BM255 (MsDonald’s)

McDonald’s Expands Globally While Adjusting Its Local Recipe|  Case 1

BM 255 | 1st Sem AY 11-12 | GROUP 1

Dela Cruz, Raffy              Fernandez, Camille              Malabanan, Ace              Marcial, Izah              Panting, Jella

Domingo, Susie               Flores, Jojo                             Mandocdoc, PJ                 Mariano, Michie       Platon, Elbert

 

           

  1. 1.   Identify the key elements in McDonald’s global marketing strategy. In particular, how does McDonald’s approach the issue of standardization?

 

Globalization involves developing marketing strategies as though the world is a single entity; marketing standardized products in the same way everywhere. Globalized organizations employ standardized products, promotional campaigns, prices and distribution channels for all markets. Brand name, product characteristics, packaging and labeling are the easiest of the marketing mix variables to standardize.

 

McDonald’s global marketing strategy is based on combination of global and local marketing mix elements. It offers an ideal example of global localization (“glocalization”), wherein it mixes standardization and customization in a way that minimizes costs while maximizing satisfaction. McDonalds is “thinking globally and acting locally”. The company provides a global framework of common goals, policies, and guidelines rooted in the organization’s core values. Within this framework, individual geographic units are at liberty to design programs and performance measures appropriate to their locale. McDonald’s vision to be the world’s best quick service restaurant experience is supported by the company’s recognition of the importance of adjusting its operational strategies to the meet the specific dynamics and needs of the countries in which it operates. In many countries the company has modified its products to cater to local tastes.

 

Globalization: Standardization

Standardized global marketing for McDonald’s is based on the premise that a mass market exists around the world.  This assumes that there is a large, similar target market that can be targeted globally. While part of their global strategy is to customize to the different culture, taste and preferences of the countries where it opened, they can also apply the issue of standardization to target the huge consumer markets through the following strategies:

 

  1. a.      Global Marketing Motto

The image of the company is one of several things that are being adapted to new times. McDonald’s launched a new – and for the first time, global – marketing strategy inGermanyat the beginning of September. The campaign focuses around the motto, “i’m lovin’ it” and it is part of a new and broader marketing approach that McDonald’s calls Rolling Energy. The company says this approach will revitalize the brand in the entire world, unify its messages and integrate all its marketing moves.

 

  1. b.      Core Products

McDonald’s is known as a fast food restaurant serving core products such as burgers, fries, beverage and softserves which are basically consistent global product offering.  McDonald’s seeks to serve its customers with the same quality product and experience. This requires standardized processes and similar quality ingredients.

 

  1. c.       Fast Service

Known as a quick service restaurant, McDonald’s customers anywhere in the world expect consistently fast, friendly, and accurate service.  With this expectation, McDonald’s can adapt a common system to facilitate fast service such as similar systems and procedures, counter system layout and technological enhancements to support the speed of service.

 

The main advantage of these strategies is cost saving. Using standardized products and advertising across all business units helps generate economies of scale. These savings can then be applied to business’ margin, lower price to consumer, or reinvested into the company for research and development.  McDonald’s use their cost savings to offer low prices to consumers; they then make their money with smaller margins spread across high numbers of consumers.

Localization: Customization

McDonald’s manages its business as five distinct geographic segments: the US, Europe, Asia/Pacific, Middle East and Africa (APMEA), Latin America, andCanada. Each McDonald’s store in different countries have standardized McDonald’s trademark but are modified based on local preferences. Some examples of which are the following (refer to Appendix for specific examples and pictures:

 

(1)    Based on food preferences

a. India

Most Indians are barred by religion not to consume beef or pork. To survive, the company had to be responsive to the Indian sensitivities. So McDonald’s came up with chicken, lamb and fish burgers to suite the Indian palate. Aside from religion restriction of eating beef,Indiahas a huge population of vegetarians. To cater to this customer segment, the company came up with a completely new line of vegetarian items like McVeggie burger and McAlooTikki. The separation of vegetarian and non-vegetarian sections is maintained throughout the various stages.

