In 1955, Ray Kroc opened the first McDonald's restaurant in the United States using a franchise he bought from the McDonald brothers and turned McDonald's into the world's largest restaurant company.
McDonald's is one of the most successful global brands using the franchise model. It can even be said that McDonald's success is the success of the franchise. McDonald's has developed a series of systems to ensure the success of its franchises.
01
Breaking down McDonald’s franchise business model
Economics can be taught better with anything learned from previous experience.
Therefore, it would not be wrong to say that the person who laid the foundation for McDonald's current world catering landscape was not the McDonald brothers who originally wanted to be burger craftsmen, nor the legendary Ray Kroc, but an economist. reasonable. Let's take a look at how McDonald's does it. After all, to a certain extent, it can be said that franchising has made McDonald's what it is today.
Kroc's initial franchise method could not support his expansion strategy at all. The more stores there were, the more debt the company had. After an economist analyzed McDonald's statements, he gave a bold suggestion. It was this suggestion that made it what it is today. of McDonald's. He believes that it is impossible to make money simply by relying on the dividends from franchise stores. McDonald's should buy land in commercial districts to open stores, and then "sell" the stores to franchisees, from which McDonald's collects franchise fees and rents. This can achieve the purpose of expansion. , and can guarantee profits.
McDonald's restaurants in European and American markets are divided into two categories:
One type is directly operated stores. McDonald's owns these stores and is responsible for their operation and management. All income belongs to McDonald's;
The other type is franchise stores, which are franchise stores.
Under the leadership of Ray Kroc, McDonald's franchise and chain operation system has the following characteristics:
(1) Strictly select franchisees
If a merchant wants to join McDonald's, he must first apply to McDonald's headquarters. After the headquarters has reviewed its credit status, management capabilities, and financial capabilities, both parties can reach an agreement before signing a franchise contract. Since McDonald's, an international brand, means endless financial resources, many businesses have applied to join the franchise, but in fact many people are disappointed. McDonald's harsh franchise conditions make it difficult for many people to reach the goal.
(2) Unify the conditions for joining
McDonald's stipulates that franchisees must have at least US$100,000 to US$175,000 of their own capital. Once they sign a contract with the company, they must first pay an initial franchise fee of US$45,000, and thereafter pay a monthly franchise fee and property rent. The former is about 4% of monthly sales, and the latter is about 8.5%.
Every time McDonald's opens a branch, the headquarters will send personnel to select the location, organize the building and interior and exterior decoration. McDonald's usually owns or uses the property in its franchise stores, and then subleases it to franchisees to collect rent on the property, which accounts for a large proportion of McDonald's revenue.
(3) Unify the company name and logo
All franchise stores are named after "McDonald's", and the company's logo is the "golden arches", which is an arc-shaped "M" letter with yellow as the standard color. This unique golden double arch trademark is very eye-catching on the street, making people want to go into the store and take a look.
At the entrance of every fast food restaurant there is a symbolic character idol – "Ronald McDonald". He is dressed as a traditional circus clown and is a symbol of fun, friendship and peace. In the United States, the awareness of "Ronald McDonald" among children has reached 96%, second only to Santa Claus. McDonald's unified and unique corporate logo not only enhances the attractiveness of the product, but also saves promotional costs and enhances the corporate image.
(4) Unified advertising
In the early days of McDonald's, advertising was carried out by each franchise store itself. As a business grows, it becomes necessary to carry out unified advertising so that the huge advertising costs can be spread over many stores and huge sales volumes.
In 1967, McDonald's franchisees established a National Advertising Fund to pay for nationwide advertising.
In 1968, the fund received $3 million and used it for television advertising.
In 1985 it received $180 million. McDonald's annual advertising expenditure now reaches 1 billion US dollars, but when spread over more than 28,000 branches and more than 40 billion US dollars in sales, the burden of advertising expenses is not heavy.
(5) Unify product quality
McDonald's has extremely high requirements for food quality and requires standardization. Bread that is not round or has uneven cuts cannot be sold; the receiving temperature of the batter must be below 4°C, and it will be returned if it is one degree higher; each beef patty cut by a machine weighs 47.32 grams, has a diameter of 98.5 mm, and a thickness of 5.65 mm. When mixed with any bits of heart, lung, etc., the fat cannot exceed 11%, and must go through more than 40 quality control inspections; any raw material has a shelf life, and lettuce only has a shelf life of 2 hours after it is taken from the refrigerator to the ingredient table. , scrapped when out of date.
