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McDonalds History and Business Analysis

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    In the history of business, countless companies have failed, some have luckily succeeded, but only one became the world’s largest and most profitable in the fast food industry. That company is McDonalds. The question though however is how McDonalds separated itself from companies like Wendy’s and Burger King to become the world’s most successful fast food restaurant. How did McDonalds start as one restaurant in 1948 to become today’s largest fast food chain in the world? McDonalds surpassed its competition with innovative thinking in restaurant management and operations, through successful marketing, and simply being able to adapt with the times. In the beginning all businesses start off small, but only a select few of these small businesses thrive and multiply to become successful multinational conglomerates like McDonalds.

    It is hard to imagine McDonalds starting off in 1948 as a small single burger snack in San Bernardino, California seeing how large it is today. What separated McDonalds from all other small businesses was their new and innovative idea, “an ‘assembly line’ whereby a reduced menu (consisting only of hamburgers, cheeseburgers, french fries and drinks) could be cooked cheaper and quicker, which would hopefully lead to a higher turnover of customers. ”3 This concept of food preparation is still the heart of the fast food industry. However McDonald’s founders, Richard and Maurice McDonald, did not start their restaurant with this innovative idea.

    In the 1940’s the McDonald brothers started off with a small drive in restaurant, where people were served to their cars, and had about a twenty five item barbeque menu. They were mildly successful, but the brothers felt they could improve, and on December of 1948 they reopened their business with an innovative way of food preparation that is still used today. It did not take long for business to start surging, in only five years their volume of burgers sold almost doubled, and during peak periods it would not be unusually to see a hundred and fifty customers outside waiting for a burger from this new up incoming business. It did not just attract customers though; it also enticed many business people which initially started the expansion of McDonalds. With word spreading of the success of McDonalds many business people wanted to mimic their success, which piloted the first franchise of McDonalds being sold to Neil Fox in Arizona for merely one thousand dollars. The thousand dollars would buy the right to use the name “McDonalds”, a brief description on how their “Speedee Service System” was done, and the services of their first cashier Art Bender for two weeks to help get them started.

    However there was one businessman that would change McDonalds forever, his name was Ray Kroc. 5 Ray Kroc first came in contact with McDonalds in 1954 when he was trying to sell and supply them with multimixer’s, which were used to make shakes. When Ray Kroc saw firsthand how successful McDonalds was, it made him think about all the untapped potential in the rest of the country. From seeing this, it inspired Kroc to sign a ninety nine year contract with the McDonald brothers who gave Kroc exclusive rights to franchise out McDonald’s restaurants to the rest of the country under a company that Kroc would own and run. This incorporated company was called McDonalds System Inc, which was remained to be McDonalds Corporation in 1960. 7 The essence of the contact said that Kroc could open as many restaurants as he wanted seeing that no changes were made to the original style of McDonalds without written consent. 8 It was also said that Kroc could only charge $950 dollars for initial franchising fee’s, and take only 1. 9% of the franchises sales, giving 0. 5% back to the McDonalds.

    Kroc’s first restaurant, the one felt to be first of McDonalds Corp. , opened in Des Plaines Illinois in April of 1955. It did not take long for more and more McDonalds to open up. By the end of 1956, fourteen McDonalds were opened reporting 1. 2 million in sales. Four years later there were 228 restaurants reporting sales of 37. 6 million. 10 To maintain this growth, Kroc found it in his best interest to simply buy out the McDonald brothers so he could have total control over the company. As a result in 1961, Kroc bought out the brothers for 2. 7 million giving him absolute power in all aspects of McDonalds. 11 With McDonalds now in control by Ray Kroc this guided the way to many new innovative ideas.

    First in 1961, he created an ad campaign, called “Look for the Golden Arches”, which really helped boost sales at current locations. Another idea in 1962 was to replace their current symbol, a character called “Speedee”, with the now world famous Golden Arches. A year later, Kroc came up with the idea to have a red haired clown to appear in the restaurant called “Ronald McDonald” to try and appeal to kids, an idea no one could of imagine to work so good. 12 In a recent study it was proven that Ronald McDonald was the second most recognizable figure, topped only by Santa Claus. 3 This goes to show how McDonalds has been so successful in advertising which in the end helps the company grow. Since McDonald’s inception they have never struggled with marketing, rather they are world renowned for it.

    Any company would love to have the success McDonald has had when it comes to advertising. But how have they been so successful? First they have had some of the cleverest ideas when it comes to advertising. Almost every single ad campaign or slogan for instance, “ba da ba ba baa I’m Lovin It,” has caught on immediately. Two of McDonald’s most successful ad campaigns were in the 1984 Olympic Games where when the “U. S. won, you won”14 and the other was when they gave away “Teenie Beanie Babys” with happy meals in 1997. 15 Another reason McDonalds was so successful in advertising is because they adapted with the times. For instance, look at the way the actual restaurant has change in design over the years. In the beginning, McDonalds had a very sleek and revolutionary look to it, with two arches going over the top of the building. However in 1967, there was a change in public interest and people preferred a more traditional style look, which resulted in a complete redesign of the building.

    This resulted in a total makeover towards mansard style roofs with brown bricks and red shingles. With this revolution, also came the birth of a sit down area within McDonalds. 16The main look within was very simple, with very cheap plastic booths and tables in the restaurant. It was not until 1975 that McDonalds again changed the way it served its customers. With the automobile being even more in demand, McDonalds adapted and capitalized on this trend by creating the drive thru window. 17The traditional look had remained the same until recent years when McDonalds started to dramatically change the look of their locations again.

