Creating the Mcuniverse: Mcdonald’S Sources of Power in Foreign Markets

Comparative Advantage Winter 2014 Advanced Topics

Creating the McUniverse: McDonald’s Sources of Power in Foreign Markets

Sarah Scharf Stanford University ‘10 [email protected]

Abstract This paper explores McDonald’s transformation from a small town burger joint to the poster child for globalization and economic development abroad. To gain its position as one of the few truly global companies, McDonald’s has exploited vari- ous sources of power and competitive advantage. Due to its massive size, McDonald’s enjoys economies of scale in purchasing and expansion, both on a macro level and within individual regions. In addition to purchasing power, McDonald’s has lever- aged economies of scale in brand recognition to expand more easily into emerging marketplaces. Finally, McDonald’s has established a unique source of process power thanks to its franchising practices, which allow the Golden Arches to adapt to local tastes while maintaining a strong brand identity. This paper examines these sources of power as well as the challenges McDonald’s may face as it continues to create the McUniverse.

72 Comparative Advantage Winter 2014 Advanced Topics

I. Introduction in Des Plaines, Illinois, opened come the difficulties of enter- McDonald’s Corporation in 1955 by Ray Kroc. Its core ing a foreign market, including operates in 119 countries, serv- menu of burgers and fries was franchising in less developed ing 68 million customers a day. distinctly tied to the Ameri- capital markets and integrat- The brand has become a sym- can tradition of cuisine, and its ing into dissimilar cultures. bol to many of globalization, branding was simple, classic, McDonald’s size on a its prevalence throughout the and All-American. How did global scale has become an in- world representing the conver- this Midwestern chain become creasingly relevant factor of its gence of social norms and the the international presence it is branding as well. The ubiqui- homogenizing impact of Amer- today? How has such an Amer- ty of McDonald’s around the ican culture. Whether or not ican concept become a fixture globe has raised brand aware- McDonald’s universal presence in a diverse range of cultures? ness to nearly 100 percent and is viewed in a positive light, one McDonald’s ability to de- gives the firm credibility and thing is certain: McDonald’s is velop and maintain such a suc- allure in foreign marketplaces. one of the few truly global com- cessful international brand lies Because McDonald’s is able to panies, and the only one of its in several power sources. Due to operate at a lower cost within kind among food chains. An its massive size, McDonald’s en- these marketplaces, it is able to example, or consequence, of this joys economies of scale in pur- differentiate its product mix in pervasiveness and international chasing and expansion. These order to assimilate more fully penetration is The Big Mac In- economies of scale operate both into foreign cultures. This prod- dex, developed by The Econ- on a macro level and within in- uct differentiation is crucial to omist as an informal metric of dividual regions. McDonald’s McDonald’s branding in foreign Purchasing Power Parity. The ability to negotiate with local countries; it allows the firm to Big Mac Index compares the retailers allows it to lower costs maintain its iconic and glob- price of McDonald’s signature across the region that particular al brand image associated with burger across nations as a proxy retailer serves. This is especially value, quality, and reliability, for purchasing power (the most relevant in foreign marketplaces while becoming locally relevant. expensive Big Mac is in Norway, such as Asia Pacific where Mc- Finally, McDonald’s com- selling for $7.51 USD; the cheap- Donald’s competitors have been plex franchising process in for- est in India for $1.50 USD.) 1 unable to achieve the critical eign nations represents a form It is no small irony that mass needed to drive down cost. of process power. McDonald’s one of the most culturally per- On a macro scale, McDonald’s offers franchisees a great deal of vasive, international corpora- is able to keep costs low because freedom with regards to menu tions is so inherently All-Amer- of synergies between region- and store appearance because ican in origin and product. al operations. These synergies these franchisees are more in McDonald’s Corporation trac- include learning advantages touch with local culture, and es its history to the first fran- associated with international thus can better increase the chised McDonald’s restaurant expansion, which allow Mc- store’s local relevance. Howev- Donald’s to more easily over- er, due to this freedom, selecting

1The Big Mac index. (2013, Jan. 31). The Economist. Retrieved from http://www.economist.com/content/big-mac-index

