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McDonald's Corporation

McDonald's Corporation

McDonald's Plaza
Oak Brook, Illinois 60523-2199
U.S.A.
Telephone: (630) 623-3000
Fax: (630) 623-5004
Web site: http://www.mcdonalds.com

Public Company
Incorporated: 1955
Employees: 413,000
Sales: $17.14 billion (2003)
Stock Exchanges: New York Chicago Euronext Paris German Swiss
Ticker Symbol: MCD
NAIC: 722211 Limited-Service Restaurants; 533110 Lessors of Nonfinancial Intangible Assets (Except Copyrighted Works)

Since its incorporation in 1955, McDonald's Corporation has not only become the world's largest quick-service restaurant organization, but has literally changed Americans' eating habitsand increasingly the habits of non-Americans as well. On an average day, more than 46 million people eat at one of the company's more than 31,000 restaurants, which are located in 119 countries on six continents. About 9,000 of the restaurants are company owned and operated; the remainder are run either by franchisees or through joint ventures with local business-people. Systemwide sales (which encompass total revenues from all three types of restaurants) totaled more than $46 billion in 2003. Nine major marketsAustralia, Brazil, Canada, China, France, Germany, Japan, the United Kingdom, and the United Statesaccount for 80 percent of the restaurants and 75 percent of overall sales. The vast majority of the company's restaurants are of the flagship McDonald's hamburger joint variety. Two other wholly owned chains, Boston Market (rotisserie chicken) and Chipotle Mexican Grill (Mexican fast casual), along with Pret A Manger (upscale prepared sandwiches), in which McDonald's owns a 33 percent stake, account for about 1,000 of the units.

Early History

In 1954 Ray Kroc, a seller of Multimixer milkshake machines, learned that brothers Richard and Maurice (Dick and Mac) McDonald were using eight of his high-tech Multimixers in their San Bernardino, California, restaurant. His curiosity was piqued, and he went to San Bernardino to take a look at the McDonalds' restaurant.

The McDonalds had been in the restaurant business since the 1930s. In 1948 they closed down a successful carhop drive-in to establish the streamlined operation Ray Kroc saw in 1954. The menu was simple: hamburgers, cheeseburgers, french fries, shakes, soft drinks, and apple pie. The carhops were eliminated to make McDonald's a self-serve operation, and there were no tables to sit at, no jukebox, and no telephone. As a result, McDonald's attracted families rather than teenagers. Perhaps the most impressive aspect of the restaurant was the efficiency with which the McDonald's workers did their jobs. Mac and Dick McDonald had taken great care in setting up their kitchen. Each worker's steps had been carefully choreographed, like an assembly line, to ensure maximum efficiency. The savings in preparation time, and the resulting increase in volume, allowed the McDonalds to lower the price of a hamburger from 30 cents to 15 cents.

Believing that the McDonald formula was a ticket to success, Kroc suggested that they franchise their restaurants throughout the country. When they hesitated to take on this additional burden, Kroc volunteered to do it for them. He returned to his home outside of Chicago with rights to set up McDonald's restaurants throughout the country, except in a handful of territories in California and Arizona already licensed by the McDonald brothers.

Kroc's first McDonald's restaurant opened in Des Plaines, Illinois, near Chicago, on April 15, 1955the same year that Kroc incorporated his company as McDonald's Corporation. As with any new venture, Kroc encountered a number of hurdles. The first was adapting the McDonald's building design to a northern climate. A basement had to be installed to house a furnace, and adequate ventilation was difficult, as exhaust fans sucked out warm air in the winter, and cool air in the summer.

Most frustrating of all, however, was Kroc's initial failure to reproduce the McDonalds' delicious french fries. When Kroc and his crew duplicated the brothers' methodleaving just a little peel for flavor, cutting the potatoes into shoestrings, and rinsing the strips in cold waterthe fries turned into mush. After repeated telephone conversations with the McDonald brothers and several consultations with the Potato and Onion Association, Kroc pinpointed the cause of the soggy spuds. The McDonald brothers stored their potatoes outside in wire bins, and the warm California breeze dried them out and cured them, slowly turning the sugars into starch. In order to reproduce the superior taste of these potatoes, Kroc devised a system using an electric fan to dry the potatoes in a similar way. He also experimented with a blanching process. Within three months he had a french fry that was, in his opinion, slightly superior in taste to the McDonald brothers' fries.

Once the Des Plaines restaurant was operational, Kroc sought franchisees for his McDonald's chain. The first snag came quickly. In 1956 he discovered that the McDonald brothers had licensed the franchise rights for Cook County, Illinois (home of Chicago and many of its suburbs) to the Frejlack Ice Cream Company. Kroc was incensed that the McDonalds had not informed him of this arrangement. He purchased the rights back for $25,000five times what the Frejlacks had originally paidand pressed forward.

Kroc decided early on that it was best to first establish the restaurants and then to franchise them out, so that he could control the uniformity of the stores. Early McDonald's restaurants were situated in the suburbs. Corner lots were usually in greater demand because gas stations and shops competed for them, but Kroc preferred lots in the middle of blocks to accommodate his U-shaped parking lots. Since these lots were cheaper, Kroc could give franchisees a price break.

McDonald's grew slowly for its first three years; by 1958 there were 34 restaurants. In 1959, however, Kroc opened 67 new restaurants, bringing the total to more than 100.

Kroc had decided at the outset that McDonald's would not be a supplier to its franchiseeshis background in sales warned him that such an arrangement could lead to lower quality for the sake of higher profits. He also had determined that the company should at no time own more than 30 percent of all McDonald's restaurants. He knew, however, that his success depended upon his franchisees' success, and he was determined to help them in any way that he could.

