local artist, and by that they cover the needs and wants of given local area. But at the same time they might create new needs and wants for the people living in the local area. This final quote tells us how the glocalization process should be and how it’s probably is going to be. “Develop a world where local areas benefit from global

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resources while retaining their own cultural identities”.

During the years, the world has become more and more globalized. At the same time companies all over the world has become more glocalized. It all started with globalization. Big companies knew that there where growth potential outside their own local market. They started exporting to new markets all over the world. Over the time some companies realized that if they wanted to meet the needs and wants on a new local market they had to adapt some of the new market culture in to their products. This made the way for glocalization. The companies started to produce products which met the need and wants of the given local market. By meeting the needs and wants of the local people, the companies would get a higher growth and a higher profit. Some companies totally changed their product concept when they entered new markets. The fact that the companies changed their products on every local market, made the company to have a lot of different activities going on around the globe. Companies changing their product-line, whenever they enter a new market have a lot of different debts. On some local markets the needs and wants of the people living in that market area is for example bananas and on other local markets the needs and wants of the people are grapes. By offering each thing on each market, the company has more suppliers to take care of, different advertising etc. At the same time some companies

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http://money.howstuffworks.com/glocalization2.htm

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8 choose to have a standardized product-line, but with some changes to fulfill the needs and wants of the local market. By keeping a standardized product line they minimizes their debts, but the companies who has a standardized product-line with some changes to fulfill the needs and wants of the local market also has some extra advertising, suppliers etc. to take care of. But it isn’t the same amount if they were totally changing their product-line. As a company it is important to analyze whenever you have the economic power to change you product-line on every local market, or do you think that the local market might like your standardized product-line with some changes?

The

Business description

McD have FF restaurants all over the world. The company is one of biggest food service retailing chains in the world, preparing and serving food products and beverages [11]. All McD restaurants in the world are operated by McD or by franchisees, including conventional franchisees under franchise contracts, and foreign affiliated markets and development licenses under license contracts. McD offers a standardized menu, although there often will be geographic variations.

McD has some key products that are available in every McD, those key products include hamburger, cheeseburgers, french-fries, wraps, chicken nuggets, salads, mc-flurry’s and sundae ice creams. In total there are 32.478 McD restaurants all over the world. Around 6200 restaurants are operated by McD, which mean that more 26.000 McD restaurants are operated by franchisees or affiliates [12]. McD revenue comprises sales from the stores operated by the company and fees, royalties and rents from franchisees and affiliates. When McD as a franchisor sign a contract with a conventional franchisee, the franchisee provides McD with a portion of the capital required by investing in the equipment, signs, seating, decor of their restaurant business etc [13].

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http://www.aboutmcdonalds.com/mcd/csr/report/overview/corporate_profile/suppliers.-RightParaContentTout-

43872-ReportsLinkList-61516-File1.tmp/mcd052_2009report_v6.pdf
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http://www.mcdonalds.com/us/en/our_story/Corporate_Info.html

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Datamonitor

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History

McD was founded in a small city in California by the two brothers Dick and Mac McDonald in 1940.

In the beginning of the 1950’es the business started to grow. In 1955 McD opened its first store based on the concept of franchising. The first franchisee in the new franchise system was a distributor of milk shake mixers named Ray Kroc. He opened the new restaurant with permission from the McDonalds brothers. The introduction of the franchise system was a great success for McD and the number of McD restaurant grew to 500 by 1963. In 1967 McD opened its first international restaurants in Canada and Puerto Rico. Over the years McD had become economic strong. They spend some of the money by buying competitors via horizontal integration. They bought those competitors in an attempt to diversify its operation. During the first decade of the new millennium, Asia and especially China has become a big market for international brands [14].

McD realized that, and they started making plans how to conquer the FF market in Asia. Today McD has become one of the best known brands in the world [15].

Value chain

Support activities^{16}

These are the support activities in a company. Some of the activities are value gained and some of them are not. In the analysis I will tell you how the different activities influences McD on a daily basis, and why the different activities are value gained.

The administrative organization of the company

The fact that McD is represented on many markets around the globe means that they have a lot of management to take care of. But McD have taken care of that by making subsidiaries; in Denmark

we have the subsidiary McD Denmark A/S^{17}. They franchisees take care of their own financial

situation, but McD is the one take care of the big finances. They handle suppliers and different other aspects, but payment of the staff in the franchised units are something the franchisees take care of. In McD there has been made some rules about the products, advertising, employees etc.

that the franchisees have to fulfill. To make sure that the franchisees don’t act beyond the rules

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http://www.um.dk/da/menu/Udenrigspolitik/Landefakta/LandefaktaAsien/Kina.htm

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Datamonitor

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Appendix 2

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http://www.aboutmcdonalds.com/mcd/franchising.html?DCSext.destination=http://www.aboutmcdonalds.com/mc
d/franchising.html

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10 made by McD, the company has hired different agents who often makes a quality check of the franchised units [18]. The reason why this activity is value gained to the end-user is because the end-user easily can get in touch with McD if they have complaints or something like that. But at the same time is it easier for McD to control the franchisees by having those subsidiaries. This makes the quality of the restaurants better.

