PRESENTED

BY:
RAMSHA QADIR
JYOTSNA SINGH
VIJAYALAXMI
ANKIT RATHI
“The Mc Donald’s type
fast food isin’t relevant
to today’s customer.”
-A Mc Donald’s Franchisee
“The world’s has
changed. Our
customers have
changed. We have
to change too.”
-JAMES R.
CANTALUPO, CHAIRMAN AND CEO, Mc
Donald’s, 2003
• Two brothers Richard and Maurice McDonald
opened the first restaurant in San Bernardino,
California in 1937.
• Opened a drive-in restaurant- relatively new
concept.
• Single store- sold hamburgers and fries.
• Strong business in milk shakes.
 SUCCESS FACTORS IN
•
MID 1950s
Invented a revolutionary new
concept- “self service”
• Reduced menu from 25 items to 9.
• Prices kept low.
• Success factors- speed, service,
quality and cleanliness.
 MCDONALD’S LOGO
• First franchisee- Neil Fox in Phoenix,
Arizona(1952)
• Franchisee restaurant located in a
gleaming red and white tiled
rectangular building.
• Most distinctive feature- “ two bright
yellow arches” which later evolved as
the symbol for McDonald’s.
 MCDONALD TO MCDONALD’S
CORPORATION
• Ray Kroc- multimixers distributor-
stepped in to change McDonald’s
history.
• Small investment for $75000 made
business ideal for franchising.
• In 1955- Kroc established a
franchising company.
• In 1961- changed the company name
to McDonald’s Corporation.
 CRUCIAL HAPPENINGS
1960 Indication of competition- Domino’s
first telephone order to deliver a
1963 pizza
Ronald McDonald’s debut as
corporate “spokesclown”
1965 McDonald’s stock went public at
$22.50 a share
1967 McDonald’s went International
1968 “Big Mac”, the basic burger, made
its debut- an immediate hit
1975 First “Drive- Thru” operations in
Sierra Vista, Arizona
1979 Introduced “Happy Meals”- gave
working moms a break
1991 Introduced low-fat McLean Delux
Burger- flopped and withdrawn
 DOWNFALL
Since 1994 McDonalds ranked at the
bottom of fast food
industry.
Dec 2002 Stock plummeted 60%
over a period of 3 years

2002 Lost $20 billion in market

capitalization

Jan 2003 Quarterly loss of $344

million
One of the main reasons was the
changing customer preferences.
Customers preferred eating at home.
Became more health conscious and
selected fresh food over fatty, fried food
and red meat.
According to an industry expert, the
ageing population behaved differently
than they did 10, 20, 30 years ago.
 Continued…
Obesity became a major health problem in
late 1990s. According to a report by
American Medical Association, 30.5% of
Americans were obese and 15% of the
children aged between six and nine were
overweight.
McDonald’s had to face legal suits over
claims that its high calorie food was
responsible for health problems.
 Some of these foods should not be
consumed more than once a week which
Continued..
Depended heavily on US tourism, but with
the September 11,2001, terrorist attacks,
McDonald’s’ sales suffered.
In the late1990s, it faced stiff competition
from fast food chains like Wendy’s, Burger
King, Pizza Hut, KFC and Subway.
According to a research conducted by
Business Week, consumers rated both
Wendy’s and Burger King better, as far as
the quality of food was concerned.
INTERNAL CRISIS

In the late 1990s, McDonald’s faced a

slow down in domestic sales.
International sales had also fallen due
to economic turmoil across Europe and
Asia.
Market share had also reduced
Domestic operating income had also
declined.
Relationships with franchisees also
Continued…
o For every new restaurant that was
opened, a McDonald’s store in the
vicinity lost anything from 6% to 20%
of its revenues.
o Its continuous expansion had an
adverse effect on service and quality.
o It stopped grading its franchisees by
mystery shoppers on parameters
such as cleanliness, speed and
service.
Continued…
o In 1999, it introduced a made-to-order
system called ‘Made for You,’ to
counter custom made food systems at
Wendy’s and Burger King. However,
both the systems stretched the time
required to serve the customers,
instead of improving it.
o It met the speed of service standard
only 46% of the time.
o Slow services and rude unprofessional
employees were major sources of
customer complaints.
 FAILURE OF BLOCKBUSTER
PRODUCTS
• Although considered the most
innovative company in fast food
segment, failed to come out with
blockbuster products.
• Successful innovations were from
yesteryears: Big Mac(1968), drive
thru(1975), Breakfast(1977), Happy
Meal(1979) and Chicken
McNugget(1983).
• 40 food items such as lasagna, pizza
and carrot sticks failed.
• Adult food items like McLean and Arch
Deluxe burgers failed.
Continued…

• “ McDonald’s need to
move the question from
‘How can we sell more
hamburgers?’ to ‘What
does our brand allow us to
consider selling to our
customers?’”
-ADRIAN J.SLYWOTSKY, A PARTNER
AT CORPORATE DECISIONS INC., A CONSULTING
• Problems in maintaining cordial
relationships.
• 1996 survey showed that only 28% of
franchisees thought that the company’s
strategy is on “the right track”.
• Company changed its views so many
times that it was not possible to know
company’s stance.
• Unlike 1994 i.e. 84%, only 26% said
that company’s handling of important
Continued..

