McDonald's Franchising Strategies and Opportunities

The assignment emphasizes the importance of franchising in McDonald's business strategy, highlighting its potential for expansion and success. It also notes the benefits of franchising for franchisees, who can run a business with limited cash. The assignment suggests that franchising is a good concept that should be encouraged, as it has gained more advantages and will help many restaurateurs achieve their goals.

Running head: FRANCHISING IN MCDONALD’S 1
FRANCHISING IN McDONALD’S
NAME
INSTITUTION

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EXECUTIVE SUMMARY
The paper uses McDonald’s franchising system as the case study to showcase the extent
of franchising in the restaurant industry. It is noted that franchising is the strategy that accounts
for the success and sustained competitive edge of McDonald’s Company. Many restaurateurs are
increasingly taking this opportunity to the franchise and work together with McDonald’s to share
the benefits mutually. The paper presents a brief discussion about the restaurant industry
including the extent of franchising and the rationale behind this concept. The debate about
McDonald’s franchising, history and development, domestic and international expansion,
structure and operation of the system is further detailed. A precise conclusion is presented that
highlights the need for franchising restaurant industry. Finally, recommendations are given that
supports the need for McDonald’s are provided.

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Table of Contents
INTRODUCTION...........................................................................................................................3
FINDINGS.......................................................................................................................................4
Restaurant Industry......................................................................................................................4
Franchising Restaurant Industry Extent.......................................................................................5
McDonald’s Franchising System.....................................................................................................6
Concept........................................................................................................................................6
History and development.............................................................................................................6
Domestic and international expansion.........................................................................................7
Structure and operations...............................................................................................................7
CONCLUSION................................................................................................................................8
RECOMMENDATIONS.................................................................................................................9
REFERENCES..............................................................................................................................10

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INTRODUCTION
McDonald’s operates in the restaurant industry. The industry has many players
competing for the both domestic and international market. The competition in the restaurant has
led to higher cost running the business. However, restaurant industry is the most franchised
sector in the United States. Many restaurateurs are taking the advantage to get franchised
because it saves on both time and cost while still helping the franchisee to run a successful
business. McDonald’s franchising has thus given many restaurateurs the best opportunity to
work together for mutual benefit.
FINDINGS
Restaurant Industry
The industry entails any establishment which serves food to individuals away from their
home. This involves restaurants, carry out operations, and cafeteria among others. The sector is
subdivided into two categories: Those preparing and serving food and those producing and
distributing food, equipment as well as services required by the providers of food. The most
familiar instance of the first group is a restaurant. The restaurants hire front of the house
individuals and back of the house personnel (Gerhardt, Hazen, Lewis & Hall, 2015).
The former encompasses bartenders, hosts, busboys and wait staff. The latter type entails
chefs, cooks m dishwaters and managers. Fast food restaurant restricts their team to the food
preparation individuals, managers, as well as cashiers. The trend in food trucks adds a mobile
element to food services and needs just a few individuals to drive the truck, cook food, as well as
serve the food via the window.

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Americans rising hectic lifestyle increasingly make home cooking a challenge thus the
restaurant, and fast food enjoys steady expansion and growth. In the year 2016, the National
Restaurant Association (NRA) projected that job growth in the restaurant industry should
outstrip the overall economy, adding more than 300,000 jobs for six times in a row calendar
year. The restaurants employ nearly 13.5M workers.
The NRA forecasted industry sales of 783 billion for the year 2016. Such numbers
indicate steady employment for workers. Nevertheless, the food industry remains tied to the
economy. When there is a decline in the economy, individuals tend to reduce what they view as
luxuries that can encompass dining out. This industry can be increasingly tumultuous, with
restaurants closing and opening frequently.
Franchising Restaurant Industry Extent
The franchising is taking shape in the restaurant industry, and only those firms that can
efficiently franchise can survive this competitive market. The major player in this industry is
McDonald’s. Many restaurants are considering franchising to be like McDonald’s. Whereas their
other sectors franchising, the restaurant industry remains the most franchised. There is growing
pressure for other restaurants to the franchise because Franchising helps the franchisee to
develop at much lower cost (Gerhardt, Hazen & Joiner, 2016). In the process, the franchisor also
increases as the franchisee is the one signing leases and committing to a range of service contract
making the franchisor to expand with virtually no contingent liability thus profoundly decreasing
the risk.

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It is also preferred because it has eliminated the obstacles facing various restaurateurs of
finding as well as retaining good restaurant managers. Franchising permits restaurateurs to evade
such problems of training a manager only to be employed elsewhere by replacing a highly
motivated franchisee for that restaurant manager. Because franchisee enjoys a stake in the unit,
the performance of restaurant shall usually improve. The income of franchisor is anchored on the
gross sales of franchisee rather than the profitability thus the performance of monitoring unit
remains substantially less had and needed less staff.
Moreover, franchising is also widespread because it saves the time required in opening
the new restaurant. Franchising helps in solving the challenges of expanding the business by
having franchisee doing most of the heavy lifting. It thus allows restaurateurs to have financial
leverage, and resources leverage (Wibowo & Tielung, 2016).
McDonald’s Franchising System
Concept
Franchising is an American innovation from the 1800s. It first became known as the Ray
Kroc’s McDonald’s. The distinct business model enables two separate owners to share in the
profits and operations, each providing resources and support. Whereas franchisees can serve as
the entry points into the ownership of a business for several Americans, engaged in the deal is a
complicated operational protocol alongside different challenges (Thakkar & Thatte, 2014). For
instance, the nature of operation frequently bars franchise employees from unionizing as well as