 

Vegetarian

McVeggie

McAlooTikki

Paneer Salsa Wrap

Crispy Chinese

McCurry Pan

Pizza McPuff

 

 

Non Vegetarian

Chicken Maharaja Mac

McChicken Burger

Shahi Chicken McCurry

Wrap Chicken Mexican

Fillet-O-Fish

 

 

 

 

 

b. Philippines

McDonald’sPhilippinessells items that cater to local sweet tastes of Filipinos.

 

McSpaghetti

 

Hamdesal

 

 

 

Longaniza with rice and fried egg

 

 

 

The “Croque McDo” consists of two melted slices of Emmental cheese and a slice of ham toasted between two hamburger buns. This is the McDonald’s approach to the more traditional Croque-monsieur snack found inFranceandBelgiumor the McTosti in The Netherlands (only offered during breakfast).

c. Belgium

 

 

 

 

 

 

 

 

 

d. France

In France, McDonald’s offers Kronenbourg 1644 in 25 or 33 cl measures. The “Croque McDo” is also offered, and every two to three months, a new Petit Plaisir is introduced. Donuts are also available for breakfast.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

e. Canada

The McLobster, a lobster roll, is available seasonally in theMaritime Provinces. It is called McHomard in French

 

 

 

 

 

 

The Australian menu remained relatively unchanged until 2003, when the Salads Plus menu was launched. The new menu saw the introduction of healthier options, all with less than 10 grams of fat.

 

f. Australia

 

 

 

g. Norway

 

In fish-lovingNorway, they have the McLaks, a sandwich made of grilled salmon and dill sauce.

 

 

 

 

 

 

 

h. Taiwan

McDonald’s has introduced kao fan (literally “baked rice”), a burger-like entrée with rice patties in place of buns.

 

 

 

 

 

 

 

 

                        i. Germany- McDonald’s serves beer.

 

j. Japan totally reinvents McDonald’s with its Ebi Filet-O (shrimp burgers), Koroke Burger (mashed potato, cabbage and katsu sauce, all in a sandwich), Ebi-Chiki (shrimp nuggets) and Green Tea-flavored milkshake!

 

k. In Chile, you can dress your burgers with – not ketchup – avocado paste!

l. Greece- It’s not Greek without pita, so when in Greece, have a Greek Mac, a burger made of patties wrapped in pita.

 

 

 

(2)   Based on stores’ design and layout

The last major change at McDonald’s restaurants was the introduction of play places for children in the early 1980s.  In order to retain their ‘forever young’ brand, they have to adopt a hip look in its stores to keep up with the changing environment.  A very significant change that can be found in most of their stores worldwide is the elimination of the ‘heavy plastic look’ that they have been carrying for 51 years already.  Some of the notable pieces in their stores are
comfortable armchairs, cool hanging lights, funky graphics and photos on the walls, Wi-Fi access and even premium coffee, providing the ‘café environment’. The big red roof was replaced by a flat roof topped by a newly designed, contemporary, golden sloping curve.  Even Ronald McDonald had gone through a makeover, which made him leaner and sportier, clearly promoting a healthier lifestyle in most stores.  However, the color yellow would still remain in order to exude a sunny feel. Muted colors like olive, sage green, and terracotta will trade places with the bright reds on the outside and the inside.  To make McDonald’s more welcoming as a place to socialize, hanging lights will suffuse the new restaurants with a warm glow.  The booth seats will have fabric cushions with colorful patterns. And the moveable tables and chairs will be more informal and flexible to accommodate large families.  The following are but a few examples of the stores adopting these some of these changes based on the need of the market where the store is erected:

 

 

 

 

a. New York, USA

“Urban Living” theme — a concept designed specifically for city locations. Outfitted with a range of luxurious custom seating, including loungers, banquettes and bar stools, the new-look McDonald’s encourages diners to come in and relax in the same way they would in, say, a Starbucks. There’s even Wi-Fi internet access so that city workers can crack open their laptops and get to work while they munch on a burger, with no time wasted between mouthfuls.

