Document 40951

Background
Franchising is a particularly attractive
business opportunity for people with
entrepreneurial flair. It is a route to owning
your own business without the high risk
element normally attached to owning a sole
trader’s business. Through franchising, the
entrepreneur buys into an operation whose
business methods have been tried and tested
many times over and therefore the rate of
business failure is usually quite low.
The
McDonald’s
Franchise
Agreement
A Partnership
In the US, almost a third of all retail sales
come from franchising operations. In
Ireland, however, less than 10 per cent of
retail sales are cu rren tly through
franchising. This would suggest that
franchising is set to become one of the
major growth areas in Ireland in the
coming years.
McDonald’s is the largest franchise
restaurant organisation in the world, with
over 23,300 restaurants in 111 countries.
Chicago businessman Ray Kroc opened the
first McDonald’s franchise in 1955 in Des
Plaines. The first Irish restaurant was
opened in 1977 and there are now 40
restaurants serving some 150,000 people
every day. McDonald’s employs almost
3,000 people in Ireland. Companies who
supply McDonald’s with its raw materials
have also generated a significant number of
spin-off jobs.
In this business study the franchise
operation of McDonald’s is described. The
study also examines the benefits of running
a McDonald’s franchise operation and the
essential requirements necessary to become
part of the McDonald’s franchise team.
McDonald’s is one of the most successful
examples of a truly global organisation. It
operates in 111 countries and serves some 38
million people every day - making it the
largest food service company in the world.
Achieving a global presence, however, does
not automatically mean a company will be
successful in every country. In fact, there are
many examples of global companies whose
brands have failed to make a strong impact in
the Irish market.
McDonald’s is one of a number of brands that
command instant recognition in virtually
every country of the world. A key factor in
achieving this level of global success lies in
McDonald’s commitment to understanding
the wants and needs of the consumer that are
common across countries and those which
differ. Based on this, it identifies which
elements of its product or service may be
standardised across its international markets
and which elements require a degree of
adaptation to allow for local differences.
The same brand name, brand symbol (the
Golden Arches) and the same range of
products is available in every McDonald’s
restaurant throughout the world. At the same
time, McDonald’s responds to the specific
local market requirements for every country it
enters. For example, in deference to the local
culture in India, burgers are made with mutton
and the global favourite Big MacTM goes by the
name ‘Maharaja Mac’. In Israel, McDonald’s
burgers are made with kosher beef, thereby
fulfilling local religious requirements.
The McDonald’s
Franchise Agreement
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The franchisee is expected to become
involved in McDonald’s community,
civic and charitable activities.
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Individual franchisees must have their
own capital to commit to the business.
The cost of entering a franchise operation
can sometimes be prohibitive. However,
to overcome this limitation, McDonald’s
provides a number of alternatives to
entering into a franchise agreement,
requiring different levels of financial
commitment.
Although McDonald’s is a global business, it
is primarily a franchise operation. Globally
over 70% of restaurants are operated by
franchisees. A franchise is an agreement or a
licence to sell another company’s product or
service. It permits the individual accepting the
agreement (the franchisee) to use the
established name and logo of the existing
business by agreement with the owner (the
franchiser). The franchiser provides the knowhow and the business format in return for an
annual fee. This is usually a negotiated
percentage of sales, together with a negotiated
initial payment.
Under the McDonald’s franchise agreement
the franchisee agrees to operate the business
in accordance with McDonald’s standards of
quality, service, cleanliness and value. In
return, the franchisee is granted the right to
operate a McDonald’s restaurant, usually for
a period of 20 years. These rights include the
use of McDonald’s:
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Ilac Centre, Dublin.
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Trade marks
Restaurant decor designs
Signs and equipment
Formula for menu items
Method of operation
Method of inventory control, book
keeping and accounting
Marketing activities.
So what does it take to
become a McDonald’s
Franchisee?
McDonald’s franchisees play a critical role
in delivering the McDonald’s brand
promise to consumers. Because of this,
McDonald’s has a rigorous process in
place for ensuring that potential new
franchisees have what it takes to run a
McDonald’s restaurant:
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Franchisees must possess an
entrepreneurial flair for business. They
must possess the drive and energy
necessary for running a busy restaurant
to the standards set by McDonald’s.
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Franchisees must possess a high level of
personal commitment and demonstrate
strong managerial skills. These qualities
are essential to run a business that will
employ 50 people or more and serve
some half a million customers a year.
