Franchising In The Restaurant Industry: A Review Of McDonald’s Global Expansion Strategy

Restaurant Industry Overview

Discuss About The Perceptions Global Franchise Chains BRICS.

McDonald’s operates in the restaurant industry. The industry has many players competing for the both domestic and international market. The competition in the restaurant has led to higher cost running the business. However, restaurant industry is the most franchised sector in the United States. Many restaurateurs are taking the advantage to get franchised because it saves on both time and cost while still helping the franchisee to run a successful business. McDonald’s franchising has thus given many restaurateurs the best opportunity to work together for mutual benefit.   

The industry entails any establishment which serves food to individuals away from their home. This involves restaurants, carry out operations, and cafeteria among others. The sector is subdivided into two categories: Those preparing and serving food and those producing and distributing food, equipment as well as services required by the providers of food. The most familiar instance of the first group is a restaurant. The restaurants hire front of the house individuals and back of the house personnel (Gerhardt, Hazen, Lewis & Hall, 2015).

The former encompasses bartenders, hosts, busboys and wait staff. The latter type entails chefs, cooks m dishwaters and managers. Fast food restaurant restricts their team to the food preparation individuals, managers, as well as cashiers. The trend in food trucks adds a mobile element to food services and needs just a few individuals to drive the truck, cook food, as well as serve the food via the window.

Americans rising hectic lifestyle increasingly make home cooking a challenge thus the restaurant, and fast food enjoys steady expansion and growth. In the year 2016, the National Restaurant Association (NRA) projected that job growth in the restaurant industry should outstrip the overall economy, adding more than 300,000 jobs for six times in a row calendar year. The restaurants employ nearly 13.5M workers.

The NRA forecasted industry sales of 783 billion for the year 2016. Such numbers indicate steady employment for workers. Nevertheless, the food industry remains tied to the economy. When there is a decline in the economy, individuals tend to reduce what they view as luxuries that can encompass dining out. This industry can be increasingly tumultuous, with restaurants closing and opening frequently. 

The franchising is taking shape in the restaurant industry, and only those firms that can efficiently franchise can survive this competitive market. The major player in this industry is McDonald’s. Many restaurants are considering franchising to be like McDonald’s. Whereas their other sectors franchising, the restaurant industry remains the most franchised. There is growing pressure for other restaurants to the franchise because Franchising helps the franchisee to develop at much lower cost (Gerhardt, Hazen & Joiner, 2016). In the process, the franchisor also increases as the franchisee is the one signing leases and committing to a range of service contract making the franchisor to expand with virtually no contingent liability thus profoundly decreasing the risk.

Franchising in the Restaurant Industry

It is also preferred because it has eliminated the obstacles facing various restaurateurs of finding as well as retaining good restaurant managers. Franchising permits restaurateurs to evade such problems of training a manager only to be employed elsewhere by replacing a highly motivated franchisee for that restaurant manager. Because franchisee enjoys a stake in the unit, the performance of restaurant shall usually improve. The income of franchisor is anchored on the gross sales of franchisee rather than the profitability thus the performance of monitoring unit remains substantially less had and needed less staff.

Moreover, franchising is also widespread because it saves the time required in opening the new restaurant.  Franchising helps in solving the challenges of expanding the business by having franchisee doing most of the heavy lifting. It thus allows restaurateurs to have financial leverage, and resources leverage (Wibowo & Tielung, 2016). 

Franchising is an American innovation from the 1800s. It first became known as the Ray Kroc’s McDonald’s. The distinct business model enables two separate owners to share in the profits and operations, each providing resources and support. Whereas franchisees can serve as the entry points into the ownership of a business for several Americans, engaged in the deal is a complicated operational protocol alongside different challenges (Thakkar & Thatte, 2014). For instance, the nature of operation frequently bars franchise employees from unionizing as well as recent lawsuits against large chains have culminated in questions regarding worker rights and how the franchise. 

The McDonald’s brothers actualized the initial idea of the Ray Kroc of a fast-food restaurant. Dick and Mac opened their original restaurant in the year 1940 in California, however, as a beginning they didn’t know that their restaurant would expand tremendously to have such a huge market share. The brothers remained very modest till they discovered a formula which sells an undeniably high-quality product with low affordability (Shah & Mujtaba, 2016).

Nevertheless, a substantial role was played by Kroc, an experienced businessman with undoubted talents for marketing. When Kroc became engaged in the business, he acknowledged that this formula might be increasingly profitable and could be sold on a national basis in the entire US. Thus, the initial success of McDonald’s is attached to Kroc since he had the vision to take the company globally and assist accomplish the highest success level (Krueger & Ashenfelter, 2017).