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the correct franchisees is cru- McDonald’s exerts power over tuted a two-pronged strategy cial. McDonald’s is able to de- the international marketplace, reform. In the United States, vote more time and resources to it is important to establish the the company sought to rebuild the franchisee selection process significance of a large inter- its brand image by renovat- than its competitors because national presence to the firm. ing stores, expanding menu of its scale and the high profit While McDonald’s has worked offerings, and extending store margin of its company-owned hard to develop a large global hours. The second strategy fo- stores. Since McDonald’s com- footprint, these efforts would cused on growth driven by in- pany-owned stores operate on be misguided if its internation- ternational franchising, which comparatively higher margins, al operations were unprofitable offered immediate returns with the firm does not feel pressure or diluted its domestic sources little overhead cost. In partic- to franchise aggressively when of power. McDonald’s first ex- ular, this strategy targeted the entering a new territory for the panded abroad in 1967, when emerging markets of China and sake of adding to its bottom line. store locations opened in Puer- India where a growing middle Instead, the rate of franchising to Rico and Canada. Since then, class offered a lucrative custom- is driven by the rate at which ap- expansion abroad has been a er base for the fast food chain.3 propriate franchisees are found. crucial driver of McDonald’s In 2008, McDonald’s opened McDonald’s ability to franchise revenue. Today, almost 70% of its 1,000th store in China, and effectively in foreign countries, its sales are generated outside of the firm has continued to ex- particularly those with less es- the U.S., as shown in Figure 1. pand rapidly, opening 250 new tablished franchising practices, McDonald’s success Chinese restaurants in 2012. has given the firm a huge ad- abroad is crucial to the compa- The significance of for- vantage when expanding into ny and has become even more eign markets to McDonald’s lucrative overseas markets. important in recent years. In core strategy cannot be over- II. McDonald’s and the World: 2003, prodded by slumping do- stated. Figure 2 shows the sys- Significance on a Global Scale mestic sales and negative media tem-wide sales increases for Before determining how attention, McDonald’s insti- McDonald’s stores in 2010- McDonald’s 2012 Revenues by Segment Geographic Segment $ Millions Percent

U.S. 8,814 32% Europe 10,827 39% APMEA 6,391 23% Other Countries & Corporate 1,535 6% Total 27,567 100% Figure 12

2McDonald’s. 2012 Annual Report. (2012). Retrieved from http://www.aboutmcdonalds.com/mcd/investors/annual_reports. html 3 Adamy, Janet. (2009, March 10). McDonald’s Seeks Way to Keep Sizzling. The Wall Street Journal. Retrieved from 74 http://online.wsj.com/news/articles/SB123664077802177333 Comparative Advantage Winter 2014 Advanced Topics

-2012. While same-store sales in est burger chain in the world, McDonald’s ability to enter and the United States grew by 5% in Burger King, operates in 79 establish market share in new 2011, sales in Europe increased countries to McDonald’s 119, countries. McDonald’s oper- by an astounding 14% and sales 66% of which are in the U.S. In ates restaurants at a lower cost in Asia Pacific/Middle East/ contrast to McDonald’s, Burg- than competitors due to rela- Africa (APMEA) increased er King derives about 36% of tionships with distributors, effi- 16%, driven largely by growth revenue from overseas sales.4 cient and well-managed supply in the Chinese marketplace. Its expansion has been marked chains, and scale economies in 2012, however, was a dif- by several failures; Burger King purchasing. Because of its su- ferent story. In October, Mc- experienced quality control is- perior ability to negotiate con- Donald’s experienced its first sues in the early stages of its tracts with distributors, Mc- global monthly sales decline in international expansion, and Donald’s is able to drive down 9 years, sending some inves- its most notable failure abroad commodity prices. In 2012, tors into panic. While most came in 1998 when Burger King worldwide company restaurant analysts affirmed the dip was shut down all of its French out- expenses for McDonald’s to- structural rather than perma- lets.5 McDonald’s significance taled 82% of revenue, meaning nent, 2012’s slagging sales high- abroad is unique among its company-owned stores operat- light the risk of McDonald’s competition, and it is this siz- ed on an 18% margin. Burger reliance on global expansion able market presence within King’s restaurant expenditures, in a year where Europe floun- foreign countries and on a glob- including product costs, labor dered in the throes of recession al scale that forms the basis of costs, and occupancy costs, to- and growth stagnated in China. McDonald’s economies of scale. taled 89% of revenue, leaving a While McDonald’s 11% profit margin on average has become an international III. Economies of Scale: worldwide. In Burger King’s brand, its competitors have not Purchasing and Expansion APMEA locations, this margin reached the same level of global Economies of scale was only 10%. While pricing is penetration. The second-larg- have played a significant role in almost identical for these two