    Instead of the traditional look, McDonalds went back to the sleeker look with the two arches going over it. The new McDonalds look very similar to the ones from pre 1968, however there is a drastically new interior. For instance, most “new restaurant’s [have] higher-tech features: wireless Internet service, digital ordering displays and plasma-screen television sets… [there are] muted earth tones instead of blazing reds and yellows, as well as walls marking off dining zones for singles, families and business meetings. This shows how McDonalds is adapting to the more technological society that is happening today and capitalizing on it. 18 With the actual restaurant changing over time, so did the menu. With Ray Kroc owning McDonalds, this allowed various new menu changes that have now become staples within McDonalds. The first addition to the McDonalds menu was the “Fillet o Fish” in 1963, then in 1968 the Big Mac was introduced. Other famous additions to McDonald’s menu include the McFlurry, the Quarter pounder, Chicken McNuggets, and the Happy Meal.

    However, the biggest addition to McDonald’s menu was with the addition of breakfast items in 1973. 19 The reason for this is by restricting to the sales of only burgers alone, there was only a certain time period at which people were willing to eat them which is typically lunch or dinner. However by having a breakfast line, McDonalds was able to tap into a market they would not be able to do at the time. By simply adding breakfast, it increases the hours of operations which will increase revenue. McDonalds was not the only hamburger restaurant at the time, they had lots of competition from competitors like Wendy’s and Burger King.

    In the late 1970’s and early 1980’s, competition between these rivals intensified. Experts at the time believed that the fast food industry had stop growing, meaning that the current companies needed to fight for more market share rather than expand more. As a result vigorous ad campaigns from Burger King’s, “Have it your way”, and Wendy’s, “Fresh Alternative”, began. However McDonalds sales and market share still continued to grow, showing that consumers reacted more to the all the advertising efforts of McDonalds further proving the power of effective marketing. 0 The best way to look at the success of McDonalds is to look at their rapid US growth. The biggest contributor to McDonald’s growth was when the company went public in 1965, selling shares for $22. 25 each. It only took a few weeks for its share price to more than double to $49 each.

    To further see McDonald’s success, look at these numbers. By 1967 McDonalds had just opened their 1,000 restaurant, three years later they opened their 1600th restaurant occupying all 50 states raking in $587 million in sales a year. By 1990, McDonalds had opened 11,800 restaurants reporting $18. million in sales and selling a total of 80 billion burgers. With all of its success in American, it was inevitable for McDonalds to cross its U. S. borders and expand even further. 21 One of the main reasons for the huge success of McDonalds was their ability to expand all across the world. The first non U. S. McDonalds opened in Canada on 1968 in Richmond B. C. , and global expansion has not stopped since. 22 McDonalds can be found all across the world in 119 different countries. 23 McDonalds pioneered in opening restaurants were no other American company tried, and they succeed greatly.

    A prime example of this is when McDonalds opened a restaurant in Soviet Russia in 1990, in Moscow. On the first day, more than thirty thousand people lined up to be the first people to eat at the new McDonalds in Moscow. Another example is in 1992 when McDonalds opened its first restaurant in Beijing, where it drew a crowd of forty thousand people its first day. Currently, there are thirty-one thousand restaurants worldwide. 24 However, McDonalds could only expand so much. By keeping this in mind, the mantra of “better, not just bigger,” kicked into play. 25 It is an increasing trend today to see twenty four hour McDonalds.

    This was brought out by the idea of “Instead of building more restaurants, McDonald’s is increasing its financial results by squeezing more from the ones it. ”26 What this means is that instead of expanding, they need to make more money from existing McDonalds and one way of during that is increasing the hours of operation. This was the same methodology used when the breakfast line was added in, by having longer hours, it gives the opportunity to increase profits. The story of McDonalds however is not perfect; there are many black spots in the success of McDonalds.

    The main problems have been through the various trials against McDonalds, and the link between the food McDonalds sells and obesity and other health issues. The main trial that completely defamed McDonalds was the famous “McLibel” case that ended in 1997. This trial was about McDonalds suing two environmentalists for distributing a leaflet containing various disturbing claims against McDonalds. In the end McDonalds won the case, but they lost more than they won, a pyrrhic victory. In the end of the trial, the judge found McDonalds guilty of “mistreating animals, paying low wages and exploiting children through its ads. 27 This was the first major bash to McDonald’s reputation. The next blow to McDonald’s reputation came from a documentary called “Supersize Me” created by Morgan Spurlock.

    For years people have been bashing McDonalds for all of its unhealthily food, but after “Supersize Me” things changed the most. After the movie, McDonalds did many various things in retaliation of the movie. First it removed the supersize option on fries and soda, they started offering bottled water and yogurt instead of fries and soda, they can out with a salad line, and they also started to print all the nutritional facts of their products on the wrappers. 8 It is safe to say that McDonalds is a great example of a company that succeed. It was able to expand from a single burger shack to a multinational conglomerate with over thirty one thousand restaurants worldwide. It goes to show how one innovative idea of an assembly line style restaurant could become worth billions in the future. McDonalds proves how creative marketing will help a company expand. Finally, McDonalds shows how a single person, Ray Kroc, could build upon a single idea and create a business that is known all around the world.

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