The production process adopts computer control and standard operations. The finished products are placed in the finished product insulation tank together with the time stamp; French fries are thrown away after 7 minutes and hamburgers are thrown away after 10 minutes. These rigid operating specifications are used to ensure the quality of the products. Quality, because of this, McDonald's has won many consumers and repeat customers.
(6) Unified service specifications
McDonald's services include the comfort of the restaurant building, the convenience of business hours and the service attitude of the sales staff. When customers walk into any McDonald's restaurant anywhere, they will feel that the architectural appearance, interior furnishings, food specifications, waiters' mannerisms, clothing and many other aspects are surprisingly similar, and they can all provide customers with the same standard of enjoyment.
Smiling is a characteristic of McDonald's. All employees smile and chat and work with customers cheerfully. All employees provide fast, accurate and friendly service. The queue should not exceed 2 minutes. After the customer orders the food, the waiter must deliver the food to the customer within 1 minute. McDonald's employees are not allowed to have quarrels with customers, otherwise they will be fired regardless of the severity and merits of the incident.
(7) Unified operating procedures
McDonald's employees "have procedures for hand washing, as well as manuals for management." Employees must strictly use sterilizing hand sanitizer before working. They are required to rub their hands for at least 20 seconds before rinsing, and then dry their hands in a dryer. If they come into contact with hair, clothes, etc., they must wash their hands and disinfect them again.
McDonald's operations manual details the operating procedures and methods of various tasks in the restaurant, and is continuously enriched and improved in practice. The operations manual divides restaurant work into more than 20 sections, detailing the items, operating steps, and job responsibilities that should be prepared in advance for each work section.
(8) Unified employee training
McDonald's headquarters has opened a "Hamburger University" to train branch managers and professional technical personnel. The learning content includes food cooking, machinery maintenance, raw material preparation, quality management, inventory control, accounting, advertising, public relations, personnel management and other aspects. Hamburger University has currently trained tens of thousands of graduates, who have become managers or business backbones of McDonald's franchise stores. In addition, in actual work, managers at a higher level have to provide one-on-one training to managers or employees at the next level. Only after they pass the training can they be promoted.
02
McDonald's enters mainland China and tests franchising waters
As early as 1975, McDonald's opened a restaurant in Hong Kong. However, it was not until October 8, 1990 that McDonald's first restaurant in mainland China opened in Shenzhen, China. The Chinese name was also called "McDonald's" instead of "McDonald's" after Hong Kong.
This restaurant is located in Guanghua Building, Jiefang Road, Shenzhen. It has more than 500 seats and can pay in both Hong Kong dollars and RMB. The restaurant was so crowded when it opened that McDonald's 400 employees in Shenzhen were overwhelmed, and 500 employees were temporarily transferred from Hong Kong to help. McDonald's China craze started in Shenzhen. In 1992, McDonald's opened Beijing's first restaurant in Wangfujing, which was also the largest McDonald's restaurant in the world at that time, with more than 700 seats. Back then, eating McDonald's was basically a high-consumption affair, and it was the same concept as eating Western food.
McDonald's has therefore become a fashion symbol and has rapidly developed in China. Of course, KFC, another fast-food restaurant also from the United States, is developing faster. McDonald's has always adopted direct sales in the Chinese mainland market. It was not until 2003 that McDonald's began pilot franchising in China and selected the first franchise licensee from more than 1,000 franchisees who actively applied.
In August 2003, McDonald's transferred a restaurant in Tianjin, which was doing very well, to this applicant as a franchise, becoming McDonald's first franchise restaurant in mainland China. Tianjin was chosen as the first pilot company mainly because McDonald's Tianjin Company is a wholly-owned company, while Beijing, Shanghai and other places are joint ventures, and wholly-owned companies are more convenient to transfer. Based on the success of the Tianjin store, McDonald's began to promote franchise business throughout China in 2004. McDonald's planned to open about 10 franchise chains in mainland China by mid-2006.
Franchisors are limited to individuals, and applicants must have financial strength of 2.5 million to 3.2 million yuan, must live in the community where the restaurant is opened, and must receive about one year of specialized training. McDonald's was optimistic that by 2008, 10% of its 1,000 stores would be franchised stores. However, progress since then has not been smooth.
McDonald's franchise business in mainland China did not meet expectations, and the first franchise holder also left McDonald's. McDonald's China business had previously been managed by people from Hong Kong and Taiwan. As local people from the United States began to intervene, most of the original senior management team also left.
The traditional franchise model promoted by McDonald's in mainland China seems to be a bit "acclimated". Therefore, after a long period of investigation and preparation, McDonald's decided to launch a developmental franchise model in China ( ). The so-called "development franchise" is to grant the franchisee the right to operate existing restaurants and open new restaurants within a specific geographical range, and McDonald's will withdraw a certain percentage of the total turnover as franchise fees according to the agreement .