HRD (Human resource management)

When you become a part of McD you are offered many different opportunities to train yourself, and aim for a higher position in the McD. The training possibilities give the end-users a good experience when they enter a McD restaurant. The end-users know that the employees making the McD products and the ones offering the service are qualified to be in their position. Earlier I told that McD not had anything to do with the employees in the franchised units, but even though they don’t pay the employees working in a franchised unit, McD still offer training for those employees as well. When a franchisee become a part of the McD franchising network, then they have to go through different classes to learn more about McD and the business structure within the franchising network. When the franchisees have been granted a franchise unit, they have the opportunity to train themselves and become better franchisees. This has a great value for the end users because they know that the staff and the franchisees are well educated [19].

Technological development in the company

Included in primary activities under R and D (Research and Development)

Purchasing department

McD has built a system of quality, service and cleanliness (QSC) into every little detail within the McD business. This includes suppliers and restaurants. The quality of the products McD is purchasing from suppliers is the highest quality, whenever it’s the meat or the lettuce. According to McD the quality and safety requirements they use when purchasing goods from the suppliers makes McD among the strictest within the restaurant industry. This creates a lot of value to the end users because they know that the products they buy from McD are made with some of the

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http://www.thetimes100.co.uk/case-study--franchising-entrepreneurship--28-120-3.php

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http://www.mcdonalds.com/us/en/careers.html

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11 best commodities on the market. But the high quality of the commodities also means that McD spend a lot of money on their suppliers [20].

Primary activities^{21}

At appendix 3 you can see the primary activities of the value-chain

These are the primary activities in a company. Some of the activities are value gained and some of are not. The analysis will tell you how the different primary activities influences McD on a daily basis, and why the different activities are value gained.

R&D

In McD case R&D is a very important department. New ideas are being generated and innovated in this department. The ideas and innovations from this department are brought directly to the franchisees which mean that the franchisees fast and easy can use the new innovations in their business. In the FF industry it’s important to continuously make new products, which diverse from the products made by the McD competitors [22]. New technology advantages makes the franchisees job easier, and at the same time is it value generating towards the end-users.

Inbound logistics

Inbound logistics are where the commodities are being handled, but it will not go into further details with this department, because it’s almost the same as purchasing department.

Marketing

Qualified physical evidences will create a good WOM [23] and a nice reputation. When a franchisee signs a contract with McD, they have to do the marketing in the local area. By that I mean posters, billboards etc. nationally the McD is in charge of the marketing, and the franchisees don’t have any influence on that marketing part. McD also made a fund that is supporting many different activities around the globe. The fund is called the Ronald McDonald foundation fund [24]. By CSR [25]

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http://www.mcdonalds.com/us/en/food/food_quality/see_what_we_are_made_of.html

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Appendix 2

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http://www.mcdonalds.com/us/en/food/food_quality/trends_innovation.html

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Word of mouth

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http://rmhc.org/what-we-do/

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Cooperate social responsibility

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McD is promoting in one of the best way a company can promote. CSR creates good WOM and a

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nice reputation .

Production and sales

The production and sales department is the department where the actual service is delivered. This is the process where production and consumption are brought to the end-users. The physical evidence is an important part of the experience the end-users have when they visit a McD restaurant. Lots of different factors are playing a role in the way of what physical evidence experience end-users receive when they visit a McD restaurant. I will now tell you about some of the physical evidences end-users might receive when they enter a McD restaurant. The first impression the end-users gets when they visit a McD restaurant is the front of the restaurant. McD has made their fronts nice and attractive. When the end-users parked the car, they are ready for their second impression. The second physical evidence impression is how the restaurant looks alike inside. McD has made their restaurants nice and beautiful. By doing that they makes sure that people are willing to eat at the restaurant, and when the end-users stay at the restaurant they often buy even more. When the end-users decide to make an order, they get the third impression. The staff at McD restaurant is smiling and they are dressed properly [27]. A good impression from the staff taking the order might make the end-user buy even more. When the order has been accepted, the end-user has to wait for the service to be fulfilled. New improvements from the R&D department have made the production of the products even faster, and that makes the waiting time to decrease a lot. When the end-users get the products, McD has made the packaging nice and easy. By doing that people get a nice impression of the products they receive. These physical evidences are just a part of those physical evidences you might experience, when you enter a McD restaurant. The physical evidence is crucial when a company wants to create a good WOM and a nice reputation. When you enter a McD restaurant, the staff at the restaurant helps you from when you enter the restaurant to when you leave the restaurant again.

The staff offers you different products when you have to decide which menu you want to go with.

When you’re done eating you can just leave the restaurant and then the staff removes your trash.

This is marketing process at a McD restaurant, and the staff is smiling while they are throwing your

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http://www.aboutmcdonalds.com/mcd/csr.html

27

http://www.mcdonalds.dk/dk/job___karriere/vores_vaerdier.html

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13 trash away, and that creates the same time a nice physical evidence impression [28]. The above mentioned physical evidences are all physical evidences that the franchisees have to fulfill.