In 1960 the McDonald's advertising campaign "Look for the Golden Arches" gave sales a big boost. Kroc believed that advertising was an investment that would in the end come back many times over, and advertising has always played a key role in the development of the McDonald's Corporationindeed, McDonald's ads have been some of the most identifiable over the years. In 1962 McDonald's replaced its "Speedee" the hamburger man symbol with its now world-famous Golden Arches logo. A year later, the company sold its billionth hamburger and introduced Ronald McDonald, a red-haired clown with particular appeal to children.

Phenomenal Growth in the 1960s and 1970s

In the early 1960s, McDonald's really began to take off. The growth in U.S. automobile use that came with suburbanization contributed heavily to McDonald's success. In 1961 Kroc bought out the McDonald brothers for $2.7 million, aiming at making McDonald's the number one fast-food chain in the country.

In 1965 McDonald's Corporation went public. Common shares were offered at $22.50 per share; by the end of the first day's trading the price had shot up to $30. A block of 100 shares purchased for $2,250 in 1965 was worth, after 12 stock splits (increasing the number of shares to 74,360), about $1.8 million by the end of 2003. In 1985 McDonald's Corporation became one of the 30 companies that make up the Dow Jones Industrial Average.

McDonald's success in the 1960s was in large part due to the company's skillful marketing and flexible response to customer demand. In 1965 the Filet-o-Fish sandwich, billed as "the fish that catches people," was introduced in McDonald's restaurants. The new item had originally met with disapproval from Kroc, but after its successful test marketing, he eventually agreed to add it. Another item that Kroc had backed a year previously, a burger with a slice of pineapple and a slice of cheese, known as a "hulaburger," had flopped. The market was not quite ready for Kroc's taste; the hulaburger's tenure on the McDonald's menu board was short. In 1968 the now legendary Big Mac made its debut, and in 1969 McDonald's sold its five billionth hamburger. A year later, as it launched the "You Deserve a Break Today" advertising campaign, McDonald's restaurants had reached all 50 states.

Company Perspectives:

McDonald's is the world's leading food service organization. We generate more than $40 billion in Systemwide sales. We operate over 30,000 restaurants in more than 100 countries on six continents. We have the benefits that come with scale and a strong financial position. We own one of the world's most recognized and respected brands. We have an unparalleled global infrastructure and competencies in restaurant operations, real estate, retailing, marketing and franchising. We are a leader in the area of social responsibility. We actively share our knowledge and expertise in food safety and are committed to protecting the environment for future generations. Yet, we have not achieved our growth expectations for the past several years. So, our challenge is to leverage our strengths to profitably serve more customers more ways more often.

In 1968 McDonald's opened its 1,000th restaurant, and Fred Turner became the company's president and chief administrative officer. Kroc became chairman and remained CEO until 1973. Turner had originally intended to open a McDonald's franchise, but when he had problems with his backers over a location, he went to work as a grillman for Kroc in 1956. As operations vice-president, Turner helped new franchisees get their stores up and running. He was constantly looking for new ways to perfect the McDonald's system, experimenting, for example, to determine the maximum number of hamburger patties one could stack in a box without squashing them and pointing out that seconds could be saved if McDonald's used buns that were presliced all the way through and were not stuck together in the package. Such attention to detail was one reason for the company's extraordinary success.

McDonald's spectacular growth continued in the 1970s. Americans were more on-the-go than ever, and fast service was a priority. In 1972 the company passed $1 billion in annual sales; by 1976, McDonald's had served 20 billion hamburgers, and systemwide sales exceeded $3 billion.

McDonald's pioneered breakfast fast food with the introduction of the Egg McMuffin in 1973 when market research indicated that a quick breakfast would be welcomed by consumers. Five years later the company added a full breakfast line to the menu, and by 1987 one-fourth of all breakfasts eaten out in the United States came from McDonald's restaurants.

Kroc was a firm believer in giving "something back into the community where you do business." In 1974 McDonald's acted upon that philosophy in an original way by opening the first Ronald McDonald House, in Philadelphia, to provide a "home away from home" for the families of children in nearby hospitals. Twelve years after this first house opened, 100 similar Ronald McDonald Houses were in operation across the United States.

In 1975 McDonald's opened its first drive-thru window in Oklahoma City. This service gave Americans a fast, convenient way to procure a quick meal. The company's goal was to provide service in 50 seconds or less. Drive-thru sales eventually accounted for more than half of McDonald's systemwide sales. Meantime, the Happy Meal, a combo meal for children featuring a toy, was added to the menu in 1979.

Surviving the 1980s "Burger Wars"

In the late 1970s competition from other hamburger chains such as Burger King and Wendy's began to intensify. Experts believed that the fast-food industry had gotten as big as it ever would, so the companies began to battle fiercely for market share. A period of aggressive advertising campaigns and price slashing in the early 1980s became known as the "burger wars." Burger King suggested that customers "have it their way"; Wendy's offered itself as the "fresh alternative" and asked of other restaurants, "where's the beef?" But McDonald's sales and market share continued to grow. Consumers seemed to like the taste and consistency of McDonald's best.

During the 1980s McDonald's further diversified its menu to suit changing consumer tastes. Chicken McNuggets were introduced in 1983, and by the end of the year McDonald's was the second largest retailer of chicken in the world. In 1987 ready-to-eat salads were introduced to lure more health-conscious consumers. The 1980s were the fastest-paced decade yet. Efficiency, combined with an expanded menu, continued to draw customers. McDonald's, already entrenched in the suburbs, began to focus on urban centers and introduced new architectural styles. Although McDonald's restaurants no longer looked identical, the company made sure food quality and service remained constant.

