McDonald's angles for a bigger slice of the global pie
May 12, 2002
By Deleen Wilson
With 31 000 restaurants serving 44 million customers a day across 120 countries, McDonald's is perennially named as Entrepreneur Magazine's number one franchise. But, in true American style, the company wants more - much more.
"Forty-four million people is less than 1 percent of the global population, and that's just not good enough," said Peter Moyana, the head of franchising of McDonald's SA at a Gibs Forum recently.
Since Ray Kroc became the first McDonald's franchisee in 1954, adopting the then new business formats large companies such as Ford and the oil barons had recently introduced and which assisted in the roaring success that allowed Kroc to buy the trademark rights of the McDonald's brothers for $2.7 million in 1961 and go public in 1965, McDonald's has remained a strong franchising company.
McDonald's opened its first franchised restaurant outside the US in 1967 and today is the largest corporate real estate owner in the world. Indeed, 48 percent of its profit is derived from real estate.
But, despite 70 percent of the 30 000 global stores being franchised, the company only has 5 000 franchisees worldwide, as either single owners or multiple store owners, known as joint venture partners (JVPs)
Said Moyanga: "We believe in growth where it is deserved, and if an owner is doing well, they can grow organically."
But more than that, McDonald's franchisees play a major role in its success, and management actively listen and take on board what their franchisees have to say.
"Franchising is not an easy route to riches. Indeed, it can be the most difficult route, but it does negate the necessity to reinvent the wheel in business," Moyanga said.
But becoming a McDonald's franchisee is not the cheapest route to riches. A single franchise will cost between $455 000 and $768 500 to set up, and McDonald's demands a further $450 000. In comparison, Spur's initial set-up and licence fee is a mere R80 000.
In addition, a franchisee's initial cash investment must be a minimum of $175 000 for a conventional purchase, or $100 000 for a business facilities lease. McDonald's does not provide any financing, so individuals must meet the financial qualifications themselves.
The company is also a severe and jealous guardian, and "franchisees must divest [themselves] of all other active business interests" in order to "devote themselves full-time to the day-to-day operation of the restaurant".
Such unwavering devotion begins with compulsory participation and completion of a nine- to 12-month training programme prior to opening a business.
"You have to have a degree in Hamburgerology before we can trust you with our brand. Every single McDonald's outlet carries the full value of the brand, so a franchisee must have a full and in-depth knowledge of what our brand represents to the customer."
The training culminates in a course at McDonald's Hamburger University in the US or Australia.
McDonald's SA opened its first restaurants in November 1995 and expanded rapidly. By the end of 1998 South Africa was the fastest growing new market in McDonald's international history, employing more than 6 000 people. It is on track to expand to nearly 107 restaurants by the end of 2002.
Overall, the global success of McDonald's is owed to two values. The first is QSC&V: quality, service, cleanliness, and value. The second is the importance the company places on striking the correct partnerships.
"We call it the three-legged stool, incorporating McDonald's, our franchisees and our suppliers."
McDonald's worldwide growth strategy is threefold - to maximise sales in existing restaurants, improve profitability and, most importantly, to add new restaurants.
"Because new stores equal presence, which equals visibility, which equals penetration, which equals volume," explained Moyanga.
Franchisees often don't understand this concept, as they want exclusivity in their area.
While such demands have been accepted by other franchisors because it is beneficial to their business, in the case of McDonald's it doesn't work.
"We won't franchise a market unless we have a joint venture partner. JVPs are obliged to grow that market in order to achieve the desired visibility and growth."
A prime example of this is one JVP who owns 4 200 McDonald's outlets - the entire Japanese market. Tax laws recently forced him to list his company because it was not viable to leave the organisation to his family as an inheritance.
This article contains excerpts from a presentation made by Peter Moyanga, the head of franchising of McDonald's SA, to The Gibs Forum. Visit www.gibs.co.za for details on further presentations
|
|