Core competences

McD has been very successful with their corporate symbol and their advertisement campaigns.

The success has made them TOM [29], within millions of people all over the world. The product value of McD has also made end-users know what to expect when they enter a McD restaurant. People know that they get a good service, when they enter a McD restaurant, and that doesn’t matter what McD restaurant they are visiting. The increased control with all the restaurants makes all the restaurants have the same degree of service and physical evidence. The problem with those core competences is that they are very similar to other FF companies like burger king [30]. The way McD differs from their competitors is through their generic strategy [31] the use worldwide. Worldwide McD use the generic strategy differentiation. Differentiation is the strategy which is characteristic by a broad target group with unique products. Worldwide McD use a standardized menu, but at the same time they have managed to adapt local products into their product lines [32]. McD is one of the brands with the best degree of marketing responsiveness. The conclusion is that the competitive advantage of McD is their successful way to use glocalization in their business strategy. Other competitors haven’t been able to copy the idea and that’s because McD was first movers, on using glocalization within a FF company, and that has made them TOM in many people’s head around the globe.

Micro^{33}

Cust: Over the years McD has been using exporting as a one of their growth strategies. This has created a lot of new markets, and by that it also created a lot of new different consumer. By using local commodities in their products McDonalds has been able to create customers who weren’t a part of their target group before (glocalization). The vegetarian menu in India is a good example of this. The fact that there are so many FF distributors on the market means that the buyer has the strength, when they are dealing with a FF distributor. If a FF chain like McD charges to much, then

28

http://www.voteforus.com/macdonaldsrestaurant.html

29

Top of mind

30

http://www.bk.com/en/us/company-info/legal/privacy-policy.html

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Appendix 3

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Appendix 11

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Micro – Customers, competitors and suppliers

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14 the consumers will buy their FF somewhere else, or maybe they just cook their own burgers at home.

Comp: McD has a lot of different kinds of competitors all over the world. They have a lot of competitors in the FF industry, but the mom at home making dinner for her family is a competitor as well. But first we should take a look at McD competitors who also participate in the FF industry.

All companies that distribute FF are a competitor to McD. On the FF market we are dealing with a broad competition. Broad competition means that there are a lot of different competitors fighting for the consumers’ money. The fact there are so many different competitors has made the market a red ocean [34]. McD should be concerned about their competitors within the FF industry, but at the same time they should be aware of substitutes.

Supp: McD has many different products. Those products are made by commodities. It’s crucial for McD to trade with suppliers that shares the same values as McD does. The supply chain [35] within McD consists of indirect and direct suppliers. The direct suppliers are the ones that makes or deliver final products to the restaurants. At the same time, McD have several indirect suppliers.

The indirect suppliers are farms or companies that grow or process the commodities that are delivered directly to the direct suppliers. McD work closely with those direct suppliers to continuously improve the practices that impact a lot of different factors. McD can use the size and the recognized brand to be a positive influence towards the suppliers. If a direct supplier doesn’t maintain the quality and the values McD has set for them, then their contract will be canceled and McD will find other suppliers. The suppliers don’t have much strength against McD. Many different suppliers would like to work together with McD, and this makes the suppliers weak against McD. If a supplier charges too much, bad quality etc. then McD would find another supplier, and the foreign supplier deal would be canceled [36].

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Appendix 4

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Appendix 5

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http://www.aboutmcdonalds.com/mcd/csr/report/overview/corporate_profile/suppliers.-RightParaContentTout-
43872-ReportsLinkList-61516-File1.tmp/mcd052_2009report_v6.pdf

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Macro (PEST^{37})

P: When McD are doing business in different countries around the globe, they have to be aware of the laws and regulations the countries might have. The fact that McD is represented on so many local markets around the globe means that they have many different laws and regulations to take care of. There are laws about operating hours, labor and quality laws etc. and if McD doesn’t manage to fulfill those laws and regulations, they are put off the market.

E: McD need to face a lot of different variables outside its company or its macro environment.

McD is participating on many markets around the globe and they should be aware on the global supply and currencies exchanges in the different countries. Dealing with a local market, makes McD face different government regulations on tax of profits, restaurant service tax etc. Lots of different countries are equal to a lot of different scales and types of taxes. McD need to follow those regulations on the different markets to maintain their position. The economic growth and condition of any given country is also a very important indicator to the demand of products that

McD are offering.^{38}.

S: On many local markets obesity has become a big problem. Particularly America that is the home market for McD [39]. The high degree of obesity has become a problem for many people. Those people have decided to start a new and healthy life, with a lot of exercise and healthy food. At first sight, this should be considered as a threat toward McD and other FF chains, but on the other hand this could be a brand new market for them: a blue ocean. Healthy FF doesn’t really exist, and it there might be a new market on its way, which will be considered as a blue ocean. There is not much difference between cultural and the purchase of products in a single country but for different countries cultural sensitivity should be upheld. In India Hindu people doesn’t eat meet, Germans like beers, Japan like fish etc. McD has already made a good job making their menus suit

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local needs and wants (glocalization) .