 

 

b. Porto, Portugal

The chain features logo and stained-glass windows, dazzling chandeliers hanging from the high ceiling.

 

 

 

 

 

 

c. Holborn, UK

Embraced the “less is more” strategy with cool, contemporary interiors that mix replicated high-end design furniture — with sumptuous materials such as leather and timber.

 

 

 

d. Melbourne, Australia

Launched the McCafés and integrated the look in restaurants in an area called the “linger” zone. Targeted at young adults who like to socialize, it is equipped with Wi-Fi capability and features lounge seating with armchairs and sofas. Clearly a nod to the successful café environment made popular by Starbucks.

 

 

 

 

  1. 2.      Do you think government officials in developing countries such as Russia, China and India welcome McDonald’s? Do consumers in these countries welcome McDonald’s? Why or why not?

 

Yes. Despite the concerns by governments and citizens in some countries about “cultural imperialism”, McDonald’s is generally welcome because it provides much-needed jobs and employee training. Mcdonalds’s is supported by local authorities and the local population since the company sources its supplies for beef, potatoes, dairy products, etc from local suppliers. Finally, thanks to changing lifestyles around the globe, more people around the globe, more people are embracing the whole concept of fast food. The menu items are adapted according to the countries’ culture, background and preference.

 

According to Trifter.com, “InIndiathere are no Big Macs because the Hindu people don’t eat beef. However, they have the Maharaja Mac which is a Big Mac made of lamb or chicken meat. There is also a vegetarian burger, the McAloo Tikki. “No beef or beef products sold here” but the doubts raised by the controversy kept many potential customers away.

 

The following are the possible opportunities that led to acceptance of McDonald’s globally:

(1)   The customers are becoming more demanding that they prefer high quality products/ imported

(2)   McDonald’s is known worldwide (large market share); #2 franchise

(3)   Acquisitions helped them to be known better and to tap larger markets

(4)   competition- to improve pricing (lower priced products)

(5)   changing lifestyle- people nowadays are career-oriented thus less time for cooking; increased transactions of food delivery;

(6)   increasing globalization; need for cheaper products produced with the use of highly technological equipment in the most efficient manner; Mcdonald’s have the capital to purchase these equipment thus this could be a factor for them to be welcome in other countries

 

 

 

  1. 3.      At the end of 2003, McDonald’s announced it was selling the Donatos Pizza unit. Then, in 2006, the Chipotle chain was spun off. In light of these strategic actions, assess McDonald’s prospects for success beyond burger-and-fries model.

 

Many things contributed to the decline of the McDonald’s brand between 1997 and 2002. It was not a precipitous fall: The brand had been declining slowly, painfully, and publicly for some time. The simplest analysis of what went wrong is that McDonald’s violated the three brand-building basics for enduring profitable growth: renovation, innovation, and marketing.  McDonald’s spent a period of time acquiring businesses they believed to be complimentary to their core burger-and-fries model. However, during this expansion, they made the error of “taking their eye off of the ball”. This allowed competitors to make inroads and resulted in their core business flagging.

McDonald’s Corporation has made 12 acquisitions while taking stakes in 4 companies. McDonald’s Corporation has 17 divestitures during this period.

Year

Acquisitions

Stakes

Divestitures

2011

0

0

0

2010

0

0

1

2009

1

1

1

2008

0

0

0

2007

0

0

3

2006

0

0

2

2005

1

0

2

2004

1

1

1

2003

0

0

1

2002

2

0

1

2001

1

1

0

2000

1

0

0

1999

2

0

0

1998

0

1

0

1997

0

0

0

1996

2

0

1

1995

1

0

2

1994

0

0

1

1993

0

0

0

1992

0

0

0

1991

0

0

0

1990

0

0

0

1989

0

0

1

Total

12

4

17

 