System-wide Sales Increases Geographic Segment 2012 2011 2010 U.S. 4% 5% 4% Europe (2)% 14% 3% APMEA 5% 16% 15% Other Countries & Corporate 4% 17% 13% Total 3% 11% 7% Figure 26

4Burger King. 2012 Annual Report. (2012). Retrieved from http://investor.bk.com/conteudo_en.asp?idioma=1&conta=44&tipo=43575 5Burger King, Citing Poor Profits, Will Bid France Adieu. (1997, July 30). The New York Times. 6 2012 Annual Report 75 Comparative Advantage Winter 2014 Advanced Topics

brands, McDonald’s has en- ence in foreign marketplaces, maximum size of pea that could joyed significantly higher prof- the firm has focused on fran- be used in India’s lamb burg- it margins due to its ability to chising more rapidly to reduce ers.7 The firm’s power abroad reduce costs with distributors, overhead costs. While this and the expectation of rapid largely through aggressive ne- push towards franchising is set Indian expansion once entry gotiation tactics. In partic- to gain steam in the future, the was established gave McDon- ular, McDonald’s APMEA firm’s continued optimization ald’s superior negotiating power operations have developed a of company-owned locations with distributors and with Con- significant cost advantage due gives it an advantage abroad. naught Plaza Restaurants, with to its scale within the region. McDonald’s is also able whom McDonald’s entered into This cost advantage in to leverage its nearly unlimited a joint venture. Today, McDon- purchasing has also given Mc- resources to facilitate entry into ald’s has 300 locations in India. Donald’s greater flexibility in new markets. One interesting Burger King, on the other hand, the choice between franchised example of this came with Mc- only announced plans to enter and company-owned stores. Donald’s expansion into India the Indian marketplace via a While well over 90% of Burg- in 1996. Prior to opening in joint venture in November 2013. er King stores are franchised, India, McDonald’s devoted sev- Previously, supply chain bar- McDonald’s owns about 30% en years to developing the sup- riers blocked ‘the Crown’ from of its locations worldwide. This ply chain. In 1989, McDonald’s entering this attractive market. is particularly relevant when it sent a team to study agriculture comes to international expan- and food production in India in IV. Branding and Economies sion. While Burger King and order to optimize its cold chain of Scale in Brand Recognition other competitors have incen- delivery system. Farmers were McDonald’s also enjoys tive to franchise rapidly, hold- trained to produce specifical- a significant competitive ad- ing as few stores as possible in ly in accordance with McDon- vantage due to its branding and order to gain franchise revenue, ald’s standards; the iceberg let- worldwide brand recognition. McDonald’s is able to support tuce was developed using a new This advantage is a type of po- more company-owned stores. culture farming technique such sition power, meaning that it Because McDonald’s enjoys that it was consistent with Mc- is a sustainable and inimitable a higher margin on compa- Donald’s lettuce worldwide. In source of competitive advan- ny-owned stores, it is able to ex- order to meet annual demand, tage. From its nascent stages, pand further within a develop- the team helped teach Trikaya McDonald’s has always been ing marketplace without giving Agriculture, the lettuce suppli- acutely aware of the importance up control over its operations, er, how to grow lettuce crops all of branding and brand image in leading to higher quality and year long. McDonald’s had the the fast food industry. Since the more successful entries in for- scale and resources to involve it- industry is driven by the per- eign countries. In recent years, self in every part of the produc- ception of value, it is difficult to particularly as McDonald’s has tion process, offering guidance compete in price; competitors established an entrenched pres- on such minute details as the almost immediately match price