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Appendix 6

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http://www.aboutmcdonalds.com/mcd/csr/report/overview/corporate_profile/suppliers.-RightParaContentTout-

43872-ReportsLinkList-61516-File1.tmp/mcd052_2009report_v6.pdf
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http://www.cdc.gov/obesity/data/trends.html

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Appendix 11

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T: For a FF restaurant, technology does not have a very high impact on the company and it is not a significant macro environment variables. But new innovations like better supply management; easier payment etc. would have an interest for McD. Implementations of new technology improvements can make the management more effective and cost several savings in the long term. This will also make the customers happy, because if McD manage to do cost savings then it might result in price reductions; promotional campaigns etc. which will benefit the customers from time to time. At the same time people would like if they could save even time when they are buying FF and technological improvements benefit the time as well [41].

SWOT^{42}

S: Over the years McD has become one of the world’s most recognizable brands. The McD character Ronald McDonald has been a big part of children hospital program, and that has created some good WOM for McD and the people like the fact that McD think about their CSR. McD successfully adapt their global restaurants to appeal to the cultural differences represented on the different local markets worldwide. The franchising network within McD is one of the best franchising networks in the world. The close contact between McD and the franchisees has made it a successful network. The franchising network, are one of the reasons why McD has become such a big player on international markets. McD is represented in many big airports, rail stations and other big places owned by other companies. Through B2B marketing, McD has managed to be a part of those restaurants, and that has created a good profit and reputation for McD.

W: McD tested pizza as a part of their product chain. The pizza product development wasn’t a thought growth strategy, and it leaved McD much less able to compete with the pizza chains, like Pizza Hut etc. McD haven’t capitalized on the trend toward ecology and environmental friendly food, even though ecology and environmental has been big issues within people during the last

decade.^{43}

O: In the world we’re living in today, there is a lot of focus on obesity and health consciousness. A new product line through concentric diversification would be a great opportunity for McD. The new products should be healthy and low fat products, which will make the fitness and sporty

41

http://ezinearticles.com/?McDonalds-Business-Analysis&id=687438

42

Appendix 7

43

http://www.marketingteacher.com/swot/mcdonalds-swot.html

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17 people, visit the McD as well. It would create a new market for McD, and it’s a blue ocean market, because there aren’t many other FF companies represented on this market. Fancier restaurants might as well create needs and wants to a more upscale target market.

T: McD is using for”cradle to grave” marketing. Some parents think that McD marketing practices towards children are marginally ethical. The parents think McD is luring the kids into the McD restaurants by giving toys, and by making a playground the children can play at while they are visiting the McD restaurant. Over the years McD has been sued several times. Some people think that McD is serving unhealthy food with addictive additives, contributing to the high degree of obesity in the US etc. All those lawsuits have created a lot of bad WOM toward McD. McD has major competitors like Burger King; Taco Bell etc. all those FF companies want a piece of the cake.

On McD has to keep their competitive advantage intact towards the competitors. The mom making dinner at home is as well a competitor to McD. If home cooking becomes a big trend, then it would be a big threat to McD. McD job is to make sure, that eating at their restaurant is easier

then eating at home^{44}.

Ansoff’s growth matrix^{45}

At attachment you can see the Ansoff’s growth matrix in basic.

McD has used concentric diversification as their growth strategy. Concentric diversification is related business with a new target group and new products. McD growth on the different markets around the globe is achieved by concentric diversification. McD makes new products that fulfill the needs and wants of any given local market and that creates new products and new target groups.

For example if McD didn’t change their menu in India, they wouldn’t be able to get the market growth they did. Many people in India are Hindus which mean that they are vegetarians [46]. McD realized that if they wanted to become a part of the India FF market they had to change their menu. To fulfill the needs and wants of the local people in India, McD introduced a vegetarian menu. By doing that, they made all the vegetarians a new target group. McD made a new target group by making new products and that is what is characteristic about concentric diversification.

McD also did that on other local markets, but I won’t go into further details with those markets.

44

http://www.marketingteacher.com/swot/mcdonalds-swot.html

45

Appendix 8

46

Appendix 11

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Future Growth Possibilities for McDonalds

In this assignment I’ll evaluate the possibilities for further growth within McD. To do this I’ll use some of the information I got when I analyzed the SWOT to make qualified suggestions towards market growth for McD. McD has already been through a lot of growth worldwide, but new markets and new growth potential areas would make McD grow even bigger. I’ll evaluate McD possibilities to create new blue oceans, where McD could be become first movers, and as well evaluate the growth potential on markets where they already are present. There is always potential for further growth, the question is just how do you get it?

