McDonald’s: Low Quality Food, High Quality Business Strategy

It’s no secret that McDonald’s has one of the most iconic and distinct brand images across the globe. Regardless of your personal taste (or distaste) for McDonald’s, their recognizable golden arches evoke within us an image that is uniquely American: fast food, burgers, fries, and soft drinks. Despite their position as a pioneer in the fast food industry (particularly for burgers and fries), McDonald’s continues to see low quarters year after year across their sales in the United States. Domestic U.S. sales make up about 40% of the company’s 36,000 global locations, and in 2014 they faced their largest slump in history when they remained flat or fell throughout their quarters.

What is surprising is that—despite its uniquely American image— McDonald’s can attribute its largest increases in sales to its global sales. While sales in the U.S. have been declining, global sales continue to rise as the fast food giant has expanded its presence to over 100 countries. How does such a distinctly American brand that serves specifically American food do so well in such different cultures?

We can attribute McDonald’s successful global strategy to two key factors: (1) its franchise system business model that allows its fanchisee-members, shareholders, and management to share the risks and rewards from the discovery and exploitation of new business opportunities, and (2) its ability to innovate its product portfolio to create new products and services that adapt to a diverse consumer market—as shaped by economic, demographic, and cultural factors around the world.

Regarding the former, franchising in most international markets provides the same benefits to companies as it does in the U.S. – the ability to license to the franchisee the right to use the company’s trademark and operating system while maintaining control over operating standards. As a result of this system, customers are ensured that any McDonald’s around the world that they walk into, regardless of its product variety, will meet international standards for quality and service. Under the conventional McDonald’s franchise arrangement, franchisees provide a portion of the capital required by initially investing in the equipment, signs, seating, and decor of their restaurant businesses, and by reinvesting in the business over time. Conventional franchisees contribute to the company’s revenue stream through the payment of rent and royalties based on a percent of sales, with specified minimum rent payments, along with initial fees received upon the opening of a new restaurant or the granting of a new franchise term. The conventional franchise arrangement typically lasts 20 years, and franchising practices are generally consistent throughout the world.

Through this system, franchisee owners have enough flexibility to try new products that might better suit the target market they are operating in. After all, the locals are much more likely to have a better understanding of the local consumer preferences and culture. As a result of their success, McDonald’s is able to reap the rewards of the local franchisee’s market knowledge as a percentage of their sales always returns to corporate. What makes McDonald’s so powerful is the fact that it’s brand is so well known. By franchising, McDonald’s cashes in on its global brand recognition by selling its logo and business procedures to individuals that want to start their own business, wherever in the world they may be.

On a more interesting note, McDonald’s flexible product portfolio is further proof of their strategic global success. Under this franchisee system, local McDonald’s have developed the following successful products in their respective markets to match consumer preferences and local supply chains (these are just a few examples):

  1. Taro Pies™: In China, McDonald’s has reinvented their original, rectangle-shaped pies. Tarot, a purple potato-like vegetable that is popular throughout Asia, is said to taste like sweet potatoes. It is commonly found in bubble tea, Chinese buns, breads and cakes.    
  2. McRice Burger™: In Singapore, because the locally cultivated grain is rice, it makes sense to make burgers out of it, right? Instead of wheat buns (which would be more expensive to import), these buns are made entirely out of rice!
  3. McAloo Tikki™: In India, cows are considered sacred to the Hindu religion. As a result, traditional McDonald’s burgers were never going to be successful here. The McAloo Tikki™ is a spicy chickpea burger topped with tomatoes and onions that serves as an alternative to the beef burger!
  4. McArabia™: Throughout the Middle East, McDonald’s franchises serve both falafel and Halal gyros such as the McArabia™.
  5. Nurnburger™: In Germany, the burger takes on a different form. The Nurnburger™ is three bratwursts on a bun along with crispy fried onions and a special spicy mustard sauce.

This combination of a franchise system with a flexible product portfolio serves as the ideal model for other food service providers that are considering expanding their global reach. Not only do these geographic-specific products appeal to particular cultures, they also take advantage of locally sourced supply chains (i.e. the halal gyros, Taro pies, rice burgers) that provide cheaper ingredients as opposed to imports. Whether or not you’re a fan of McDonald’s, it is fair to say that they are not only the pioneers in American fast food, but also the pioneers of culturally adaptable food products. Additionally, this phenomenon is not only limited to food service providers. For example, you can find green tea flavored Kit Kat™ bars all over East Asia, Hershey’s™ Paçoca bars in Brazil, or Duo Dulce De Leche And Banana OREOs™ in Argentina. International consumer preferences will continue to drive new product development as American businesses continue to expand their reach. So, next time you are abroad, take a look in the local McDonald’s or general store to get an idea of what consumers in that country prefer! If anything, at least you will find access to some of the most unique food products and flavors that you could never find in the United States!

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