7Bisht, Amit. (2009, Jan. 20). McDonalds India Supply Chain. Articlesbase. Retrieved from http://www.articlesbase.com/marketing-articles/mcdonalds-india-supply-chain-729402.html 76 Comparative Advantage Winter 2014 Advanced Topics

changes, and gains in market also for McDonald’s in particu- upscale consumer base than in share are arbitraged away. For lar. The connotations of afflu- the United States. The branding example, when McDonald’s in- ence and Americanism attribut- is representative of the culture troduced the Dollar Value Meal ed to McDonald’s abroad allow there, and is used to differen- in 1992, Burger King answered the corporation to receive differ- tiate McDonald’s from other less than a year later with an al- ential returns on an easily repli- American fast food chains. This most identical menu combina- cable concept. In most nations, sort of position power is crucial tion. Similarly, with core menu people will choose McDonald’s to McDonald’s success overseas; items at McDonald’s so simi- not only for the consistency of while other chains can adver- lar to those of its competitors, product and service, but also for tise and change their brand- competition based on superior the brand image. McDonald’s is ing, it is difficult to change the products is equally challeng- an iconic symbol of all things fundamental brand perception ing. While quality, taste, and Western, and as such, many within a country. McDonald’s service are fundamental to the customers perceive the brand regional scale also strengthens McDonald’s experience, it is dif- as superior to alternatives. its branding within foreign na- ficult to determine what makes However, McDonald’s tions. While the overarching a decidedly better hamburg- has also been able to manip- image of the company remains er, particularly at such a low ulate its brand to represent linked to the West, McDonald’s price. Thus, much of McDon- more than just American cul- is able to pervade local cultures ald’s success both domestically ture transplanted abroad. In by opening more locations and and abroad can be attributed to 2008, McDonald’s was the of- assimilating into the lifestyle. In the perception of superiority, ficial restaurant of the Beijing this way, branding and scaling or brand image, that the cor- Olympics, showing a global are symbiotic processes: Mc- poration has manufactured. awareness that resonates across Donald’s furthers its brand by McDonald’s brand is in- different cultures. By market- opening more locations, while deed pervasive in modern so- ing in conjunction with such a branding helps create the resid- ciety: in a study done in six famed international event, Mc- ual demand necessary to scale nations, more of the 7,000 par- Donald’s furthered its image as effectively. This regional scale ticipants could recognize the a worldwide firm, not merely an economy in branding strength- Golden Arches than the Chris- American corporation exported ens the connection between the tian cross.8 This high level of overseas. This ethos of cultural local clientele and the brand. In brand recognition makes enter- assimilation is a crucial aspect a 2009 interview, in fact, former ing new markets less challeng- of McDonald’s success abroad. Chief Marketing Officer Larry ing as it decreases the uncertain- Rather than maintain a single Light noted that most children ty surrounding demand for the brand image, McDonald’s has in Japan believe that McDon- product. In India, for example, tailored its branding to fit more ald’s is a Japanese brand that has the McDonald’s team was able with local culture and tradi- been exported to America.9 It is to study the demand not just for tions. For example, in Europe, this sort of cultural immersion low-priced American food, but McDonald’s caters to a far more and local relevance that sets

8Schlosser, Eric. (2001). Supersize Me. New York: Houghton Mifflin Company. 9Light, Larry. (2009, April 29). McDonald’s Former Chief Marketing Officer Larry Light Talks About Brand Revitalization. Customer Management. 77 Comparative Advantage Winter 2014 Advanced Topics