Upscale target group

As I mentioned in the SWOT analysis, menus for an upscale target group might be an opportunity for McD. The question is just really how they should manage to do this. The reason why McD isn’t interesting to upscale people is because of McD products, but at the same time the physical evidences within the restaurants. If McD want to make upscale people they have to change several things to make the McD restaurants attractive towards the upscale people. One of the possibilities for McD is to make a subsidiary, which only focus on making products that satisfy the upscale people. The subsidiary should be in charge of placing restaurants and making menus that fit with the needs and wants of the upscale people. The distribution strategy [47] of this subsidiary should be an exclusive distribution strategy. The upscale people like exclusiveness, and by making only one restaurant in each city distributing food for the upscale people, the restaurant will be exclusive and that’s something the upscale people like. The McD should look like a real restaurant, and not similar to other McD restaurants. But changing the distribution strategy is not enough.

The menus need to be changed as well. Upscale people like to eat caviar, salmon etc. some of the expensive commodities. To make McD interesting for the upscale target group, the subsidiary should produce burger with caviar, salmon etc. McD should use premium strategy [48] which means high prices and high quality products. If McD do those things it might be possible to make a new target group with new products (Concentric diversification). The problem with this opportunity is just really that, it will cost a lot of resources, and there are no promises to McD that this kind of concentric diversification will create more profit to the company. But the upscale target group is

47

Appendix 9

48

Appendix 10

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19 definitely a blue ocean within the FF industry, and if McD makes a sustainable concept, they might be able to become first movers on this market and become TOM within the upscale target group.

Organic and healthy food

As mentioned before: The entire world become more and more organic and healthy. McD has to realize that. But instead of considering the new trend as a threat, McD should see the new trend as an opportunity. Organic and healthy FF doesn’t really exist. This means that there is potential new blue ocean market for organic and healthy food. If McD decides to introduce an organic and healthy menu into their product line, they don’t have to make new restaurants, and entirely new menus. McD will be able to still maintain their selective distribution strategy, and maintain their restaurants. The only changes they have to make are some menu changes and some advertisement changes. The new organic and healthy menus should be low fat menus, with lots of salad and other healthy commodities. McD already offers salad, milk and carrots [49], but if they want to make fitness and sporty people a part of their target group, they need to do some bigger changes. In Denmark McD Denmark, tried to introduce a healthy burger together with the organization Team Denmark. But the new burger wasn’t any success. One of the reasons why it failed was because of the lack of advertising. Danish people didn’t really know anything about the new burger. They hadn’t seen it on TV, and McD didn’t set up any posters. After 1 month the healthy menu was taken of the market again. This might have frightened McD, but if they increase their advertising level it might be a success. McD could as well make a subsidiary. The subsidiary should take care of the organic and health department in McD. One of the options might be making a new brand within the brand McD. The new brand should be a green McD, who only focus on making organic and healthy food. By copying the ideas and concept of McD, the green McD would be able make a great subsidiary to McD within the organic and healthy FF industry. But all the rumors about McD might even end this organic and healthy FF adventure before it all started.

Some people see McD as unhealthy food etc. this has created a lot of bad WOM within people, and some people might not even want to give the green McD a chance [50]. This would be the biggest threat if McD decides to go with a green McD. There is a blue ocean market within the FF industry of making organic and healthy products and if the green McD succeed and the people

49

http://www.mcdonalds.dk/dk/products/Salad_frugt___gront.html

50

http://healthmad.com/nutrition/mcdonalds-unhealthy-food-at-its-finest/

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20 start buying at the green McD, the concentric diversification in the organic and healthy way will create a new target group and increased profit to McD.

China

Over the years China has become the second biggest economy in the world. The Chinese people have got better living conditions and that has made the economy even better [51]. Lots of international people see China as market with a high degree of growth, and McD do as well. In March 2010 McD had about 1100 outlets in China. That might sound like many outlets, but when there are living 1 billion people in China. The good economic situation in China has made the Chinese market, a local market with a lot of growth potential, and McD is going to take advantage of that. McD is planning to open 900 new outlets by the end of year 2013 [52]. The health conditions of the Chinese people have been a big issue for many international companies. The Chinese people want everything to be sterilized and cleaned before they put anything into their mouths.

McD have realized the health issues, and they have made a system that is accepted by the Chinese [53]. This again shows us, that McD know how to become a part of local markets. McD should have a lot of focus on the Chinese market, as it continuously develops, and it might not be enough with 2000 outlets in 2013. One of the possibilities for McD is to continuously make new products that fulfill the needs and wants of the Chinese people. They have already introduced several different products with a taste of the Chinese culture, but in other to succeed they need to make more Chinese oriented products.