Despite experts' claims that the fast-food industry was saturated, McDonald's continued to expand. The first generation raised on restaurant food had grown up. Eating out had become a habit rather than a break in the routine, and McDonald's relentless marketing continued to improve sales. Innovative promotions, such as the "when the U.S. wins, you win" giveaways during the Olympic Games in 1988, were a huge success.

In 1982 Michael R. Quinlan became president of McDonald's Corporation and Fred Turner became chairman. Quinlan, who took over as CEO in 1987, had started at McDonald's in the mailroom in 1963, and gradually worked his way up. The first McDonald's CEO to hold an M.B.A. degree, Quinlan was regarded by his colleagues as a shrewd competitor. In his first year as CEO the company opened 600 new restaurants.

Key Dates:

1948:
Richard and Maurice McDonald open the first McDonald's restaurant in San Bernardino, California.
1954:
Ray Kroc gains the rights to set up McDonald's restaurants in most of the country.
1955:
Kroc opens his first McDonald's restaurant in Des Plaines, Illinois; he incorporates his company as McDonald's Corporation.
1960:
The slogan, "Look for the Golden Arches," is used in an advertising campaign.
1961:
Kroc buys out the McDonald brothers for $2.7 million.
1963:
Ronald McDonald makes his debut.
1965:
McDonald's goes public.
1967:
The company opens its first foreign restaurant in British Columbia, Canada.
1968:
The Big Mac is added to the menu.
1973:
Breakfast items begin to appear on the menu, with the debut of the Egg McMuffin.
1974:
The first Ronald McDonald House opens in Philadelphia.
1975:
The first McDonald's drive-thru window appears.
1979:
The children's Happy Meal makes its debut.
1983:
Chicken McNuggets are introduced.
1985:
McDonald's becomes one of the 30 companies that make up the Dow Jones Industrial Average.
1998:
The company takes its first stake in another fast-food chain, buying a minority interest in Colorado-based Chipotle Mexican Grill.
1999:
Donatos Pizza Inc. is acquired.
2000:
McDonald's buys the bankrupt Boston Market chain.
2002:
Restructuring charges of $853 million result in the firm's first quarterly loss since going public.
2003:
McDonald's sells Donatos in order to refocus on its core hamburger business.

McDonald's growth in the United States was mirrored by its stunning growth abroad. By 1991, 37 percent of systemwide sales came from restaurants outside the United States. McDonald's opened its first foreign restaurant in British Columbia, Canada, in 1967. By the early 1990s the company had established itself in 58 foreign countries and operated more than 3,600 restaurants outside the United States, through wholly owned subsidiaries, joint ventures, and franchise agreements. Its strongest foreign markets were Japan, Canada, Germany, Great Britain, Australia, and France.

In the mid-1980s, McDonald's, like other traditional employers of teenagers, was faced with a shortage of labor in the United States. The company met this challenge by being the first to entice retirees back into the workforce. McDonald's placed great emphasis on effective training. It opened its Hamburger University in 1961 to train franchisees and corporate decision-makers. By 1990, more than 40,000 people had received "Bachelor of Hamburgerology" degrees from the 80-acre Oak Brook, Illinois, facility. The corporation opened a Hamburger University in Tokyo in 1971, in Munich in 1975, and in London in 1982.

Braille menus were first introduced in 1979, and picture menus in 1988. In March 1992 Braille and picture menus were reintroduced to acknowledge the 37 million Americans with vision, speech, or hearing impairments.

Quinlan continued to experiment with new technology and to research new markets to keep McDonald's in front of its competition. Clamshell fryers, which cooked both sides of a hamburger simultaneously, were tested. New locations such as hospitals and military bases were tapped as sites for new restaurants. In response to the increase in microwave oven usage, McDonald's, whose name is the single most advertised brand name in the world, stepped up advertising and promotional expenditures stressing that its taste was superior to quick-packaged foods.

McRecycle USA began in 1990 and included a commitment to purchase at least $100 million worth of recycled products annually for use in construction, remodeling, and equipping restaurants. Chairs, table bases, table tops, eating counters, table columns, waste receptacles, corrugated cartons, packaging, and washroom tissue were all made from recycled products. McDonald's worked with the U.S. Environmental Defense Fund to develop a comprehensive solid waste reduction program. Wrapping burgers in paper rather than plastic led to a 90 percent reduction in the wrapping material waste stream.

1990s Growing Pains

It took McDonald's 33 years to open its first 10,000 restaurantsthe 10,000th unit opened in April 1988. Incredibly, the company reached the 20,000-restaurant mark in only eight more years, in mid-1996. By the end of 1997 the total had surpassed 23,000by that time McDonald's was opening 2,000 new restaurants each yearan average of one every five hours.

Much of the growth of the 1990s came outside the United States, with international units increasing from about 3,600 in 1991 to more than 11,000 by 1998. The number of countries with McDonald's outlets nearly doubled from 59 in 1991 to 114 in late 1998. In 1993 a new region was added to the empire when the first McDonald's in the Middle East opened in Tel Aviv, Israel. As the company entered new markets, it showed increasing flexibility with respect to local food preferences and customs. In Israel, for example, the first kosher McDonald's opened in a Jerusalem suburb in 1995. In Arab countries the restaurant chain used "Halal" menus, which complied with Islamic laws for food preparation. In 1996 McDonald's entered India for the first time, where it offered a Big Mac made with lamb called the Maharaja Mac. That same year the first McSki-Thru opened in Lindvallen, Sweden.