McDonald’s apart from oth- ed States, the business model differentiation of its products er brands in foreign markets. was altered; instead of stand- to appeal to local tastes. Larry Another benefit of main- alone stores, McCafé products Light has said of McDonald’s taining differentiated brands is were integrated into the current integration into foreign mar- that McDonald’s is able to ex- menu offerings at McDonald’s kets: “We established a global periment with product innova- stores and sold alongside popu- brand framework. But, our pur- tion in a way that firms based lar breakfast foods. The premi- pose was not to limit creativity primarily in one country can- um coffee is sold at a lower price but to focus it. Local brand rel- not. Innovations and potential than a comparable Starbucks evance is a superior approach extensions of the brand are often drink, and the branding is cen- to lowest common denomi- tested in foreign marketplaces tered more on convenience, val- nator standardized marketing where such experiments will ue, and accessible indulgence. worldwide.”10 The freedom of not hurt the centralized brand McCafé is considered to be one franchisors to adapt to local image as they might in Ameri- of McDonald’s most successful customs allows a higher degree ca. Take, for example, the firm’s initiatives in recent years, and of flexibility within the menu foray into the premium coffee has expanded internationally to and appearance of the store. industry. McCafé was launched Canada, the UK, and India. In This means that the McDon- in Melbourne, Australia in 1993 2013, McDonald’s announced a ald’s fare from one country to as a chain of stand-alone cof- joint venture with Kraft to sell another may vary greatly from fee shops similar to Starbucks. McCafé coffee in U.S. stores, shrimp burgers in Japan (called Because the McDonald’s brand further extending the brand. the “EBI Filet-O”) to Chick- has a more upscale connotation While there are indeed en SingaPorridge in Singapore. in Australia, McCafé was able limits to differential branding McDonald’s has estab- to charge a premium on espres- overseas (McDonald’s attempt lished position power abroad so beverages and leverage the to expand its brand into luxury by understanding the palates of already well-regarded McDon- hotels in Switzerland was met customers and catering to their ald’s brand to create differential with quick failure), McDonald’s needs. This demand-driven returns. Taking note of the suc- Corporation has had great suc- approach to menu formatting cess in this smaller marketplace, cess in its ability to assimilate sets McDonald’s apart from its McDonald’s looked to expand into foreign cultures. This abili- competitors. While most inter- the McCafé stores throughout ty, along with its universally rec- national fast food chains vary Australia and into Europe. By ognized core brand image, has product mix and menu items 2003, McCafé was the largest given McDonald’s a significant by region, no other brand has coffee shop brand in Australia competitive advantage overseas. been able to successfully in- and New Zealand, and in 2007, tegrate local culture and cui- McDonald’s brought McCafé V. Branding and Product sine into the core menu as ful- to the domestic marketplace. Differentiation Abroad ly. One reason for this is cost. However, due to the different An important facet of Mc- brand perception in the Unit- Donald’s branding abroad is the

10Customer Management

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Three quarters of McDonald’s They come less often but spend the firm sustained and signifi- grocery bill is comprised of ten more because they want a prop- cant advantages over its com- different items, and while this er meal.” This is defined as a petition. The final element that purchasing bundle is relatively sit-down experience with two makes McDonald’s so superior condensed, most other ham- courses.12 The food consumed in its foreign strategy is process burger chains purchase fewer at French outlets also varies power, defined as “the develop- items, concentrating instead on substantially from the U.S. op- ment over time of a complex driving down price by limiting eration: the largest sellers are company process that is central menu offerings and purchasing the jambon beurre, a sandwich to the business proposition of critical ingredients in bulk.11 of butter and ham on baguette, that business.”13 The fundamen- Because McDonald’s has econ- and the McCroque sandwich, tal characterization of process omies of scale within many of neither of which are available power is that the process must the regions it operates, it can outside of France. In contrast, be so complex or opaque that buy enough to drive down pric- Burger King entered France in other firms cannot imitate it in es on different ingredients even 1981, but closed its French op- order to achieve the same re- if these menu items would not eration in 1997 due to lagging sults. McDonald’s ability to enter be profitable on a global scale. profits. This failure was large- foreign markets and scale with- One example of Mc- ly due to its inability to capture in these markets is in part due Donald’s superiority in assim- the loyalty of the French peo- to its process, not just its size. ilation comes in the French ple; to them, Burger King was In the case of India, Mc- marketplace. Even in a nation simply an American transplant. Donald’s rigorous supply chain known for food snobbery and McDonald’s sustained advan- studies allowed the firm to en- distinguished diners, McDon- tage in foreign marketplaces ter the market and immediate- ald’s has managed to maintain can be attributed in part to its ly begin scaling without risking an extremely lucrative busi- ability to adapt to local dietary a drop in quality or a shortage ness; the French operation of needs and format its menu in of raw materials. The complex- McDonald’s is second only to a way that is both globally ap- ities of setting up these distri- the U.S. market in profitabili- pealing and locally applicable. bution channels ex ante are sig- ty. McDonald’s has been able nificant, as they include both to overcome anti-American VI. Process Power in Fran- negotiating with and training sentiment in France by cater- chising and Foreign the distributors.While scale ing the menu, atmosphere, and Expansion and learning economies con- experience to French tastes. In McDonald’s undoubtedly tribute to McDonald’s supe- a New York Times interview, a has position power in foreign riority in planning and enter- spokeswoman for McDonald’s markets: its size and scope of ing markets, the process used France says, “The French eat operations, as well as its brand- by McDonald’s also gives the McDonald’s in a French way. ing and local relevance give firm a significant advantage.