India

Like China, India is one of the economies storming forward [54]. Over the years India has become one of the largest economies in the world. China has become a market with a lot of growth potential for international business, but India has become that kind of market as well. In India they don’t have the same needs and wants as they do in China. The cultural differences have made McD necessary to changes their product line in India. McD have 200 restaurants spread all over India, but most of them are in big cities like Mumbai and New Delhi [55]. Even though there is almost the

51

http://www.um.dk/da/menu/Udenrigspolitik/Landefakta/LandefaktaAsien/Kina.htm

52

http://online.wsj.com/article/SB6.html

53

http://www.msnbc.msn.com/id//ns/business-cnbc_tv/

54

http://www.um.dk/da/menu/Udenrigspolitik/Landefakta/LandefaktaAsien/Indien.htm

55

http://online.wsj.com/article/SB55.html

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21 same amount of people in India and China, India still have 1800 less outlets then China. The reason why McD haven’t been so aggressive on the Indian local market is because there is a big difference between rich and poor [56]. In India the middleclass doesn’t really exist, and that’s a problem because it’s the middleclass McD is appealing to. If McD want to make a high profit in India, they might want to consider their prices. Because even though the prices are lowers as in the rest of the world, people can’t afford McD products. So if McD wants to make profit in India, they might consider decreasing their prices, so that more customers are able to purchase McD products. If India someday gets a sustainable middleclass McD could consider raising the prices again. McD should decrease their prices in India at the moment. By doing that they might generate loyal customers and get a good WOM in India. This might help them to achieve bigger market shares in India. Over time McD can decide if they want to continue with the low prices or if they want to raise the prices again.

Product development in already existing restaurants

The world is becoming more and more globalized. People experiences culinary tastes every day, and the world is becoming smaller and smaller. We have sugar from Africa, coffee from Brazil etc.

The McD restaurants in the different countries should be globalized. People in any given country should be given the opportunity to experience the taste of the burgers from another country.

People in England should be able to taste the Japanese burgers and the Japanese people should be able to taste the English burgers. By doing this kind of product development McD would create new needs and wants on their local market. The foreign products don’t have to be a part of the product line in the country, but McD might let the foreign products be on the market for some time. For example McD in Germany could have a month where the McD in Germany serves

Chinese variants next to their own product line. The next month they could be serving Mexican variants etc. By doing that McD let the entire world become a part of their product line for some time. This will create a good WOM, and makes people feel globalized when they have eaten an international menu in their own local McD. A growth strategy like this will create some extra costs, but over time McD will know, what kind of product they should let become a regular part of the product line.

56

http://www.um.dk/da/menu/Udenrigspolitik/Landefakta/LandefaktaAsien/Indien.htm

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Conclusion

As a conclusion on this paper we can conclude, that McD use a high degree of franchising and glocalization, within the McD. The McD has made the right the decisions at the right times, and that has made them become the biggest player on FF market. The introduction of the concepts of franchising and glocalization has changed the McD business in a way, the McD doesn’t saw possible. When McD introduced franchising and glocalization as a part of their new strategic planning, no one thought that McD would become the biggest distributor of FF in the world. But who should McD thank? McD only have themselves to thank for using the right strategies at the right times. Through the analysis of the McD it became more and more clear that their competitive advantage was their concept of franchising and glocalization. No other company in the world has managed to copy the McD strategic planning, and hasn’t managed to become successful as McD.

Using those concepts have created a lot of good WOM around the globe, and today the McD brand is one of the most ancestry brands in the world. The introduction of the glocalization concept was the most value generating activity within McD. The glocalization concept created many new target groups on many local markets, and it is the major reason why McD has experienced so much growth. Especially their glocalization effort in Asia, has created a lot of growth towards McD. McD was one of the first FF chains, that saw the potential in the Asian market. That made them first movers, and they have become TOM within many Asians. But the McD growth adventure isn’t over yet. New markets are opening up and by creating new blue oceans; the McD would experience yet a high growth degree. The opportunities participating in the evaluation step are just some of the few opportunities McD has to create blue oceans. There exist many blue oceans in the business world, and if McD wants to continue their growth, they have to find those blue oceans. But McD have already been kind of like experts in finding blue oceans, and within a few years McD have found their new blue ocean, and they will experience a high degree of market growth.

Literature

Websites www.mcdonalds.com www.mcdonalds.dk

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23 www.aboutmcdonalds.com www.healthmad.com www.msnbc.msn.com www.marketingteacher.com www.um.dk www.howstuffworks.com www.ezinearticles.com www.scribd.com www.wsj.com www.thetimes100.co.uk www.cdc.gov www.voteforus.com www.bk.com

Books

• Title: Marketing Channels Edition

Authors: Anne T. Coughlan, Erin Anderson, Louis W. Stern, Adel I. El-Ansary

Publication year: 2006

Publishing: Pearson Education Inc.

Lent By: SDU

• Title: Franchising I Praksis

Author: Peter Arendorff

Publication year: 1991

Publishing: Børsens Forlag

Lent By: SDU

• Title: Franchising

Author: Toke Allentoft, Paul Neale, Mikael Vest, Bo Zoffmann

Publication year: 2006

Publishing: Børsens Forlag

Lent By: Svendborg Erhvervsskole

Articles

• Title: McDonald's to Double Restaurants in China

Author: Esther Fung

Date: 03-29-09

Used: 02-15-11

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Link: http://online.wsj.com/article/SB6.html