Overall, the company derived increasing percentages of its revenue and income from outside the United States. In 1992 about two-thirds of systemwide sales came out of U.S. McDonald's, but by 1997 that figure was down to about 51 percent. Similarly, the operating income numbers showed a reduction from about 60 percent derived from the United States in 1992 to 42.5 percent in 1997.

In the United States, where the number of units grew from 9,000 in 1991 to 12,500 in 1997an increase of about 40 percentthe growth was perhaps excessive. Although the additional units increased market share in some markets, a number of franchisees complained that new units were cannibalizing sales from existing ones. Same-store sales for outlets open for more than one year were flat in the mid-1990s, a reflection of both the greater number of units and the mature nature of the U.S. market.

It did not help that the company made several notable blunders in the United States in the 1990s. The McLean Deluxe sandwich, which featured a 91 percent fat-free beef patty, was introduced in 1991, never really caught on, and was dropped from the menu in 1996. Several other 1990s-debuted menu itemsincluding fried chicken, pasta, fajitas, and pizzafailed as well. The "grown-up" (and pricey) Arch Deluxe sandwich and the Deluxe Line were launched in 1996 in a $200 million campaign to gain the business of more adults, but were bombs. The following spring brought a 55-cent Big Mac promotion, which many customers either rejected outright or were confused by because the burgers had to be purchased with full-priced fries and a drink. The promotion embittered still more franchisees, whose complaints led to its withdrawal. In July 1997 McDonald's fired its main ad agencyLeo Burnett, a 15-year McDonald's partnerafter the nostalgic "My McDonald's" campaign proved a failure. A seemingly weakened McDonald's was the object of a Burger King offensive when the rival fast-food maker launched the Big King sandwich, a Big Mac clone. Meanwhile, internal taste tests revealed that customers preferred the fare at Wendy's and Burger King.

In response to these difficulties, McDonald's drastically cut back on its U.S. expansionin contrast to the 1,130 units opened in 1995, only about 400 new McDonald's were built in 1997. Plans to open hundreds of smaller restaurants in Wal-Marts and gasoline stations were abandoned because test sites did not meet targeted goals. Reacting to complaints from franchisees about poor communication with the corporation and excess bureaucracy, the head of McDonald's U.S.A. (Jack Greenberg, who had assumed the position in October 1996) reorganized the unit into five autonomous geographic divisions. The aim was to bring management and decision-making closer to franchisees and customers.

On the marketing side, McDonald's scored big in 1997 with a Teenie Beanie Baby promotion in which about 80 million of the toys/collectibles were gobbled up virtually overnight. The chain received some bad publicity, however, when it was discovered that a number of customers purchased Happy Meals just to get the toys and threw the food away. For a similar spring 1998 Teenie Beanie giveaway, the company altered the promotion to allow patrons to buy menu items other than kids' meals. McDonald's also began to benefit from a ten-year global marketing alliance signed with Disney in 1996. Initial Disney movies promoted by McDonald's included 101 Dalmatians, Flubber, Mulan, Armageddon, and A Bug's Life. Perhaps the most important marketing move came in the later months of 1997 when McDonald's named BDD Needham as its new lead ad agency. Needham had been the company's agency in the 1970s and was responsible for the hugely successful "You Deserve a Break Today" campaign. Late in 1997 McDonald's launched the Needham-designed "Did Somebody Say McDonald's?" campaign, which appeared to be an improvement over its predecessors.

A Failed Turnaround: Late 1990s and Early 2000s

Following the difficulties of the early and mid-1990s, several moves in 1998 seemed to indicate a reinvigorated McDonald's. In February the company for the first time took a stake in another fast-food chain when it purchased a minority interest in the 16-unit, Colorado-based Chipotle Mexican Grill chain. The following month came the announcement that McDonald's would improve the taste of several sandwiches and introduce several new menu items; McFlurry dessertsdeveloped by a Canadian franchiseeproved popular when launched in the United States in the summer of 1998. McDonald's that same month said that it would overhaul its food preparation system in every U.S. restaurant. The new just-in-time system, dubbed "Made for You," was in development for a number of years and aimed to deliver to customers "fresher, hotter food"; enable patrons to receive special-order sandwiches (a perk long offered by rivals Burger King and Wendy's); and allow new menu items to be more easily introduced thanks to the system's enhanced flexibility. The expensive changeover was expected to cost about $25,000 per restaurant, with McDonald's offering to pay for about half of the cost; the company planned to provide about $190 million in financial assistance to its franchisees before implementation was completed by year-end 1999.

In May 1998 Greenberg was named president and CEO of McDonald's Corporation, with Quinlan remaining chairman; at the same time Alan D. Feldman, who had joined the company only four years earlier from Pizza Hut, replaced Greenberg as president of McDonald's U.S.A.an unusual move for a company whose executives typically were long-timers. The following month brought another firstMcDonald's first job cutsas the company said it would eliminate 525 employees from its headquarters staff, a cut of about 23 percent. In the second quarter of 1998 McDonald's took a $160 million charge in relation to the cuts. As a result, the company, for the first time since it went public in 1965, recorded a decrease in net income, from $1.64 billion in 1997 to $1.55 billion in 1998.