The McDonald’s runs a business in over 100 nations globally. In the countries where the company is lacking presence, it has adopted a strategy whereby it focuses on the market where they do business. The McDonald’s is one of the hugely successful fast-food restaurants globally with an established efficiently as well as valuable trademark; it is an example of the brand franchise. McDonald is usually “regarded the gold standard of franchising.”

McDonald’s Franchising Strategy

The primary drive behind the success of McDonald and swift expansions is the franchising strategy. This assisted McDonald to effortlessly penetrate new markets as well as expand their target market (Ebert, 2016). About seventy percent of present McDonald’s restaurants are operated as an independent franchise. The first ever franchised outlet was established in the United Kingdom in the year 1986; nevertheless, there are presently over 31, 000 McDonald’s restaurants in more than 119 nations.

For consideration and grant of permission to utilize the McDonald’s brand name, a minimum of $300000 is required strangely from the personal savings and resources of the owner and not from the borrowed funds like loan/mortgages. Moreover, under the requirements to acquire a McDonald’s franchise, the company has to own/lease the restaurant premises where franchisee will be operating.

The McDonald’s franchise is a business in which the McDonald’s grant third-party operators its rights to utilize the McDonald’s name, branding as well as a model for fees and ongoing support regarding marketing and advertisement. Every franchisee offers the same good and services for which McDonald’s is known (Dant, Jin, Mumdziev & Windsperger, 2016). Franchisees serve similar menu, features the same advertisement, as well as utilize similar branding. The operation is driven by the built-in support network presented by other operators.

Conclusion

Franchising a restaurant concept is an excellent idea. The future challenges and changes faced by each restaurant business shall affect the restaurant franchisors. However, they shall have extra problems which ate distinct to franchising (Chan, 2015). The changes in the way of running a restaurants have triggered franchising. These changes include demographics, food preferences, communications, technological and food costs. Historically, franchising was accompanied by the promise of the “proven formula.”

McDonald’s should continue with franchising by expanding both locally and internationally. It is a good concept which benefits not only franchisee but also franchisor. Therefore, this concept is gaining more advantages thus it should be encouraged. It will help many restaurateurs with little cash to run a business successfully. 

References

Chan, T. S. (2015). Franchising of Us Fast Food Chains in Hong Kong: Entry and Expansion Strategies. In Proceedings of the 1989 Academy of Marketing Science (AMS) Annual Conference (pp. 163-167). Springer, Cham.

Dant, R. P., Jin (Jean) Jeon, H., Mumdziev, N., & Windsperger, J. (2016). A cross-national comparison of brand perceptions of global franchise chains in the BRICS. Journal of Marketing Channels, 23(4), 196-216.

Ebert, M. (2016). French Fries, Franchisees, and the FMLA: Understanding the McDonald’s Decision and What It May Mean for Expanding Franchisor Joint Liability. J. Corp. L., 42, 239.

Gerhardt, S., Hazen, S., & Joiner, S. (2016). FAST FOOD FRANCHISING: HOW MUCH CAN YOU EXPECT TO MAKE-BOTTOM LINE?. ASBBS Proceedings, 23(1), 198.

Gerhardt, S., Hazen, S., Lewis, S., & Hall, R. (2015). Entrepreneur Options-” Franchising” vs.” Licensing”(McDonald’s vs. Starbucks and Chick-fil-A). ASBBS Proceedings, 22(1), 152.

Jeon, H. J. J., Meiseberg, B., Dant, R. P., & Grünhagen, M. (2016). Cultural convergence in emerging markets: The case of McDonald’s in China and India. Journal of Small Business Management, 54(2), 732-749.

Krueger, A. B., & Ashenfelter, O. (2017). Theory and Evidence on Employer Collusion in the Franchise Sector (No. 614).

Shah, S., & Mujtaba, B. G. (2016). Contemplations for Opening the First McDonald’s Restaurant Franchise in the IT Capital of India’s Bangalore. International Journal of Marketing Practices, 3(2), 33-46.

Thakkar, K., & Thatte, M. (2014). Consumer perceptions of food franchise: A study of McDonalds and KFC. International Journal of Scientific and Research Publications, 4(3), 1-5.

Wibowo, S. W., & Tielung, M. (2016). Analytical Hierarchy Process (AHP) Approach on Consumer Preference in Franchise Fast Food Restaurant Selection in Manado City (Study At: Mcdonald’s, Kfc, And A&W). Jurnal EMBA: Jurnal Riset Ekonomi, Manajemen, Bisnis dan Akuntansi, 4(2).