Professional Documents
Culture Documents
What is franchising?
McDonalds is an example of brand franchising. McDonalds, the
franchisor grants the right to sell McDonalds branded goods to someone
wishing to set up their own business, the franchisee. The licence
agreement allows McDonalds to insist on manufacturing or operating
methods and the quality of the product. This is an arrangement that can
suit both parties very well.
Under a McDonalds franchise, McDonalds owns or leases the site and
the restaurant building. The franchisee buys the fittings, the equipment
and the right to operate the franchise for twenty years. To ensure
uniformity throughout the world, all franchisees must use standardised
McDonalds branding, menus, design layouts and administration systems.
In this case, the product is recognised all over the world. A large
proportion of new businesses and new products fail, often due to costs of
the research and development needed. The McDonalds formula,
however, has been successfully tried and tested. Ray Krocs insistence
that all McDonalds outlets sold the same products and achieved the
same quality has led to a standardisation of the process and great
attention to detail.
The cooking processes in McDonalds restaurants are broken down into
small, repetitive tasks, enabling the staff to become highly efficient and
adept in all tasks.
This division of labour and the high volume turnover of a limited menu
allows for considerable economies of scale. For the franchisee, this can
considerably reduce the risk of setting up their own business. There is no
need to develop the product or do expensive market research. Nor will
they have sleepless nights wondering if the product will appeal to the
consumer. McDonalds carries out regular market research.
3.
staff uniform and learning everything from cooking and preparing food to
serving customers and cleaning.
Further training at regional training centres focuses on areas such as
business management, leadership skills, team building and handling
customer enquiries. The franchisee will have to recruit, train and
motivate their own workforce, so they must learn all the skills of human
resource management. During the final period, the trainee learns about
stock control and ordering, profit and loss accounts and the legal side of
hiring and employing staff. Consequently, no McDonalds franchisee
would have to ask a member of his or her staff to do something that they
couldnt do themselves. Knowing this, can also be a powerful motivator
for the staff.
4.
Continuous support
5.
What products do they want to buy and at what price? How are they
performing compared to their competitors?
Any new products are given rigorous market testing so that the
franchisee will have a reasonable idea of its potential before it is added
to the menu. The introduction of new products, which have already been
researched and tested, considerably reduces the risk for the franchisee.
Massive investment in sponsorship is also a central part of the image
building process. Sponsorship of the 1998 football World Cup, the
Premier League and the European Championships increases awareness
of McDonalds brand. However, McDonalds still
follows Ray Krocs community beliefs today, supporting the Tidy Britain
Group and the Groundwork Trust, as well as local community activities.
6.
Forecasting
Dynamic innovation
Whilst the franchisees have to agree to operate their restaurants in the
McDonalds way, there still remains some scope for innovation. Many
ideas for new items on the menu come from the franchisees responding
to customer demand. Developing new products is crucial to any business,
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even one which has successfully relied on a limited menu for many years.
Consumer tastes change over time and a company needs to respond to
these changes. Innovation injects dynamism and allows the firm to
exploit markets previously overlooked or ignored. The introduction of the
Egg McMuffin in 1971, for example, enabled McDonalds to cater initially
for the breakfast trade. Filet-o-Fish, Drive-thrus and Playlands were all
products or concepts developed by franchisees.
Conclusion
McDonalds views the relationship between franchisor, franchisee and
supplier to be of paramount importance to the success of the business.
Ray Kroc recognised the need very early on for franchisees that would
dedicate themselves to their restaurants. He wanted people who had to
give up another job to take on the franchise venture, relying on their
franchise as their sole source of income and would therefore be highly
motivated and dedicated. Consequently, McDonalds will not offer
franchises to partnerships, consortia or absentee investors. The initial
capital has to come from the franchisee as a guarantee of their
commitment. The selection process is rigorous to ensure that McDonalds
only recruits the right people.
Questions
more HFCS and palm oil into more and more people. As this was a very competitive field
and profit margins were low, McDonald's looked for ways to raise sales, but ran into the
deeply ingrained inhibition against gluttony: people who would lick their plates clean were
reluctant to order a second helping. But in the mid-seventies, a group of McDonald's
franchises in Chicago discovered that if they offered customers a mix of items at what
seemed like bargain prices, sales shot up. Welcome to the world of "value meals": suddenly
people were eating more, not because they were hungry, but because they thought they
were getting a good deal.
All these developments have lessons for countries like Pakistan. Although poverty has
limited the sale and consumption of fast food and aerated sweet drinks, palm oil is widely
used in kitchens across the country. Indeed, the Ghee Corporation of Pakistan imports
huge amounts of palm oil for use in the many manufacturing units making cooking oil. In
the cities among the middle class, heart disease and high blood pressure are rampant
killers.
When I experienced a heart problem a few years ago, doctors did advise me to use as little
fat as possible; however, they did not mention how much worse palm oil is than any other
cooking medium, even butter. And while quantifying the caloric contents of various sweet
drinks, books do not tell us that fructose is actually bad for the system.
In poor countries, the rich tend to be overweight, while the poor are skinny; in rich countries
it is generally the other way around. The professional middle classes are more healthconscious; eat less fats and carbohydrates and more proteins; and exercise more. Studies
have shown that there is a positive correlation between the amount of TV children watch
and their weight. In America, black children living in ghettoes are often not allowed to play
outside because their parents are concerned about security. And when both parents are
working, it is much easier (and often cheaper) to buy a burger or a pizza than it is to cook a
healthy balanced meal.
These concerns might seem remote in poor countries where the vast majority can only
dream of a Big Mac, but sedentary lifestyles and rapid urbanization are putting a bigger
proportion of the population at risk. Pakistani cuisine is high in fat and salt, both important
factors in the growing numbers of patients suffering from high blood pressure that the
Pakistan Hypertension Society regularly warns us about.
Dr Azhar Farooqi, executive director of Karachi's cardiac hospital and an indefatigable
crusader for better heart care, has worked tirelessly to raise consciousness about the
dangers of poor diet and no exercise. And yet the incidence of heart disease continues to
rise remorselessly.
Mercifully, the trend is showing signs of reversing itself in the West. McDonald's has seen
share prices and the number of its customers falling. When an American sued the firm for
his weight-related health problems, he was the butt of ridicule in the media. However, the
case caused tremors in the fast-food industry and many fast-food outlets have shut down in
western cities. The 'slow food' movement which started in Italy a few years ago is gaining
popularity, and governments concerned about the high social and economic cost of obesity
are doing their best to encourage children to eat better and exercise more.
But ultimately, good health is about class: the well-off take better care of their bodies than
the poor who are more concerned about survival than the quality of life. Those at the
bottom of the socio-economic ladder have virtually no recourse to medical advice. The food
industry, meanwhile, is more interested in profits than social welfare. Until their activities are
more closely regulated by governments, they will continue making fat nations fatter.