McDonald's followed up its investment in Chipotle with several more moves beyond the burger business. In March 1999 the company bought Aroma Café, a U.K. chain of 23 upscale coffee and sandwich shops. In July of that year McDonald's added Donatos Pizza Inc., a midwestern chain of 143 pizzerias based in Columbus, Ohio. Donatos had 1997 revenues of $120 million. Also in 1999, McDonald's 25,000th unit opened, Greenberg took on the additional post of chairman, and Jim Cantalupo was named company president. Cantalupo, who had joined the company as controller in 1974 and later became head of McDonald's International, had been vice-chairman, a position he retained. In May 2000 McDonald's completed its largest acquisition yet, buying the bankrupt Boston Market chain for $173.5 million in cash and debt. At the time, there were more than 850 Boston Market outlets, which specialized in home-style meals, with rotisserie chicken the lead menu item. Revenue at Boston Market during 1999 totaled $670 million. McDonald's rounded out its acquisition spree in early 2001 by buying a 33 percent stake in Pret A Manger, an upscale urban-based chain specializing in ready-to-eat sandwiches made on the premises. There were more than 110 Pret shops in the United Kingdom and several more in New York City. Also during 2001, McDonald's sold off Aroma Café and took its McDonald's Japan affiliate public, selling a minority stake through an initial public offering.

As it was exploring new avenues of growth, however, McDonald's core hamburger chain had become plagued by problems. Most prominently, the Made for You system backfired. Although many franchisees believed that it succeeded in improving the quality of the food, it also increased service times and proved labor-intensive. Some franchisees also complained that the actual cost of implementing the system ran much higher than the corporation had estimated, a charge that McDonald's contested. In any case, there was no question that Made for You failed to reverse the chain's sluggish sales. Growth in sales at stores open more than a year (known as same-store sales) fell in both 2000 and 2001. Late in 2001 the company launched a restructuring involving the elimination of about 850 positions, 700 of which were in the United States, and some store closings.

There were further black eyes as well. 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 percent vegetable oil. McDonald's soon apologized for any "confusion" that had been caused by its use of the beef flavoring, and in mid-2002 it reached a settlement in the litigation, agreeing to donate $10 million to Hindu, vegetarian, and other affected groups. Also in 2001, further embarrassment came when 51 people were charged with conspiring to rig McDonald's game promotions over the course of several years. It was revealed that $24 million 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.

McDonald's also had to increasingly battle its public image as a purveyor of fatty, unhealthful food. Consumers began filing lawsuits contending that years of eating at McDonald's had made them overweight. McDonald's responded by introducing low-calorie menu items and switching to a more healthful cooking oil for its french fries. McDonald's franchises overseas became a favorite target of people and groups expressing anti-American and/or antiglobalization sentiments. In August 1999 a group of protesters led by farmer José Bové destroyed a half-built McDonald's restaurant in Millau, France. In 2002 Bové, who gained fame from the incident, served a three-month jail sentence for the act, which he said was in protest against U.S. trade protectionism. McDonald's was also one of three multinational corporations (along with Starbucks Corporation and Nike, Inc.) whose outlets in Seattle were attacked in late 1999 by some of the more aggressive protesters against a World Trade Organization (WTO) meeting taking place there. In the early 2000s McDonald's pulled out of several countries, including Bolivia and two Middle Eastern nations, at least in part because of the negative regard with which the brand was held in some areas.

Early in 2002 Cantalupo retired after 28 years of service. Sales remained lackluster that year, and in October the company attempted to revive U.S. sales through the introduction of a low-cost Dollar Menu. In December 2002, after this latest initiative to reignite sales growth failedand also after profits fell in seven of the previous eight quartersGreenberg announced that he would resign at the end of the year. Cantalupo came out of retirement to become chairman and CEO at the beginning of 2003.

Launching of Revitalization Plan Under New Leadership in 2003

Cantalupo started his tenure by announcing a major restructuring that involved the closure of more than 700 restaurants (mostly in the United States and Japan), the elimination of 600 jobs, and charges of $853 million. The charges resulted in a fourth-quarter 2002 loss of $343.8 millionthe first quarterly loss in McDonald's 38 years as a public company. The new CEO also shifted away from the company's traditional reliance on growth through the opening of new units to a focus on gaining more sales from existing units. To that end, several new menu items were successfully launched, including entree salads, McGriddles breakfast sandwiches (which used pancakes in place of bread), and white-meat Chicken McNuggets. Some outlets began test-marketing fruits and vegetables as Happy Meal options. Backing up the new products was the launch in September 2003 of an MTV-style advertising campaign featuring the new tag line, "I'm lovin' it." This was the first global campaign in McDonald's history, as the new slogan was to be used in advertising in more than 100 countries. It also proved to be the first truly successful ad campaign in years; sales began rebounding, helped also by improvements in service. In December 2003, for instance, same-store sales increased 7.3 percent. Same-store sales rose 2.4 percent for the entire year, after falling 2.1 percent in 2002.

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 the United States. This included Boston Market outlets in Canada and Australia and Donatos units in Germany. McDonald's kept its minority investment in Pret A Manger, but McDonald's Japan was 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 the United States to Chipotle and Boston Market, both of which were operating in the black.

McDonald's continued to curtail store openings in 2004 and to concentrate on building business at existing restaurants. Much of the more than $1.5 billion budgeted for capital expenditures in 2004 was slated to be used to remodel existing restaurants. McDonald's also aimed to pay down debt by $400 million to $700 million and to return approximately $1 billion to shareholders through dividends and share repurchases. Cantalupo also set several long-term goals, such as sustaining annual systemwide sales and revenue growth rates of 3 to 5 percent. In a move to both simplify the menu and make its offerings less fattening, McDonald's announced in March 2004 that it would phase out Super Size french fries and soft drinks by the end of the year.