McDonald’s acquired new brands through a series of acquisitions: Chipotle, Donato’s, Pret-a-Manger, and Boston Market.  Chipotle Mexican Grill, Inc. is a chain of restaurants in the United States, United Kingdom,and Canadaspecializing in burritos and tacos, founded by Steve Ells in 1993 and based in DenverColorado. The name was derived from “chipotle“, the Mexican Spanish name for a smoked, dried jalapeño chilipepper. The restaurant is known for its large burritos, assembly line production, and use of natural ingredients. Donatos Pizza is a pizza delivery restaurant chain headquartered in Columbus, Ohio. It has nearly 200 locations in six states, with the majority of locations in Ohio.  Donato’s is also served at several venue outlets including Ohio StadiumNationwide Arena, and the Smithsonian National Air and Space Museum.  Pret (formally known as Pret a Manger) is a British sandwich retail chain based in the City of WestminsterLondonUnited Kingdom. The formal name “Pret a Manger” comes from the French prêt à manger, meaning “ready to eat” or “lending to eat”, a reference to prêt-à-porter.  Boston Market, known as Boston Chicken until 1995, headquartered in Golden, Colorado,is a chain of American fast casual restaurants.

 

GO TO BASIC (concept of quick service restaurants) to work within their core competency of reliable food, clean restaurant, low price, quick service.  Apart from going back to their basic business, which is hamburger chain, they may somehow be predicting the market trend which is leading to the café era and ‘healthy lifestyle’.  Thus, on top of regaining their top position in the hamburger chain industry by focusing on their competencies, they are also securing their sustainability no longer through acquisitions but by embarking on new concepts.  McDonald’s has always been known for their burgers and fries, which somehow gave them problems regarding obesity lawsuits that claims fast food is not nutritious and has contributed to America’s weight problem.  However, they are now more concerned with fitness and exercise, providing healthy alternatives while still catering clients that still advocate their classic menus.   McDonald’s has pushed to convey a healthier image in the midst of mounting criticism. The McCafe is still going relatively strong. Sales in those areas have contributed to the good earnings MCD has posted in recent months. This could be due to the café trend introduced by Starbucks.

 

McDonald’s strategic plan is called ‘plan to win’. The concept of this plan is for McDonald’s to not be the biggest fast food restaurant chain, but to be the best fast food restaurant chain. McDonald’s tries to achieve this by applying the five P’s: People, products, place, price and promotion.  Along with this they also incorporate geographic strategic plans.

In the U.S., McDonald’s strategic plan continues to focus on breakfast, chicken, beverages and convenience. These are the core areas in the United States. McDonald’s has launched the Southern Style Chicken Biscuit for breakfast and the Southern Style Chicken Sandwich for lunch and dinner. In the beverage business, McDonald’s starting introducing new hot specialty coffee offerings on a market-by-market basis.

In Europe, McDonald’s uses a tiered menu approach. This menu features premium selections, classic menu, and everyday affordable offerings. They also complement these with new products and limited-time food promotions’.

In the Asia-Pacific, Middle East, and Africa markets, McDonald’s strategic plan is focused around convenience, breakfast, core menu extensions and value. With McDonald’s overall strategic plan and its geographical strategic plan, the company should start to see more positive financial results.

As well as all this, McDonalds also incorporates organizational strategic plans which include better restaurant operations, placing the customer first, menu variety and beverage choice.

All of these strategic plans make McDonald’s global brand gain a very high turnover rate and you can see how far McDonalds has grown since it first opened up in 1940.

 

Mini- Case Format Starting with Alternative Courses of action for McDo:

KEEP OR SELL DECISION

 

1)      Mandocdonald’s should continue operating Donatos pizza and the cafeteria

INCLUDE Implementation programs to make it successful

What could have been done for the supposed success of the acquisitions?

 

 

Advantage:         Utilization of investment

Disadvantage:   High risk management

 

 

2)    Sell the Donito’s and cafeteria business

 

Advantage:        Focus on core business

Available capital for reinvestment

Escape from imminent liabilities; decrease the expenses involved in running an unprofitable business.

-it saves business owners from having to liquidate the business and selling off the assets, without getting any value for the intangible assets such as goodwill or existing captive customers

-Selling a business can also be a growth strategy whereby the owners can invest the resources they earn from the sale in profitable ventures.