• in 1997 , franchisees vetoed

McDonald’s plans to serve customers in
55 seconds or less, saying that it was
not practical.
• Worse turn in relation, 1996,
franchisees joined independent group
consortium, run by former McDonald’s
employee DICK ADAMS.
• It operated secretly due to fear of
retribution from the company.
• It attempted “system wide
propaganda” that franchisees loved
Continued…

• CEO Greenberg shrugged it off

saying-
“Our relationship with the licensees is
absolute best in the business.”
• Company argued that Consortium is
a group of just 8 franchisees. Adams,
however, maintained that the group
had more than 300 members.
In 1980’s and 1990’s, franchisees were
so eager for McDonald’s two year training
program, queue up for hours..
Global operations

In late 1990’s, no
such queues.
Terminating their
contracts.
They saw their
profits to just 4% from
15% peak. Countries with McDonald's stores
 Continued…
Former franchisee and a food
consultant Richard Adams, 20
franchisees were leaving McDonald’s in
early 2000s. Unhappiness over their
expenditure on “made for you” kitchen
which actually slowed the service.

-REGGIE WEBB, OPERATOR OF 11 McDonald’s

RESTAURANTS IN LOS ANGELES.
 Continued…
According to some analysis, McDonald’s
demanded too much from its
franchisees-

-BUSINESS WEEK WROTE IN MARCH 2003.

 Continued…
Largest franchisees operated more
than 50 stores.
Franchisees who beat McDonald’s
national sales average were rewarded
with an offer to open and buy more
stores…….. Which again were not
proving to be sufficient due to decline in
sales.

-ALAN FELDMAN, CEO OF MIDAS INC., COO FOR

McDonald’s OPERATIONS UNTIL JANUARY 2002.
Continued…
Privacy policy contributed to its poor
performance.
Price war due between McDonald’s and
Burger King-
•Former sold full size Big N’Tasty and
McChicken for $1 each and $1 value meal
with 8 items. While latter introduced $99
value meal with 11 items.
•Franchisees prepared Big N’Tasty in
$1.07, so, some of them even sold it of
• Cantalupo- man behind
McDonald’s successful
international expansion.
INITIATIVES BY CANTALUPO
Changes initiated to restore
McDonald’s to its glorious days:
His plans- to rebuild the foundation-
“more customers in existing stores”.
More emphasis to- cleanliness,
service and staff productivity.
Aim- to bring customers back.
Reduced capital spending by a third
to $1.2 billion.
• Get rid of undesirable marketing
activities.
• National ad campaign- “dollar value
menu”- Big ‘n’ Tasty burger,
McChicken sandwich, special
sizes of fries, soda, salad and
various desserts.
MARKETING INITIATIVES
Focus on core competency of
consistent products and reliable
service.
Offers upscale alternatives including
McCafe and Bistro Gourmet.
Eliminates “supersize”- offers
healthier food options and introduces
Go Active! Adult Happy Meal.
 ENVIRONMENTAL
INITIATIVES
Unbleached paper carry bags.
Replacing polystyrene foam
sandwich clamshells with paper
wraps.
light weight recycled boxes.
 • “ McDonald’s are at a critical
juncture and what they do today
will shape whether they just fade
away or recapture some of the
magic and greatness again.”
 Question no. 1
Mcdonald’s was once hailed as the role
model for fast food industry. In the
1980s and early 1990s, it was one of
the most successful companies in the
fast food industry. However, in tne
late 1990s, it experienced major
problems which reflected in poor
sales. Do you think McDonald’s faced
poor sales in the late 1990s mainly
because of changes in external
 Question . 2
Some analysists feel that McDonald’s
problems in the late 1990s were due
to its inability to bring about a
change in the internal environment
of the organization. What were the
problems in the internal environment
that resulted in McDonald’s poor
performance in the late 1990s?
 Question.3
Many analysts feel that franchising is
the best way to grow, more so, in
international markets. However, the
McDonald’s franchisee model which
was very successful in the 1980s
took a beating in late 1990s. What
according to you were the problems
with McDonald’s franchisee model?
In the light of such problems, do you
think it is still the best way to grow?
 Question.4
Soon after taking over as the CEO of
McDonald’s, Cantalupo has taken
various steps to reverse the
download slide of McDonald’s. do you
think the steps taken by Cantalupo
would see McDonald’s emerge as the
“ Great American Meal” once again?
What according to you, should
Cantalupo do to take McDonald’s
back to its youthful vigour?