112012 Annual Report 12Audi, Nadim. (2009, Oct. 25). France, Land of Epicures, Gets Taste for McDonald’s. The New York Times. Retrieved from http://www.nytimes.com/2009/10/26/world/europe/26mcdonalds.html 13Helmer, Hamilton. “Sources of Power.” 79 Comparative Advantage Winter 2014 Advanced Topics

Once McDonald’s enters, superior to other firms in the ness plan abroad. As McDonald’s its ability to optimize the fran- area of franchising. The com- business plan relies increasingly chising process, particularly in plex optimization process of se- on foreign sales and expansion, less developed markets, is cru- lecting which locations should these threats become more and cial. In several of the countries be franchised, and to whom, more relevant. Currently, about McDonald’s has entered, it was has given McDonald’s an ad- 70% of McDonald’s revenue is the first firm to establish a fran- vantage in foreign markets, generated abroad and 35% of chised business. While other and its ability to scale without its total debt is denominated firms are inclined to expand losing control over the brand in foreign currencies; accord- faster by aggressively franchis- is unmatched by competitors. ingly, McDonald’s earnings are ing, McDonald’s has extreme- affected by fluctuations in for- ly stringent vetting policies for VII. Future Challenges eign currencies, particularly the potential franchisees; in addi- While McDonald’s has Euro, British Pound, Australian tion to requiring a high level of achieved significant differential Dollar and Canadian Dollar. independent capital backing, returns due to its foreign strat- As foreign currencies strength- franchisees are required to un- egy, there are still concerns the en relative to the dollar, goods dergo extensive training at their firm must address in the future sold in foreign markets are sud- own cost.14 Because quality and in order to maintain its success. denly worth more dollars back consistency are so important The flat sales of 2012 disrupt- in the U.S., boosting earnings.15 in the fast food industry, the ed a nearly decade-long streak On the other hand, a stronger ability to successfully vet and of growth for the chain. While dollar reduces the value of sales train franchisees is a large facet CEO Don Thompson blamed from abroad. In prior years, of McDonald’s success. While the issue on “the pervasive chal- McDonald’s benefited abroad other firms can train franchi- lenges of today’s global mar- from the weakening dollar and sees as well, no other competi- ketplace,” some worry that Mc- fared much better than com- tor has the capabilities yet to put Donald’s had grown complacent petitors whose business was in place such effective training in its leadership position both more firmly entrenched in the processes in foreign countries. domestically and abroad, allow- domestic marketplace. How- Because cultural assimilation ing old competitors like Burger ever, as the dollar continued to is so important to McDonald’s King and newer competitors strengthen and economic tur- success abroad, the ideal attri- like Chipotle to gain mind share, moil persisted in Europe, prof- butes of a franchisee change particularly in the U.S. as eating its from McDonald’s prized from region to region. McDon- habits change post-recession. foreign markets were adversely ald’s superior ability to pick not In addition to concerns affected. If the dollar continues only the most experienced, but over the sustained viability of to strengthen, McDonald’s will also the most culturally aware the U.S. marketplace, there are be forced to reassess the profit- franchisees makes McDonald’s threats to the McDonald’s busi- ability of a business model that

14“McDonald’s Franchising.” http://aboutmcdonalds.com/mcd/franchising.html 152012 Annual Report