 

Disadvantage:  Opportunity/ Profit Loss

negative word of mouth publicity might be generated since the business is in trouble or is not healthy

 

  • Strategic withdrawal

 

  • Does not fall under the core business or strategy of Mc Donalds

 

  • Should anchor the mission / vision with the mother company

 

Camille will devise an QSPM for Mandocdonald’s

 

QUANTITATIVE STRATEGIC PLANNING MATRIX (QSPM)

Key Factors

Weight

Strategy 1

Strategy 2

   

AS

TAS

AS

TAS

OPPORTUNITIES  

   

rising disposable income of the population  

Rising consumer awareness on the value for money, fast service, clean and comfortable dining and cool ambient  

THREATS  

Existence of competitors / other QSRs  

   

 

 

 

 

 

 

STRENGTHS

Established name  

Superb Product quality  

Excellent service through people  

   

   

WEAKNESS  

   

   

Sum Total Attractiveness Score (TAS) 1.00

 

 

 

 

*Range for AS: 1= not attractive; 2= somewhat attractive; 3= reasonably attractive; 4= highly attractive

 

 

 

  1. 4.      Is it realistic to expect that McDonald’s – or any well-known company – can expand globally without occasionally making mistakes or generating controversy? Why do anti-globalization protesters around the world frequently target McDonald’s?

No. it is not possible for McDonald’s or any well-known company to expand globally without occasionally making mistake or generating controversy. These mistakes serve as learning experience for the company. McDonald’s franchises overseas became a favorite target of people and groups expressing anti-American and or anti-globalization sentiments.  These anti-globalization groups pointed out that multinationals have unregulated political power and to the powers exercised through trade agreements and deregulated financial markets. Specifically, corporations are accused of seeking to maximize profit at the expense of sabotaging work safety conditions and standards, labor hiring and compensation standards, environmental conservation principles, and the integrity of national legislative authority, independence and sovereignty.   McDonald’s being a tip brand, cannot escape these skepticisms.

 

As the world’s largest restaurant chain, McDonald’s is a target for criticism. The company is often seen as a symbol of American domination of foreign economic resources even though its foreign franchises are locally owned and use locally produced food. Other criticisms include allegations of exploitation of entry-level workers, ecological damage, selling unhealthy food, production of packaging waste, exploitative advertising and adverse response to the company’s approach to preserving its image and copyright all issues. Amidst the challenges and criticisms, McDonald’s continues its stride as the global industry leader.

 

 

 

 

 

REFERENCES

 

Glocalisation of McDonalds: Comparative StudyMoroccoandFrance

http://assima-globalcommunication.blogspot.com/2008/07/glocalisation-of-mcdonalds-comparative.html

 

McDonald’s products (international):

http://en.wikipedia.org/wiki/McDonald%27s_products_(international)#France

 

Mcdonald’s Strange Menu Around the World

http://trifter.com/practical-travel/budget-travel/mcdonald%E2%80%99s-strange-menu-around-the-world/

APPENDIX A: FACTS about McDonald’s

 

  • McDonald’s has over 30,000 local restaurants in more than 121 countries
    • 70 percent of their restaurants worldwide are owned and operated by independent, local businessmen and businesswomen
    • McDonald’s serves nearly 50 million customers each day
    • McDonald’s has its ownHamburgerUniversityinIllinois, and the first batch graduated in 1961
    • In 1963, McDonald’s sold its one billionth hamburger
    • McDonald’s is listed on theNew York, Frankfurt,Munich,ParisandTokyostock exchanges
    • The clown character seen in all McDonald advertisements, Ronald McDonald, was created in 1963.
    • The first McDonald’s drive‐thru opened inSierra Vista,Arizona  in 1975
    • Happy Meals were added to McDonald’s menu in 1979
    • McDonald’s launched McCafe in 1994.
    • McDonald’s launched the new worldwide Balanced Active Lifestyles public awareness campaign in 2005
    • McDonald’s celebrated its 50th Anniversary on April 15, 2005

 

 

APPENDIX B: SWOT Analysis

 