• Title: McDonald's to Expand in India

Author: Eric Bellman

Date: 06-30-09

Used: 02-15-11

Link: http://online.wsj.com/article/SB55.html

• Title: McDonald's has a big appetite for China

Author: Wally Griffith

Date: 08-15-08

Used: 02-15-11

Link: http://www.msnbc.msn.com/id//ns/business-cnbc_tv/

• Title: McDonald’s: Unhealthy Food at Its Finest

Date: 11-28-10

Used: 02-14-11

Link: http://healthmad.com/nutrition/mcdonalds-unhealthy-food-at-its-finest/

• Title: Salat, Frugt og Grønt

Author: McDonalds DK

Used: 02-14-11

Link: http://www.mcdonalds.dk/dk/products/Salad_frugt___gront.html

• Title: SWOT Analysis McDonald's

Author: Dr. Jill Novak, University of Phoenix, Texas A&M University

Date: July 2009

Used: 02-12-11

Link: http://www.marketingteacher.com/swot/mcdonalds-swot.html

• Title: McDonalds Business Analysis

Author: N. Vijayarani

Used: 02-12-11

Link: http://ezinearticles.com/?McDonalds-Business-Analysis&id=687438

• Title: U.S. Obesity Trends

Used: 02-11-11

Link: http://www.cdc.gov/obesity/data/trends.html

• Title: Privacy police

Author: Burger King

Date: 10-23-09

Used: 02-11-11

Link: http://www.bk.com/en/us/company-info/legal/privacy-policy.html

• Title: McDonalds Restaurant Secrets to Success

Used: 02-11-11

Link: http://www.voteforus.com/macdonaldsrestaurant.html

• Title: Vores værdier

Author: McDonalds DK

Used: 02-10-11

Link: http://www.mcdonalds.dk/dk/job___karriere/vores_vaerdier.html

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• Title: Cooking up the next big thing on our menu

Author: McDonalds

Used: 02-10-11

Link: http://www.mcdonalds.com/us/en/food/food_quality/trends_innovation.html

• Title: What we do

Author: Ronald McDonald House Charities

Used: 02-10-11

Link: http://rmhc.org/what-we-do/

• Title: Quality Matters

Author: McDonalds

Used: 02-10-11

Link: http://www.mcdonalds.com/us/en/food/food_quality/see_what_we_are_made_of.html

• Title: We Believe

Author: McDonalds

Used: 02-10-11

Link: http://www.mcdonalds.com/us/en/careers.html

• Title: Franchising and Entrepreneurship

Author: The Times 100

Used: 02-09-11

Link: http://www.thetimes100.co.uk/case-study--franchising-entrepreneurship--28-120-3.php

• Title: Corporate Info

Author: McDonalds

Used: 02-09-11

Link: http://www.mcdonalds.com/us/en/our_story/Corporate_Info.html

• Title: What Is Glocalization

Author: Robert Lamb

Used: 02-09-11

Link: http://money.howstuffworks.com/glocalization2.htm

Company profiles

• Title: McDonald's Corporation

Author: Datamonitor

Date: 03-25-10

Used: 02-09-11

Link: PDF file from SDU

• Title: McDonald's Corporation

Author: McDonalds

Date: 2008

Used: 02-09-11

Link: http://www.aboutmcdonalds.com/mcd/csr/report/overview/corporate_profile/suppliers.-
RightParaContentTout-43872-ReportsLinkList-61516-File1.tmp/mcd052_2009report_v6.pdf

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Appendix 1 Pros on cons for franchising

Franchising has different pros and cons for the franchisors and the franchisees

Pros for the franchisees

1. The franchisee has own his own company in accordance to the franchisor

2. The franchisee opens his new business because of the good image and the good will there already exist about the franchise concept

3. In most cases is it cheaper for a franchisee to open a franchise unit, than starting his own business from the beginning

4. The franchisee receives advices and guidance from the franchisor where it is necessary about following areas:

- Location, area, traffic etc.

- Assistance with government treatment, drawings, conversion plans etc.

- Economic assistance when buying the franchise unit

- Staff training

- Purchase of equipment

- Selection and purchase of stock

5. The franchisee would be able to use the franchisor’s promotion

6. The franchisee gets specialized knowledge from the franchisor

7. The business risk is minimized

8. The franchisee gets the rights to use the franchisor’s names, brand, know-how etc.

9. The franchisee can benefit from the franchisor’s research and development

10. The franchisee gets a lot of market information and experience from the franchisor

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Cons for the franchisees

1. The franchisee can only do things there is a part of the contract with the franchisor

2. The franchisee has to pay for some of the help he gets from the franchisor

3. The franchisee has to do a lot of market research before he decides to become a franchisee or not

4. It isn’t easy for the franchisee to sell the franchise unit

5. The franchisee is dependent of the franchisor

6. Decisions made by the franchisor might influence the profit of the franchisee

7. The franchisee might make new innovations that can damage the franchisee and even the franchisor

8. If the franchisor does something that influences the way people think of the company in a bad way it might have seriously cons for the franchisee