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McDonald’s only offers franchises to
individuals - not to partnerships, absentee
investors or families. Potential franchisees
are expected to divest themselves of any
other business interests. They are also
required to invest approximately nine
unpaid months to learn all aspects of running
a McDonald’s restaurant.
McDonald’s, The Waterfront, Drogheda.
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McDonald’s - A Global
Organisation fulfilling
local needs
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Training to become a
McDonald’s Franchisee
Those who are successful at the selection
process are then invited to begin a ninemonth training programme. The aim of the
training is to achieve competency in running
a McDonald’s restaurant. It is also designed
to ensure that the same standards of service
and product quality are maintained
throughout every McDonald’s restaurant in
the world. Franchisees are not charged for the
training, although they do have to support
themselves financially during this period.
Training is normally carried out at a
McDonald’s restaurant convenient to the
franchisees and is supplemented by a number
of residential courses at training centres in
Ireland and the UK. Training focuses on the
areas critical to success in operating a
dynamic McDonald’s restaurant, such as:
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Team building
Handling customer enquiries
First aid
People skills
Business management.
Sprucefield, Lisburn, Co. Antrim.
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The first three months of training is spent as
part of the restaurant crew. The focus of this
phase is to master the basics - cooking and
preparing food, serving customers and
cleaning. Trainees will also learn operational
theory about cooking times, temperatures
and hygiene standards.
matches this commitment. It offers
individual entrepreneurs all of the advantages
of running one of the world’s most successful
global franchise operations. It does this in a
number of ways:
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The next three months is focused on junior
management training, which prepares the
franchisee for managing daily restaurant
operations. The final period of training
concentrates on the more senior managerial
duties such as stock ordering, profit and loss
accounts, inventory control and hiring and
motivating staff.
Participants’ performance on the training
programme is assessed on an ongoing
basis by a McDonald’s field consultant. A
field consultant is a person who works ‘in
the field’; ie on a day-to-day basis with a
franchisee and his managers, crew and
administrative team to advise as requested.
He/she serves as an advisor on ‘best practice’.
Those who successfully complete the
training programme are then offered their
own McDonald’s franchise.
The benefits for
McDonald’s Franchisees
All of this may appear to be a lot to ask
fro m s o m e o n e w i s h i n g t o e nter the
business. However, in return, McDonald’s
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for advice and practical help with any
aspect of the running of the business.
In Ireland, McDonald’s franchisees
also help each other out. For example,
existing franchisees send staff and
managers to help new franchisees with
the opening of their restaurants.
A McDonald’s Franchise offers an
entrepreneurial approach to
business
McDonald’s franchisees enjoy the
freedom and challenge of running their
own business. Ray Doherty has been
running a McDonald’s franchise in Cork
for 15 years. Before entering into a
franchise agreement with McDonald’s he
spent eleven years working for a large
company. He had a lifelong ambition to
run his own business and McDonald’s
provided the necessary route. According
to him, the McDonald’s system is ideal for
those with entrepreneurial flair. It
provides an opportunity for entrepreneurs
with a love of retailing and who enjoy
dealing with the challenges and problems
of running their own business, whilst
allowing them to reap the benefits of an
established brand identity.
Joe Byrne, a McDonald’s franchisee in
Wa t e r f o r d b e g a n w o r k i n g f o r
McDonald’s while he was still at
school. He spent seventeen years with
the organisation and worked his way
up to becoming a restaurant manager
by the age of 29. He managed many of
the McDonald’s restaurants in Dublin
before moving to Waterford. Although
he always wanted the challenge of
running his own business he was aware
of the high rates of small business
failure. McDonald’s however provided
the ideal route. The back-up support
and the McDonald’s proven franchise
methods were just what he needed to
take the fear out of going into business
for himself.
McDonald’s provides back-up
support and advice to franchisees
Franchisees enjoy the comfort of a
sound support structure to help them
through any difficult business periods.
E ach f r anchisee has th eir ow n
McDonald’s field consultant. The
consultant visits the franchisee on a
regular basis and is always available
felt that with a McDonald’s franchise
the risk was far more calculated.
According to Gerry, the management
skills and the successful business systems
that he learnt from McDonald’s would
have taken him years to acquire on his
own.
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Ilac Centre, Dublin.
A McDonald’s Franchise offers a
more successful route into business
A McDonald’s franchise operation is a
more successful route into business than
setting up in business as a sole trader.