Strength

– Strong brand name and image

– 42% ofUShamburger business

– Overseas market

– Strong financial statement

– Economies of scale

– Market versatility

 

Weakness

• Declining market share

• Weak product development

• Disgruntle franchises

• Slowed revenue and income growth

Opportunities

• International expansion

• Only serving 1% of the world

population

• Growing dining‐out market

Threats

• Increasing market players

• More health conscious people

• Fast changing of food preferences

• Changing demographics

• Fluctuating foreign exchange rates

• The economy

 

 

APPENDIX C:  EXTERNAL ANALYSIS

 

Political

  • Health and Safety Guidelines

ü  The director of the obesity program for the Children’s Hospital Boston, David Ludwig, claims that “fast food consumption has been shown to increase calorie intake, promote weight gain, and elevate risk for diabetes”

ü  Centre for Science in the Public Interest, a long time fast food critic over issues such as caloric content, trans fats and portion sizes

  • Ecological/environmental issue

ü  Fast food industry giants such as Wendy’s, Pizza Hut, and McDonalds are some of the largest consumers of paper products in theUS. “Every year millions of pounds of food packaging waste litter our roadways, clog our landfills and spoil our quality of life.

  • Wars and conflicts

ü  War between countries where the company operates.

ü  They have also become a symbol of capitalism and Americanism meaning that they have now become the target of terrorist group and attack.

 

Economic

  • McDonald’s must consider economic challenges when expanding internationally.
  • Low set up costs = rapid expansion
    • One of the challenges for fast food industry is that to keep the price is low for the customer.
    • Local sourcing of supplies
    • Protection of monetary value from exchange rate
    • Extended Government support due to:

ü Patronage of local supply production of the nation

ü Contributes to local labor and employment

  • Franchising facilitates set ups

ü  McDonald’s corporation provides financing assistance and training for new franchise owners to manage cash flow and keep businesses profitable.

 

Social

  • The main reason is the consumers worries had greatly increased with health fears of

increasing obesity

  • Customers now opted for healthier options like subway which offered more of a variety for health conscious customers.
  • To ease customers concern about health issues, McDonald’s has made changes to the following;

ü  McDonalds changed its image vastly by evaluating the current menu and making changes to it from using organic products to revising the whole menu entirely by offering salads and vegetarian burgers.

ü  McDonald’s serves a range of high quality foods that can fit into a balanced diet. The accurate and accessible nutrition information help guests make informed menu choices.

  • Emphasis on food safety:

ü  McDonald’s suppliers have food safety management systems in place, including Good

Manufacturing Practices, a verified Hazard Analysis Critical Control Point (HACCP) plan and crisis management, food security and other applicable programs

  • Corporate Social Responsibility (green initiatives)

 

Technology

  • McDonald’s has taken advantage of technology to streamline their processes and improve efficiency.

ü  Through technology enhancements such as Help Desk Service, network and application consolidation, and other technology implementations, operations of the company are greatly improved.

  • Touch Order Allows You To Place Order At McDonald’s Via Handset
    • The customers can place their order directly from their tables, dubbed as “Touch Order”. It’s the first self‐ordering system in the world
    • McDonald’s has also implemented technology to improve supply chain management, and allows customers to access this information to make more informed decisions about what they eat.

 

 

 

APPENDIX D: Acquisitions of McDonald’s (@Jella: Please summarize via timeline)

 

1999 – Donatos was purchased by McDonald’s in an attempt to enter the pizza industry. However, a majority interest in Donatos was repurchased by Jim Grote and daughter Jane Abell in 2003 as McDonald’s sought to refocus on its core business.

2003 – McDonald’s sells Donatos in order to refocus on its core hamburger business.

In December 2003 McDonald’s announced that it would further its focus on its core hamburger business by downsizing its other ventures. The company said that it would sell Donatos back to that chain’s founder. In addition, it would discontinue development of non-McDonald’s brands outside of theUnited States. This included Boston Market outlets inCanadaandAustraliaand Donatos units inGermany. McDonald’s kept its minority investment in Pret A Manger, but McDonald’sJapanwas slated to close its Pret units there. These moves would enable the company to concentrate its international efforts on the McDonald’s chain, while reducing the non-hamburger brands in theUnited Statesto Chipotle and Boston Market, both of which were operating in the black.

