OPERATIONS AND PRODUCTION

What is their field of operation?

McDonald's is the largest food service company in the world. The company regards itself as the leading
global food service retailer. With more than 30,000 restaurants serving more than 47 million people each
day in 121 countries it is hard to argue! In 1974 McDonald's opened its first restaurant in the UK. As of 31
December 2001, McDonald's and its franchisees operated over 1,184 restaurants in the UK.

What are their main products?

McDonald's menu concentrates on five main ingredients: beef, chicken, bread,

potatoes and milk, which account for £255 million of food expenditure. The
company's main menu lists its basic food offering: the Big Mac, which still exists as
a major seller; other standard product names come from the McDonald's convention
of adding a 'Mc' to a particular item. So, a chicken sandwich becomes a 'McChicken'
sandwich and chicken nuggets become chicken 'McNuggets'. This idea has been
extended to their dessert range, with the creation of the 'McFlurry' ice cream.

What are their main brands?

In 1997, McDonald's was recognised as the world's leading brand by Interbrand

(http://www.interbrand.com). Since then the brand has 'slipped' to 8th in 2003. The long-established 'Big
Mac' product, introduced in 1968, has also attained brand name status. The company's own 'cartoon'
character, Ronald McDonald, tries to embody the firm's image as 'fun' and 'caring'.

When did the company start?

McDonald's originated in California, USA. In 1954, Ray Kroc became a franchisee of the McDonald brothers
(Dick and Mac) and began opening new restaurants, buying all the rights to the McDonald's concept in 1961
for $2.7 million.

Who are its shareholders?

In the UK, McDonald's Restaurants Ltd is the identity of McDonald's Corporation. The company does not
offer its shares for general sale nor are its shares listed on the UK Stock Exchange. However, the company
does register its accounts at Companies House.

What is the company structure?

McDonald's are structured along functional lines. Their Chief Executive oversees five major areas of activity:

• Operations (equipment and franchising)

• Development (property and construction)

• Finance (supply chain and new product development)

• Marketing (sales marketing)

• Human Resources (customer services, personnel, hygiene and safety)

• How do franchises work?

• The UK had more than 400 restaurants run by more than 200 franchisees at the end of 2001. This
represented just over 35% of McDonald's total UK restaurants. Nearly one half of these franchised
restaurants are run by former employees of McDonald's.
 • To set up a franchise with McDonald's costs at least £200,000. Potential franchisees need to contribute
at least a quarter of this sum. Partnerships are not allowed to set up a McDonald's franchise.

•
•
Fancy starting a franchise with McDonald's? It won't come cheap! © Photolibrary Group
• Would-be franchisees have to sign a franchise agreement with the firm. This gives them the right to
operate a specific McDonald's restaurant, at a single address, for a period of 20 years.
• Under the franchise agreement, the company agrees to provide the McDonald's trademarks, restaurant
decor, signage and equipment layout. In addition, the franchisee can use the recipes for the firm's
products, their stock control, accounts systems, method of operation, and marketing.

What is its mission statement?

McDonald's aim to be the UK's best fast service restaurant experience

Who are their major competitors?

In the UK, the main competition comes from Burger King, but in the USA, competitors also include Wendy's,
Taco Bell and Subway.

THE BUSINESS

A look at a key feature of McDonald's business

McDonald's has an extremely strong image, but its iconic status guarantees that for all the positive news
about the company, there is bound to be a downside. Regarded globally as a representation of US culture
and values, McDonald's is often 'first in the firing line' for any anti-American sentiment as in the following
cases:

• In June 2002, a French farmer, Jose Bove, began a jail sentence for destroying a half-built McDonald's
restaurant. Bove was sentenced for three months for the act which he said was in protest against US
trade protectionism.

• In August 2002, McDonald's became caught up in a row over the name of a new product. Their
decision to name a new burger 'McAfrika' sparked protests. Demonstrators called the decision
insensitive, when millions of people in Africa are threatened with starvation. The company started
advertising in the Norwegian capital, Oslo, promoting the new burger, which the company claimed has
a taste of Africa.
A taste of Africa? © Photolibrary Group

The company has tried in recent years to fend off health concerns associated with fast food consumption. It
has made considerable efforts to stress the positive aspects of the ingredients it uses in its products, stating
that:

• Its meat comes from farms that can guarantee the origin of its cattle and poultry.

• It uses only free range eggs.

• It has promised that it will not use ingredients from genetically-modified sources whilst there is
consumer alarm over this new food technology.

Healthy Eating and McDonald's - A Contradiction in Terms?

But sometimes it can make mistakes:

• In June 2002 the company agreed to pay a $10m settlement to Hindus living in the United States. The
group started legal action against the fast-food restaurateurs after the company failed to make clear
that it had used beef flavouring in its French fries. Sources were quoted as saying that the company
"sincerely apologises to Hindus, vegetarians and others" for incorrectly describing fries and hash
browns sold in the US as vegetarian.

STRATEGY AND POLICY

What is McDonald's policy on ensuring best quality product?

McDonald's menu concentrates on five main ingredients: beef, chicken, bread, potatoes and milk.
Recognising the importance of the supply chain in maintaining quality, McDonald's aims to create long-term
relationships with a limited number of supplier partners. Suppliers are usually keen to ensure that they can
meet McDonald's required standards. Continued orders mean that suppliers can be confident of survival and
growth.

McDonald's are keen to stress that their standards are based on quality, value and cleanliness. They say
that they have in place stringent quality assurance and food safety programmes. They also claim that they
know where all product ingredients come from. This would enable the company to control every link in its
supply chain.

Food safety is clearly very important to the company. This is understandable when you consider how
reputations can be seriously damaged when things go wrong. Their emphasis on safety and origin of
ingredients highlights the efforts McDonald's make to allay fears among the general public over nutrition and
modern farming methods.

HUMAN RESOURCES MANAGEMENT

Do they have an equal opportunities policy?

McDonald's policy has the following aims:

• high recruitment standards

• local sourcing of staff where possible

• the skills, talents and performance of staff matter; gender, marital status, disability, race, colour,
nationality or ethnic origin do not

• providing a safe and secure working environment

• staff should have opportunities for training and development

• jobs with the company should include career opportunities

• there should be challenges and rewards

• staff pay should reflect performance

• there should be good communication with staff

• the education of staff matters

The company introduced the post of Diversity Development Manager in 1997.

McDonald's is a member of the Employers' Forum on Age.

The overall percentage of women in restaurant management is 37%. Women represent 24% of the
company's middle to senior management. There is one female UK director.

Can you give me an example of human resource management at the company?

McDonald's places emphasis on the training and development of its employees. They aim to provide career
opportunities for people to achieve their potential. The firm offers both full and part-time career
opportunities, which helps staff to combine work with family or educational commitments.

Job progression is used to encourage employees who got their first job in the company to progress to
management positions. These promotions are based on the performance of the staff member. Over 40% of
McDonald's managers started as hourly-paid staff members in the restaurants. Over half of the company's
middle and senior managers have moved up from restaurant-based positions.

How are McDonald's employees motivated?

The company's hourly paid staff enjoy the following benefits:

• Free Meal Allowance

• Paid Holidays (4 weeks per annum)

• Free Life Assurance (value dependent upon service)

• Private Health Care (for employees aged 19+ with 3 years service)

• Sponsorship Programme

• Stock Purchase Scheme

• Employee Discount Card

• Service Awards (at 3, 5, 10, 15, 20 and 25 years service)

• Stakeholder Pension