Franchisees gain access to McDonald’s
proven franchise methods. This provides
the assistance necessary to establish and
run the business profitably. Because of
this, the risk attached to setting up in
business is vastly reduced.
Gerry Riordan worked in the banking
industry for a number of years before
opening his McDonald’s franchise
restaurant in Blackrock, Dublin. From
his banking experience he was aware
of the high risks associated with setting
up your own business. However, he
HGV from Snowcrest Services Ltd - McDonald’s Distribution Co.
Joe Byrne and his team in Waterford
are currently raising funds for a
children’s playroom in Waterford
Regional Hospital.
Ray Doherty and his team in Cork
renovated a room at the University
Hospital creating a children’s playroom.
They have also just completed a play area
in the waiting room at the hospital.
When Ray Doherty identified an
opportunity for a quick service
restaurant in Cork, he examined the
suitability of a number of different
organisations. However, he came to
the conclusion that McDonald’s as the
most recognised brand in the world,
together with its high standards of quality
and service, was the one to choose.
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McDonald’s enjoys global brand
awareness which it supports with
local marketing activities
McDonald’s franchisees benefit from using
one of the best known brands
in the world. The McDonald’s brand
commands instant recognition in virtually
every country of the world. McDonald’s
invests heavily in national advertising,
especially TV advertising, and sales
promotional activities in every country in
which it operates. This support maintains
high levels of interest and awareness in the
brand and its products - all to the benefit of
its individual franchisees.
(RMCC), which was established in
Ireland in 1997. RMCC collection
b o x e s a re d is p la y e d in a ll th e
restaurants and the money collected is
sent to various Irish children’s causes.
Each restaurant has an annual Ronald
McDonald’s Charity day during which
one pound is donated to the charity for
every Big MacTM sold. The most recent
day succeeded in raising over £20,000
for the Charity.
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Superior quality and service is
delivered in a consistent manner
throughout every McDonald’s
restaurant
There is a high level of product and
service quality standardisation among all
McDonald’s franchise operations. This
means that no matter where in the world
a McDonald’s meal is consumed,
customers are assured that the same high
level of service and quality will be
provided.
McDonald’s makes a valuable
contribution at local community
level
In every country where McDonald’s
does business, it strives to make a
valuable contribution at both a national
and local level. All franchisees are
therefore encouraged to put something
back into their communities. They do
this by involving themselves and their
staff as much as possible in local
events, schools, community groups
and by raising funds for local charities.
All Irish franchisees are involved with
Ronald McDonald Children’s Charities
TASKS AND ACTIVITIES
1
(a ) D e s c rib e w h a t is me a n t b y
franchising.
(b) List the factors critical to the success of
a franchise operation.
(c) Describe the factors that may lead to
the failure of a franchise operation.
(a) Outline how franchising can offer
a more successful route into business
than going into business as a sole trader.
2
(b) List the disadvantages or limitations of
being a franchisee.
3
Describe how the McDonald’s franchise
operation works.
Outline the advantages of McDonald’s
franchise to (a) the McDonald’s franchisee
and (b) the McDonald’s franchiser.
4
Outline the key factors which have
contributed to the global success of
the McDonald’s organisation.
5
Ronald McDonald and friends.
A partnership approach
to success
Franchising has been the key to McDonald’s
global success. Through franchising it has
grown to become the world’s largest
restaurant provider. McDonald’s franchise
operation is based very much on a partnership
approach to business. Each franchisee brings
their own individual skills and qualities to the
organisation. The Big MacTM, Filet-o-Fish,
Drive-Thru and Playlands are just some of
the products and concepts which were
developed by McDonald’s franchisees. By
encouraging its franchisees to shape the
future of the McDonald’s organisation
through ambition and ideas, McDonald’s has
created a truly world-wide story of personal
success.
Describe the qualities that are essential
in order to become a McDonald’s
franchisee. Explain why they are essential
qualities.
6
Develop and describe a franchise
agreement for any business of your
choice. Outline what is required from (a)
the franchisee and (b) the franchiser.
7
What lessons can other business
organisations and entrepreneurs learn
from this business study?
8
While every effort has been made to ensure the accuracy of
information contained in this case study, no liability shall attach
to either The Irish Times Ltd or Woodgrange Consultants Ltd for
any errors or omissions in this case study.
Business 2000
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