The McDonald's 'Beef Fries' Controversy

Speed, service and cleanliness became the critical success factors of the business. By mid-1950s, the restaurant's revenues reached $ 350,000. As word of their success spread, franchisees started showing interest. However, the franchising system failed because the McDonald brothers observed very transparent business practices. As a consequence, they encouraged imitators who copied their business practices and emerged as competitors. The franchisees also did not maintain the same standards for cleanliness, customer service and product uniformity. At this point, Ray Kroc (Kroc), an exclusive distributor for milkshake machines expressed interest in the McDonald brothers' business. Kroc finalized a deal with the McDonald brothers in 1954.

By the end of the 1960s, Kroc had established over 400 franchising outlets. McDonald's began leasing/buying potential store sites and then subleased them to franchisees initially at a 20% markup and later at a 40% markup. To execute this, Kroc set up the Franchise Realty Corporation. The real estate operations improved McDonald's profitability. By the end of the 1970s, McDonald's had over 5000 restaurants with sales exceeding $3 billion. However, in the early 1990s, McDonald's was facing problems due to changing customer preferences and increasing competition. Customers were becoming increasingly health conscious and they wanted to avoid red meat and fried food. They also preferred to eat at other fast food joints that offered discounts...