In 2011, Kunming Meile Catering Management Co., Ltd., a subsidiary of the Yunnan family-owned Nostar Group, became McDonald's first franchised developer from mainland China and will be responsible for the operation of McDonald's restaurants in Yunnan province and the expansion of new restaurants in the Yunnan market. Since then, McDonald's has also implemented developmental franchising in the Zhuhai market. As of the end of 2015, more than 30% of McDonald's restaurants in China were owned and managed by franchisees, and the number of developmental franchise markets reached 16.
03
Changing external environment, innovative master franchise model
While foreign fast food companies such as McDonald's and KFC continue to promote their business in China, the market environment is already changing. From 1990, when the first McDonald's restaurant landed in the Chinese mainland market to 2015, China's economy and people's lives have undergone earth-shaking changes in the past 25 years. Western fast food, which was regarded as the first choice social place for high-end consumers and urban young people, has become a real fast food restaurant.
With the rise of various shopping malls focusing on catering and entertainment, foreign fast food has suddenly become a supplement to other dining methods, so much so that McDonald's can no longer be found in many shopping malls. The rise in housing prices, employee salaries, and raw material prices brought about by economic development has also led to a sharp decline in the profit margins of foreign fast food.
Incidents such as the Shanghai Husi Company also had a negative impact on McDonald's. At this time, KFC China was also facing the same dilemma, and its annual revenue growth in the past began to stagnate. As a result, the shareholders of KFC's parent company Yum! Brands Inc. could not sit still and began to propose the spin-off of Yum! China's business. The demand of shareholders is always that profits must rise before stock prices rise. McDonald's board of directors also faces these issues.
At the same time, the coffee culture represented by Starbucks began to become popular around the world and in China, and the stock market value has been close to that of McDonald's. Of course, there is another big background here. Many chain restaurant brands such as Burger King are working hard to transition towards the so-called "asset-light" structure. They own the brand but not the actual restaurants, and they can earn from the sales of authorized franchise stores. Take a certain percentage away to obtain a stable income. This has also become the direction of efforts of McDonald's and Yum Brands.
In March 2016, McDonald's China announced that it "plans to introduce strategic investors to increase investment in future development and enhance corporate competitiveness." The official statement is that "McDonald's global revitalization plan has achieved initial results. At the same time, we attach great importance to McDonald's China's development strategy and constantly seek changes to accelerate business development and bring us closer to customers and communities." By September 2016, McDonald's It has received acquisition offers from at least three major consortiums for its stores in China and Hong Kong.
Carlyle has teamed up with CITIC Group, TPG has partnered with Wumart Commercial Group, and real estate company Sanpower Group has also made an offer for the McDonald's assets. Finally on January 9, 2017, McDonald's (Corp.) reached an agreement to sell a controlling stake in its Chinese business to an investment consortium led by China's Citic Ltd. CITIC Limited, Carlyle and CITIC Capital will jointly acquire the controlling interests in McDonald's businesses in mainland China and Hong Kong for US$2.08 billion.
After the transaction is completed, the joint venture between CITIC Limited and CITIC Capital (the two hold 61.54% and 38.46% respectively), Carlyle, and McDonald's Ltd. will hold 52%, 28% and 20% of McDonald's China Management Co., Ltd. respectively. % equity. McDonald's China Management Company will be granted the master franchise right to operate McDonald's restaurants in mainland China and Hong Kong for 20 years. McDonald's may take away 5%-7% of the sales of franchised stores in China.
CITIC, Carlyle and McDonald's said they will further develop McDonald's business and expect to open more than 1,500 new restaurants in mainland China and Hong Kong in the next five years. As of the end of December 2016, McDonald's had more than 2,400 directly-operated and franchised restaurants in mainland China and more than 240 in Hong Kong. Under the agreement, McDonald's more than 1,750 directly-operated restaurants in mainland China and Hong Kong will be converted to franchises.
In general, chain operation is an inevitable trend in the development of modern catering enterprises, but the choice of expansion model needs to be determined based on the actual situation of the enterprise. Generally speaking, when the parent company has a headquarters with considerable strength and management experience, it can choose a franchise chain for scale expansion.
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The "Franchise Research Report" has a total of 59 pages, giving you an overview of the origin and definition of franchising, basic elements and classifications, differences from other business methods, application scenarios, development status and trends.
Yima was established in 2003 and has been focusing on chain industry research.
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