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recent lawsuits against large chains have culminated in questions regarding worker rights and
how the franchise.
History and development
The McDonald’s brothers actualized the initial idea of the Ray Kroc of a fast-food
restaurant. Dick and Mac opened their original restaurant in the year 1940 in California,
however, as a beginning they didn’t know that their restaurant would expand tremendously to
have such a huge market share. The brothers remained very modest till they discovered a formula
which sells an undeniably high-quality product with low affordability (Shah & Mujtaba, 2016).
Nevertheless, a substantial role was played by Kroc, an experienced businessman with
undoubted talents for marketing. When Kroc became engaged in the business, he acknowledged
that this formula might be increasingly profitable and could be sold on a national basis in the
entire US. Thus, the initial success of McDonald’s is attached to Kroc since he had the vision to
take the company globally and assist accomplish the highest success level (Krueger &
Ashenfelter, 2017).
Domestic and international expansion
The McDonald’s runs a business in over 100 nations globally. In the countries where the
company is lacking presence, it has adopted a strategy whereby it focuses on the market where
they do business. The McDonald’s is one of the hugely successful fast-food restaurants globally
with an established efficiently as well as valuable trademark; it is an example of the brand
franchise. McDonald is usually “regarded the gold standard of franchising.”

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The primary drive behind the success of McDonald and swift expansions is the
franchising strategy. This assisted McDonald to effortlessly penetrate new markets as well as
expand their target market (Ebert, 2016). About seventy percent of present McDonald’s
restaurants are operated as an independent franchise. The first ever franchised outlet was
established in the United Kingdom in the year 1986; nevertheless, there are presently over 31,
000 McDonald’s restaurants in more than 119 nations.
Structure and operations
For consideration and grant of permission to utilize the McDonald’s brand name, a
minimum of $300000 is required strangely from the personal savings and resources of the owner
and not from the borrowed funds like loan/mortgages. Moreover, under the requirements to
acquire a McDonald’s franchise, the company has to own/lease the restaurant premises where
franchisee will be operating.
The McDonald’s franchise is a business in which the McDonald’s grant third-party
operators its rights to utilize the McDonald’s name, branding as well as a model for fees and
ongoing support regarding marketing and advertisement. Every franchisee offers the same good
and services for which McDonald’s is known (Dant, Jin, Mumdziev & Windsperger, 2016).
Franchisees serve similar menu, features the same advertisement, as well as utilize similar
branding. The operation is driven by the built-in support network presented by other operators.

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CONCLUSION
Franchising a restaurant concept is an excellent idea. The future challenges and changes
faced by each restaurant business shall affect the restaurant franchisors. However, they shall
have extra problems which ate distinct to franchising (Chan, 2015). The changes in the way of
running a restaurants have triggered franchising. These changes include demographics, food
preferences, communications, technological and food costs. Historically, franchising was
accompanied by the promise of the “proven formula.”
RECOMMENDATIONS
McDonald’s should continue with franchising by expanding both locally and
internationally. It is a good concept which benefits not only franchisee but also franchisor.
Therefore, this concept is gaining more advantages thus it should be encouraged. It will help
many restaurateurs with little cash to run a business successfully.

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REFERENCES
Chan, T. S. (2015). Franchising of Us Fast Food Chains in Hong Kong: Entry and Expansion
Strategies. In Proceedings of the 1989 Academy of Marketing Science (AMS) Annual
Conference (pp. 163-167). Springer, Cham.
Dant, R. P., Jin (Jean) Jeon, H., Mumdziev, N., & Windsperger, J. (2016). A cross-national
comparison of brand perceptions of global franchise chains in the BRICS. Journal of
Marketing Channels, 23(4), 196-216.
Ebert, M. (2016). French Fries, Franchisees, and the FMLA: Understanding the McDonald's
Decision and What It May Mean for Expanding Franchisor Joint Liability. J. Corp.
L., 42, 239.
Gerhardt, S., Hazen, S., & Joiner, S. (2016). FAST FOOD FRANCHISING: HOW MUCH CAN
YOU EXPECT TO MAKE-BOTTOM LINE?. ASBBS Proceedings, 23(1), 198.
Gerhardt, S., Hazen, S., Lewis, S., & Hall, R. (2015). Entrepreneur Options-" Franchising" vs."
Licensing"(McDonald's vs. Starbucks and Chick-fil-A). ASBBS Proceedings, 22(1), 152.
Jeon, H. J. J., Meiseberg, B., Dant, R. P., & Grünhagen, M. (2016). Cultural convergence in
emerging markets: The case of McDonald's in China and India. Journal of Small
Business Management, 54(2), 732-749.
Krueger, A. B., & Ashenfelter, O. (2017). Theory and Evidence on Employer Collusion in the
Franchise Sector (No. 614).
Shah, S., & Mujtaba, B. G. (2016). Contemplations for Opening the First McDonald’s Restaurant
Franchise in the IT Capital of India’s Bangalore. International Journal of Marketing
Practices, 3(2), 33-46.

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Thakkar, K., & Thatte, M. (2014). Consumer perceptions of food franchise: A study of
McDonalds and KFC. International Journal of Scientific and Research
Publications, 4(3), 1-5.
Wibowo, S. W., & Tielung, M. (2016). Analytical Hierarchy Process (AHP) Approach on
Consumer Preference in Franchise Fast Food Restaurant Selection in Manado City (Study
At: Mcdonald’s, Kfc, And A&W). Jurnal EMBA: Jurnal Riset Ekonomi, Manajemen,
Bisnis dan Akuntansi, 4(2).