Principal Subsidiaries

McDonald's Deutschland, Inc.; McDonald's Restaurant Operations Inc.; McG Development Co.; Chipotle Mexican Grill, Inc.; Boston Market Corporation; McDonald's Franchise GmbH (Austria); McDonald's Australia Limited; McDonald's France, S.A.; MDC Inmobiliaria de Mexico S.A. de C.V.; McDonald's Restaurants Pte., Ltd. (Singapore); Restaurantes McDonald's S.A. (Spain); McKim Company Ltd. (South Korea); Shin Mac Company Ltd. (South Korea); McDonald's Nederland B.V. (Netherlands); Moscow-McDonald's (Canada); McDonald's Restaurants Limited (U.K.).

Principal Competitors

Burger King Corporation; Wendy's International, Inc.; CKE Restaurants, Inc.; Jack in the Box Inc.; Sonic Corporation; Checkers Drive-In Restaurants, Inc.; White Castle System, Inc.; Whataburger, Inc.; YUM! Brands, Inc.; Doctor's Associates Inc.

Further Reading

Alexander, Delroy, "McDonald's Chief to End Rocky Tenure Years Early," Chicago Tribune, December 6, 2002.

, "McDonald's Focus Flips Back to Fast," Chicago Tribune, March 16, 2003.

Arndt, Michael, "Did Somebody Say McBurrito?," Business Week, April 10, 2000, pp. 166, 170.

Bigness, Jon, "Getting McDonald's Sizzling Again," Chicago Tribune, August 30, 1998.

Branch, Shelly, "McDonald's Strikes Out with Grownups," Fortune, November 11, 1996, pp. 157+.

, "What's Eating McDonald's?," Fortune, October 13, 1997, pp. 122+.

Burns, Greg, "Fast-Food Fight," Business Week, June 2, 1997, pp. 3436.

Byrne, Harlan S., "Welcome to McWorld," Barron's, August 29, 1994, pp. 2528.

Canedy, Dana, "McDonald's Burger War Salvo," New York Times, June 20, 1998, pp. D1, D15.

Chiem, Phat X, "Putting the Sizzle Back in McDonald's," Chicago Tribune, April 16, 2000.

Cohon, George, with David Macfarlane, To Russia with Fries, Toronto: M & S, 1997.

David, Grainger, "Can McDonald's Cook Again?," Fortune, April 14, 2003, pp. 12024+.

Donlon, J.P., "Quinlan Fries Harder," Chief Executive, January/February 1998, pp. 4549.

Forster, Julie, "Thinking Outside the Burger Box," Business Week, September 16, 2002, pp. 6667.

Gibson, Richard, "McDonald's Makes Changes in Top Management," Wall Street Journal, May 1, 1998, pp. A3, A4.

, "Some Franchisees Say Moves by McDonald's Hurt Their Operations," Wall Street Journal, April 17, 1996, pp. A1, A10.

, "Worried McDonald's Plans Dramatic Shifts and Big Price Cuts," Wall Street Journal, February 26, 1997, pp. A1, A6.

Gibson, Richard, and Bruce Orwell, "New Mission for Mickey Mouse, Mickey D," Wall Street Journal, March 5, 1998, pp. B1, B5.

Gogoi, Pallavi, and Michael Arndt, "Hamburger Hell," Business Week, March 3, 2003, pp. 10406, 108.

Kroc, Ray, with Robert Anderson, Grinding It Out: The Making of McDonald's, Chicago: H. Regnery, 1977.

Leonhardt, David, "McDonald's: Can It Regain Its Golden Touch?," Business Week, March 9, 1998, pp. 7074, 7677.

Leonhardt, David, and Ann Therese Palmer, "Getting Off Their McButts," Business Week, February 22, 1999, pp. 84, 88.

Leung, Shirley, "McDonald's Makeover," Wall Street Journal, January 18, 2004, pp. B1, B10.

Leung, Shirley, and Kevin Helliker, "As McDonald's Braces for Loss, CEO Has a Plan," Wall Street Journal, January 20, 2003, p. B1.

Love, John F., McDonald's: Behind the Arches, rev. ed., New York: Bantam, 1995.

Machan, Dyan, "Polishing the Golden Arches," Forbes, June 15, 1998, pp. 4243.

Papiernik, Richard L., "Mac Attack?," Financial World, April 12, 1994, pp. 2830.

Racanelli, Vito J., "Recipe for Growth," Barron's, December 11, 2000, pp. 1920.

Sachdev, Ameet, and Jim Kirk, "No Retreat for Greenberg," Chicago Tribune, August 26, 2001.

Sellers, Patricia, "McDonald's Starts Over," Fortune, June 22, 1998, pp. 34, 36.

Serwer, Andrew E., "McDonald's Conquers the World," Fortune, October 17, 1994, pp. 103+.

Stires, David, "Fallen Arches," Fortune, April 29, 2002, pp. 7476.

Watson, James L., ed., Golden Arches East: McDonald's in East Asia, Stanford: Stanford University Press, 1997.

Tom Tucker

updates: Anne C. Hughes, David E. Salamie

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McDonald’s Corporation

McDonalds Corporation

McDonalds Plaza
Oak Brook, Illinois 60523
U.S.A.
(630) 623-3000
Fax: (630) 623-5004
Web site:http://www.mcdonalds.com

Public Company
Incorporated: 1955
Employees: 267,000
Sales: $11.41 billion (1997)
Stock Exchanges: New York Midwest Frankfurt Munich
Paris Tokyo Zurich Geneva Basel
Ticker Symbol: MCD
SICs: 5812 Eating Places

Since its incorporation in 1955, McDonalds Corporation has not only become the worlds largest quick-service restaurant organization, but has literally changed Americans eating habits. On any given day, about eight percent of the U.S. population will eat a meal at a McDonalds restaurant; in a year, 96 percent of Americans will visit a McDonalds. The company stands head and shoulders above its competition, commanding by far the leading share42 percentof the U.S. fast-food market (Burger King is number two with 19 percent). Internationally, McDonalds runs more than 23,500 restaurants in 114 countries. Eleven major marketsAustralia, Brazil, Canada, England, France, Germany, Hong Kong, Japan, the Netherlands, Taiwan, and the United Statesaccount for 87 percent of overall sales and 92 percent of operating income. McDonalds growth is best described as phenomenal; McDonalds has recorded increases in revenues, income, and earnings per share every quarter since it went public in 1965.

