The McDonald's Turnaround Story

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Case Details:

Case Code : BSTR142
Case Length : 17 Pages
Period : 1999-2004
Organization : McDonald's
Pub Date : 2004
Teaching Note : Available
Countries : U.S.A
Industry : Fast-Food

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Background Note

The McDonald brothers, Richard and Maurice, started their career in Hollywood, working on movie sets. Not finding this career rewarding, they began to look for new business opportunities and decided to set up a restaurant.

They opened a drive-in restaurant in San Bernardino, California, in 1937. Drive-ins were a new concept at that time. To eliminate the hassle of managing carhops (the waiters who served customers) and of having to wash the crockery and cutlery, the brothers introduced self-service and restricted their menu to items that could be eaten without plates or cutlery. Thus, the menu was pared down from 25 items to just nine: hamburger, cheeseburger, three soft-drink flavors, milk, coffee, potato chips and pie. French fries and milkshakes were later added to the list. The brothers designed their kitchen for mass production, with assembly line procedures. The restaurant was octagonal, a deviation from the normal practice.

The prices were kept low - 15 cents for a burger, and 10 cents for fries. The critical success factors in the business were speed, service and cleanliness. The concept of self-service soon caught the imagination of the American public. By the mid-1950s, the restaurant's revenues had risen to $350,000.

As word of their success spread, franchisees started showing interest. The first franchisee was Neil Fox, a gasoline retailer, who set up his drive-in in Phoenix, Arizona in 1952. His restaurant was located in a gleaming red and white tiled rectangular building. Like the original restaurant, glass construction was used from counter to the roof, and the kitchen was exposed to the customer's view. The most distinctive feature of the building was its two bright yellow arches, which later evolved into a new symbol for McDonald's. (Refer Figure I.) The franchising system, however, failed for two reasons. The McDonald brothers observed very transparent business practices. This encouraged imitators and created competitors. The franchisees also did not maintain the McDonald's standards of cleanliness, customer service and product uniformity.

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