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 ■ The franchisee is expected to become involved in McDonald’s community, civic and charitable activities. ■ 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: ■ ■ ■ ■ ■ ■ ■ Ilac Centre, Dublin. PREVIOUS Franchising. NEXT 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: ■ 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. ■ 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. business MAIN MENU 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. approach to Business 2000 ■ McDonald’s - A Global Organisation fulfilling local needs PRINT 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: ■ ■ ■ ■ ■ Team building Handling customer enquiries First aid People skills Business management. Sprucefield, Lisburn, Co. Antrim. QUIT 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: ■ 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 ■ 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. ■ 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. ■ ■ 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. ■ 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 MAIN MENU PREVIOUS NEXT PRINT QUIT