To achieve sustainable performance they need to develop and build on the organization’s core capabilities or strengths. So when McDonald’s decided to overhaul its menus to make them more healthy by adding salads and a whole range of other healthy options, it ended up destroying value because it moved too far away from its core business strengths i.e. making burgers and fries in a highly standardized, procedural manner. Fortunately, they had the sense to admit their mistake and refocus the business around core strengths. This led to a sharp increase in the company’s value and it continues to grow unabated. By reasserting themselves in their core business, they are reestablishing themselves as innovators in the market. Success beyond their core model is certainly possible; however attention cannot be diverted from their core business model.

 

Acquisition by McDonald’s Corporation in 1998

As Donatos pressed forward with its expansion in 1998, the company was being watched. Beginning around May of that year, executives at McDonald’s Corporation began taking a close look at Grote’s operation. The fast-food giant, whose own system-wide annual sales towered at $32 billion, was on the prowl, looking to diversify its operations and emulate the three-prong attack of Tricon Global, owner of Pizza Hut, KFC, and Taco Bell. McDonald’s executives saw the pizza business as the natural choice for branching out because it was the fastest-growing segment of the industry. They conducted assiduous research, reportedly studying the operations of 61 pizza companies before they made their decision. One day in November 1998, Grote’s phone rang. On the other end, a McDonald’s executive vice-president, Pat Flynn, informed Grote of his company’s great interest in Donatos. Next, Flynn flew toColumbusto meet with Grote. Several weeks later, Grote agreed to sell Donatos’ 146 units to McDonald’s for an undisclosed sum. In July 1999, the deal was completed, making Donatos a wholly owned subsidiary of McDonald’s.

After 36 years of running his family business, Grote gave up control over Donatos. The acquisition by McDonald’s did not signal the end of Grote’s influence over the company, however. Day-to-day control over Donatos was handed to Bill Rose, McDonald’s former senior vice-president forSoutheast/Central Asia. Grote took the title of chairman, but he was far from just a figurehead at Donatos. In the early 1990s, McDonald’s first tried to enter the pizza segment of the food industry, offering slices of pizza at several thousand of its hamburger outlets. The experiment failed. In their second foray, McDonald’s executives realized they needed the help of someone with experience in making and selling pizza. They turned to Grote for guidance, relying on his lengthy experience to aid in their diversification.

As Donatos entered the 21st century, its new status as a McDonald’s subsidiary promised accelerated expansion. At roughly the same time that Flynn first contacted Grote, McDonald’s acquired a 20 percent interest in Chipotle Mexican Grill, a chain of 22 Mexican restaurants based in Denver, Colorado. In April 1999, McDonald’s completed another acquisition, purchasing London, England-based Aroma Ltd., which operated 22 outlets that sold coffee and sandwiches. Together, the three subsidiaries–Donatos, Chipotle, and Aroma–formed McDonald’s’ specialty food division, a small segment of the Oak Brook, Illinois-based company’s operations that was expected to become considerably larger in the coming years. At first, expansion of the Chipotle chain received much of the parent company’s attention, but industry analysts expected Donatos to soon benefit from the deep financial pockets of McDonald’s. In the fall of 1999, unrevealed sources, as reported in the October 15, 1999 issue of Restaurant Business, stated that McDonald’s intended to open 75 new Donatos restaurants during its first full year of ownership and planned to double the expansion rate during the ensuing years. Of greatest interest were the rumors that McDonald’s was considering international expansion of the Donatos chain.

Not long after embarking on its new era of ownership, Donatos changed its name. In 2000, the official title of the company changed from Donatos Pizza Corp. to Donatos Pizzeria Corp., which reflected the change in décor at the company’s units. During the year, 22 new restaurants were opened, blanketing markets inAtlanta,Cleveland, andIndianapolis. The company’s pace of expansion nearly doubled in 2001, when 42 new Donatos units opened their doors. By August 2001, there were 186 restaurants operating in seven states, with plans in the works to broaden the chain’s geographic scope. Several months later, the company announced it would open five Donatos inPhiladelphia, which were to serve as a springboard for further expansion in the northeasternUnited States.