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focuses on foreign expansion. accusations that the firm has a sign it has established capital McDonald’s earnings are had negative environmental markets and levels of disposable sensitive to fluctuations in com- and health externalities. While income sizable enough to sup- modity prices as well, partic- McDonald’s has attempted to port a Western firm. To estab- ularly beef, corn, poultry, and address these issues by cre- lished nations, McDonald’s is a cheese. Since 2005, commodi- ating more environmentally ubiquitous presence, a homoge- ty prices have been increasing, friendly packaging and inte- neous experience, and a com- and in 2013, commodity prices grating healthier options onto mon denominator: nearly ev- are expected to rise 1.5 to 2.5% the menu, the firm’s image has eryone, at one point, has visited domestically and 3 to 4% in the remained tarnished. Further- one. The impact of McDonald’s European marketplace.16 Be- more, a recent report from the around the globe is unmatched cause the firm’s branding relies Boston Consulting Group and by any other food chain, and so heavily on value, it will be Service Management Group arguably, by any other brand. difficult to pass these cost in- reveals that the coveted millen- It is little wonder that the core creases onto consumers. For ex- nial customer-base is increas- concept of the firm, low-priced, ample, the success of the Dollar ingly eschewing McDonald’s efficient, good-quality food, Value Meal is largely attributed and other fast food chains for has played well in many differ- to marketing surrounding the fast-casual, seemingly healthier ent cultural settings. Howev- price: all products on the menu options such as Panera Bread er, the success of McDonald’s are less than a dollar. While and Chipotle. As international cannot simply be attributed to McDonald’s previously has ex- markets join the health-con- a good idea. McDonald’s pow- pressed that raising prices on scious movement, McDonald’s er lies in its ability to leverage these items is out of the ques- will have to work harder to its scale and global presence to tion, they have introduced the change its image as a purveyor enter new markets, innovate, ‘Dollar Menu & More,’ which of artery-clogging junk food. and keep costs low. Its differ- has items ranging from $1 to $5. entiation in branding and menu To absorb these increasing costs, VIII. Conclusion make McDonald’s locally rele- McDonald’s may have to renege The McDonald’s of today vant, while its overarching com- on its 10-year-old ‘Dollar Menu’ poses little resemblance to the pany ethos reassures customers value proposition entirely. firm of 50 years ago. Not only is of what they will receive when A final challenge that it bigger, it has transformed from they enter. While the firm faces McDonald’s must face is the a uniquely American brand to a challenges in the future, there effect of changing consumer global presence. To developing is little doubt that McDonald’s preferences on brand percep- nations, the arrival of the famed will continue to thrive and grow, tion. McDonald’s has struggled Golden Arches is an indicator and with it, the promise that in recent years to maintain a that the country has achieved wherever you travel, the Gold- positive public image amongst a certain level of development, en Arches will be there, waiting.

162012 Annual Report Proxy

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References: Adamy, Janet. (2009, March 10). McDonald’s Seeks Way to Keep Sizzling. The Wall Street Journal. Retrieved from http://online.wsj.com/news/articles/SB123664077802177333 Audi, Nadim. (2009, Oct. 25). France, Land of Epicures, Gets Taste for McDonald’s. The New York Times. Retrieved from http://www.nytimes.com/2009/10/26/world/europe/26mcdonalds.html The Big Mac index. (2013, Jan. 31). The Economist. Retrieved from http://www.economist.com/content/big-mac- index Bisht, Amit. (2009, Jan. 20). McDonalds India Supply Chain. Articlesbase. Retrieved from http://www.articlesbase. com/marketing-articles/mcdonalds-india-supply-chain-729402.html Burger King. 2012 Annual Report. (2012). Retrieved from http://investor.bk.com/conteudo_en.asp?idioma=1&con ta=44&tipo=43575 Burger King, Citing Poor Profits, Will Bid France Adieu. (1997, July 30). The New York Times. Retrieved from http://www.nytimes.com/1997/07/30/business/burger-king-citing-poor-profits-will-bid-france-adieu.html Light, Larry. (2009, April 29). McDonald’s Former Chief Marketing Officer Larry Light Talks About Brand Revital ization. Customer Management. Retrieved from http://www.customermanagementiq.com/strategy/articles/ mcdonald-s-former-chief-marketing-officer-larry-li/ McDonald’s. 2012 Annual Report. (2012). Retrieved from http://www.aboutmcdonalds.com/mcd/investors/annu al_reports.html McDonald’s. 2012 Annual Shareholders’ Meeting and Proxy Statement. (2012). Retrieved from http://www.about mcdonalds.com/mcd/investors/shareholder_information/2012_Proxy_Statement.html Michel, Stefan. (April 2007). The Upside of Falling Flat. Harvard Business Review. Retrieved from http://hbr. org/2007/04/the-upside-of-falling-flat/ar/1 Patnaik, Dev, & Mortensen, Peter. (2009, Feb. 4). The Secret of McDonald’s Recent Success. Forbes. Retrieved from http://www.forbes.com/2009/02/04/mcdonalds-skinner-empathy-leadership-innovation_0204_patnaik.html Schlosser, Eric. (2001). Supersize Me. New York: Houghton Mifflin Company.