Pros for franchisors

1. The company doesn’t have to do big investment in order to gain a high degree of growth

2. It’s easy for the franchisor to grow nationally and global

3. Franchisees might know interesting local areas that might have some potential for the franchisor

4. The franchisor doesn’t have to care about the staff in the franchise units. The franchisees take care of that.

5. The franchisor doesn’t have to do that much market research, because the franchisee probably already knows how to minimize the costs and maximize the profit in a given area

6. Franchisees make it easier for the franchisor to distribute goods or services

7. New inventions from franchisees might have a positive influence on the franchisor

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8. When a franchisee opens a new franchise unit, the franchisor gets promotion,

9. A qualified franchisee might influence the profit of the franchisor positively

10. Franchisees with a high turnover might open new stores, and that will gain extra profit to the franchisor

11. If the franchisor is unsatisfied with a franchisee, the franchisee is able to cancel the contract and sign up with a new franchisee

Cons for franchisors

1. Some franchisees might be able to control large geographic areas because of bad contracts

2. Some franchisees don’t use the franchising system progressive, and that means sometime low gain of profit for the franchisor

3. The franchisor has to make sure that the franchisees contain the quality and service the franchisor is using

4. Problems between employees in a franchise unit might occur, and it might damage the franchisor, even though the franchisor doesn’t have any contact with employees in the franchise units

5. A qualified franchisee might someday become a competitor

6. New investment might be blocked if the franchisees don’t want to be a part of it

7. Lots of problems might occur when you have many franchisees. If one franchisee fails it might damage the entire franchise network

8. Communication between franchisor and franchisee might be a problem.

9. The profit would be higher if the franchisor didn’t use franchising, but at the same time there would be more work to do, and other issues to deal with

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11. If a franchisee gets a bad reputation locally, it might damage the franchisor globally

Appendix 2: The Value-chain

When we’re analyzing the internal conditions of a company we look at the value-chain analysis. In the value-chain analysis we find the core competences and the competitive advantage of any given company. McD is a service company so in this assignment we will take a look at the value-chain analysis for service companies. The value-chain analysis is divided into an analysis of the support activities and an analysis of the primary activities.

The administrative organization of the company

Management, planning, finance, bookkeeping, TQM /quality management) etc. VG

HRD ( Human resource management)

Employing personnel (staff), education, development of new skills (personal relations) VG Technological development in the company

Technology used in the various department /value chain activities VG

Purchasing department

Raw materials, semi materials, spare parts, stationary, services etc. VG

R&D (Research and Inbound logistics Marketing Production and sales

Development) THE “P” FOR PHYSICAL THE “P” FOR PROCESS

VG VG VG

EV. IN THE 7 Ps & “P” for PHYSICAL

EVIDENCE IN THE 7 Ps

Upstream Downstream UP/DOWN

Appendix 3: Generic strategies

57

Franchising i Praksis

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Sustainable Competitive Advantage (SCA)

Low Costs/price(s) Unique Product(s)

Broad Target Group Overall Cost Leadership Differentiation

Narrow Target Group Cost Focus Differentiation Focus

Appendix 4: Ocean strategies

Red Ocean (Blood is shed)

- Lot of competitors

- Relatively different market share

Growth through Innovation to enter a blue ocean

Blue Ocean

- First movers

- Monopoly

- Innovation

- Costs

- Value

When a company enters a new market it’s highly attractive to customers. And often a blue ocean becomes a red ocean again.

Appendix 5: The supply chain within McD

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Appendix 6: The PEST analysis

Analysis of the Macro Environment

PEST = Political, economic, social cultural and technology

Appendix 7: The SWOT analysis

In a SWOT analysis we have 2 main groups. One called internal environment and one called external environment. Below each group are there two smaller groups, and it’s in those groups we are using the letters SWOT. Internal means that it’s something the company can control like employees and products. Below the group internal we have 2 smaller groups S, for strengths and W for weaknesses. External is the opposite from internal. When we are talking about the external environment we are talking about something the company can’t control like laws and weather.

Below the external we also have 2 smaller groups, O stands for opportunities and T stands for threats.

Internal

Strength Weakness

External

Opportunities Treats

This is the how the SWOT analysis looks like when there has not been nothing plugged anything under the different groups.

Appendix 8: The Ansoff’s growth matrix

Present products New products

Present market (TG) Market penetration Product development

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• Intensive advertising | • Same target group
• New stores | • New needs
• Low prices | • New products

New market (TG) Market development Diversification “risky

• Export business” (Kotler)

• New target group

- Concentric

• Related

- Conglomerate

• Unrelated

Integration (Danish books)

- Value chain (primary activities)

- Line of distribution (supply chain)

Appendix 9: Distribution strategies

Intensive distribution Selling your products in as many stores, outlets etc. as possible

Selective distribution Selling you products in a few stores in each

city/town selected by you because they match

your Product-Price-Promotion

Exclusive distribution 1 store in geographic area

Appendix 10: Pricing / quality strategies

High price Low price

High quality Premium strategy Good-value strategy

Low quality Overcharging strategy Economy strategy

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Appendix 11: McDonald’s is moving towards a higher degree of market responsiveness (Article)