Early History

In 1954 Ray Kroc, a seller of Multimixer milkshake machines, learned that brothers Richard and Maurice (Dick and Mac) McDonald were using eight of his high-tech Multimixers in their San Bernardino, California, restaurant. His curiosity was piqued, and he went to San Bernardino to take a look at the McDonalds restaurant.

The McDonalds had been in the restaurant business since the 1930s. In 1948 they closed down a successful carhop drive-in to establish the streamlined operation Ray Kroc saw in 1954. The menu was simple: hamburgers, cheeseburgers, french fries, shakes, soft drinks, and apple pie. The carhops were eliminated to make McDonalds a self-serve operation, and there were no tables to sit at, no jukebox, and no telephone. As a result, McDonalds attracted families rather than teenagers. Perhaps the most impressive aspect of the restaurant was the efficiency with which the McDonalds workers did their jobs. Mac and Dick McDonald had taken great care in setting up their kitchen. Each workers steps had been carefully choreographed, like an assembly line, to ensure maximum efficiency. The savings in preparation time, and the resulting increase in volume, allowed the McDonalds to lower the price of a hamburger from 30 cents to 15 cents.

Believing that the McDonald formula was a ticket to success, Kroc suggested that they franchise their restaurants throughout the country. When they hesitated to take on this additional burden, Kroc volunteered to do it for them. He returned to his home outside of Chicago with rights to set up McDonalds restaurants throughout the country, except in a handful of territories in California and Arizona already licensed by the McDonald brothers.

Krocs first McDonalds restaurant opened in Des Plaines, Illinois, near Chicago, on April 15, 1955. As with any new venture, Kroc encountered a number of hurdles. The first was adapting the McDonalds building design to a northern climate. A basement had to be installed to house a furnace, and adequate ventilation was difficult, as exhaust fans sucked out warm air in the winter, and cool air in the summer.

Most frustrating of all, however, was Krocs initial failure to reproduce the McDonalds delicious french fries. When Kroc and his crew duplicated the brothers methodleaving just a little peel for flavor, cutting the potatoes into shoestrings, and rinsing the strips in cold waterthe fries turned into mush. After repeated telephone conversations with the McDonald brothers and several consultations with the Potato and Onion Association, Kroc pinpointed the cause of the soggy spuds. The McDonald brothers stored their potatoes outside in wire bins, and the warm California breeze dried them out and cured them, slowly turning the sugars into starch. In order to reproduce the superior taste of these potatoes, Kroc devised a system using an electric fan to dry the potatoes in a similar way. He also experimented with a blanching process. Within three months he had a french fry that was, in his opinion, slightly superior in taste to the McDonald brothers fries.

Once the Des Plaines restaurant was operational, Kroc sought franchisees for his McDonalds chain. The first snag came quickly. In 1956 he discovered that the McDonald brothers had licensed the franchise rights for Cook County, Illinois (home of Chicago and many of its suburbs) to the Frejlack Ice Cream Company. Kroc was incensed that the McDonalds had not informed him of this arrangement. He purchased the rights back for $25,000five times what the Frejlacks had originally paidand pressed on.

Kroc decided early on that it was best to first establish the restaurants and then to franchise them out, so that he could control the uniformity of the stores. Early McDonalds restaurants were situated in the suburbs. Corner lots were usually in greater demand because gas stations and shops competed for them, but Kroc preferred lots in the middle of blocks to accommodate his U-shaped parking lots. Since these lots were cheaper, Kroc could give franchisees a price break.

McDonalds grew slowly for its first three years; by 1958 there were 34 restaurants. In 1959, however, Kroc opened 67 new restaurants, bringing the total to more than 100.

Kroc had decided at the outset that McDonalds would not be a supplier to its franchiseeshis background in sales warned him that such an arrangement could lead to lower quality for the sake of higher profits. He had also determined that the company should at no time own more than 30 percent of all McDonalds restaurants. He knew, however, that his success depended upon his franchisees success, and he was determined to help them in any way that he could.

In 1960 McDonalds advertising campaign, Look for the golden arches, gave sales a big boost. Kroc believed that advertising was an investment that would in the end come back many times over, and advertising has always played a key role in the development of the McDonalds Corporationindeed, McDonalds ads have been some of the most identifiable over the years. In 1962 McDonalds replaced its Speedee the hamburger man symbol with its now world-famous golden arches logo. A year later, the company sold its billionth hamburger.

Phenomenal Growth in the 1960s and 1970s

In the early 1960s, McDonalds really began to take off. The growth in U.S. automobile use that came with suburbanization contributed heavily to McDonalds success. In 1961 Kroc bought out the McDonald brothers for $2.7 million, aiming at making McDonalds the number one fast-food chain in the country.

In 1965 McDonalds Corporation went public. Common shares were offered at $22.50 per share; by the end of the first days trading the price had shot up to $30. A block of 100 shares purchased for $2,250 in 1965 was worth, after 11 stock splits, about $1.8 million in 1997. McDonalds Corporation is now one of the 30 companies that make up the Dow Jones Industrial Average.