As Donatos neared its 40th anniversary, the chain’s pace of expansion slowed as it experimented with a new pizzeria format. In 2002, Donatos, as well as another member of McDonald’s specialty food division, Boston Market, opened fewer new restaurants than the two chains had opened in previous years, but Donatos did make a significant geographic leap during the year. In November 2002, a Donatos debuted in Munich, Germany, the first of perhaps more overseas units. Domestically, the company was experimenting with a dine-in telephone-ordering system that featured a telephone at each table. “Whenever they are ready to order, or whenever they need anybody, all they have to do is pick up the phone,” a Donatos executive explained in the July 22, 2002 issue of Nation’s Restaurant News.

As Donatos prepared for the future, further expansion was expected. McDonald’s had formed its specialty food division with the intention of expanding each of its non-hamburger chains. Donatos, with the vast financial resources of its parent company behind it, was expected to benefit from McDonald’s’ desire for growth. In the years ahead, Donatos, with numerous Grote family members working throughout the chain, hoped to continue the legacy of success established by their patriarch, James Grote.

In 1998, McDonald’s made an initial minority investment in the company. By 2001, the company had grown to be Chipotle’s largest investor.[12] McDonald’s’ investment allowed the firm to quickly expand, from 16 restaurants in 1998 to over 500 by 2005.[19] On January 26, 2006, Chipotle made its initial public offering (IPO), after increasing the share price twice due to high pre-IPO demand. In its first day as a public company, the stock rose exactly 100%, resulting in the best U.S.-based IPO in six years, and the second-best IPO for a restaurant after Boston Market. The money from the offering was then used to fund new store growth.[14]

 

In October 2006, McDonald’s fully divested from Chipotle.[20] This was part of a larger initiative for McDonald’s to divest all of its non-core business restaurants – Chipotle, Donato’s Pizza, and Boston Market – so that it could squarely focus on the main McDonald’s chain.[21] McDonal

 

APPENDIX E: McDonald’s controversies

 

Some of the controversies of Mcdonald’s:

(1)         McDonald’s was sued in 2001 after it was revealed that for flavoring purposes a small amount of beef extract was being added to the vegetable oil used to cook the French fries. The company had cooked its fries in beef tallow until 1990, when it began claiming in ads that it used 100% vegetable oil. McDonald’s soon apologized for any confusion that had been caused by its use of beef flavoring, and in mid-2002 it reached a settlement in the litigation, agreeing to donate $10M to Hindu, vegetarian, and other affected groups.

 

(2)         In 2001, further embarrassment came when 51 people were charged with conspiring to rig Mc Donald’s game promotions over the course of several years. It was revealed that $24 M of winning McDonald’s game tickets had been stolen as part of the scam. McDonald’s was not implicated in the scheme, which centered on a worker at an outside company that had administered the promotions. This all mistake or controversies make McDonald’s more matured doing business and McDonald’s knows what actually customer wants because different country’s different culture so different needs.

 

(3)         In August 1999, a group of protesters led by farmer Jose Bove destroyed a half-built McDonald’s restaurant inMilau,France. In 2002, Bove who gained fame from the incident, served a three-month jail sentence for the act, which he said was in protest againstUSprotectionism. McDonald’s was also one of the three multinational corporations (along with Starbucks and Nike, Inc) whose outlets in Seattle were attacked in late 1999 by some of the more aggressive protesters against the World Trade Organization meeting taking place there. In the early 2000s, McDonald’s pulled out of several countries, includingBoliviaand two Middle Eastern nations, at least in part because of the negative regard with which the brand was held in several areas.

 

About cenizamarcial

I am a medical representative by profession, and a writer by passion. I also run an online fashion retailing shop. My entire being roots from the unconditional love and perseverance of my family.
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