McDonalds success in the 1960s was largely due to the companys successful marketing and flexible response to customer demand. In 1965 the Filet-o-Fish sandwich, billed as the fish that catches people, was introduced in McDonalds restaurants. The new item had originally met with disapproval from Kroc, but after its successful test marketing, he eventually agreed to add it. Another item that Kroc had backed a year previously, a burger with a slice of pineapple and a slice of cheese known as a hulaburger, had flopped. The market was not quite ready for Krocs taste; the hulaburgers tenure on the McDonalds menu board was short. In 1968 the now legendary Big Mac made its debut, and in 1969 McDonalds sold its five-billionth hamburger. A year later, as it launched the You Deserve a Break Today advertising campaign, McDonalds restaurants had reached all 50 states.

In 1968 McDonalds opened its 1,000th restaurant, and Fred Turner became the companys president and chief administrative officer. Kroc became chairman and remained CEO until 1973. Turner had originally intended to open a McDonalds franchise, but when he had problems with his backers over a location, he went to work as a grillman for Kroc in 1956. As operations vice-president, Turner helped new franchisees get their stores set up and running. He was constantly looking for new ways to perfect the McDonalds system, experimenting, for example, to determine the maximum number of hamburger patties one could stack in a box without squashing them and pointing out that seconds could be saved if McDonalds used buns that were presliced all the way through and werent stuck together in the package. Such attention to detail was one reason for the companys extraordinary success.

Company Perspectives:

With more than 23,000 restaurants in over 100 countries, our global market potential is enormous. On any day, even as the market leader, McDonalds serves less than one percent of the worlds population. Our outstanding brand recognition, experienced management, high-quality food, site development expertise, advanced operational systems and unique global infrastructure position us to capitalize on global opportunities. We plan to expand our leadership position through convenience, superior value and excellent operations.

McDonalds spectacular growth continued in the 1970s. Americans were more on-the-go than ever, and fast service was a priority. In 1972 the company passed $1 billion in annual sales; by 1976, McDonalds had served 20 billion hamburgers, and systemwide sales exceeded $3 billion.

McDonalds pioneered breakfast fast food with the introduction of the Egg McMuffin in 1973 when market research indicated that a quick breakfast would be welcomed by consumers. Five years later the company added a full breakfast line to the menu, and by 1987 one-fourth of all breakfasts eaten out in the United States came from McDonalds restaurants.

Kroc was a firm believer in giving something back into the community where you do business. In 1974 McDonalds acted upon that philosophy in an original way by opening the first Ronald McDonald House, in Philadelphia, to provide a home away from home for the families of children in nearby hospitals. Twelve years after this first house opened, 100 similar Ronald McDonald Houses were in operation across the United States.

In 1975 McDonalds opened its first drive-thru window in Oklahoma City. This service gave Americans a fast, convenient way to get a quick meal. The companys goal was to provide service in 50 seconds or less. Drive-thru sales eventually accounted for more than half of McDonalds systemwide sales.

Survived 1980s Burger Wars

In the late 1970s competition from other hamburger chains such as Burger King and Wendys began to intensify. Experts believed that the fast-food industry had gotten as big as it ever would, so the companies began to battle fiercely for market share. A period of aggressive advertising campaigns and price slashing in the early 1980s became known as the burger wars. Burger King suggested that customers have it their way; Wendys offered itself as the fresh alternative and asked of other restaurants, wheres the beef? But McDonalds sales and market share continued to grow. Consumers seemed to like the taste and consistency of McDonalds best.

During the 1980s McDonalds further diversified its menu to suit changing consumer tastes. Chicken McNuggets were introduced in 1983, and by the end of the year McDonalds was the second largest retailer of chicken in the world. In 1987 ready-to-eat salads were introduced to lure more health-conscious consumers. The 1980s were the fastest-paced decade yet. Efficiency, combined with an expanded menu, continued to draw customers. McDonalds, already entrenched in the suburbs, began to focus on urban centers and introduced new architectural styles. Though McDonalds restaurants no longer looked identical, the company made sure food quality and service remained constant.

Despite experts claims that the fast-food industry was saturated, McDonalds continued to expand. The first generation raised on restaurant food had grown up. Eating out had become a habit rather than a break in the routine, and McDonalds relentless marketing continued to improve sales. Innovative promotions, such as the when the U.S. wins, you win giveaways during the Olympic games in 1988, were a huge success.

In 1982 Michael R. Quinlan became president of McDonalds Corporation and Fred Turner became chairman. Quinlan, who took over as CEO in 1987, had started at McDonalds in the mailroom in 1963, and gradually worked his way up. The first McDonalds CEO to hold an M.B.A. degree, Quinlan was regarded by his colleagues as a shrewd competitor. In his first year as CEO the company opened 600 new restaurants.

McDonalds growth in the United States was mirrored by its stunning growth abroad. By 1991, 37 percent of systemwide sales came from restaurants outside of the United States. McDonalds opened its first foreign restaurant in British Columbia, Canada, in 1967. By the early 1990s the company had established itself in 58 foreign countries and operated more than 3,600 restaurants outside of the United States, through wholly owned subsidiaries, joint ventures, and franchise agreements. Its strongest foreign markets were Japan, Canada, Germany, Great Britain, Australia, and France.

In the mid-1980s, McDonalds, like other traditional employers of teenagers, was faced with a shortage of labor in the United States. The company met this challenge by being the first to entice retirees back into the workforce. McDonalds has always placed great emphasis on effective training. It opened its Hamburger University in 1961 to train franchisees and corporate decision-makers. By 1990, more than 40,000 people had received Bachelor of Hamburgerology degrees from the 80-acre Oak Brook, Illinois, facility. The corporation opened a Hamburger University in Tokyo in 1971, in Munich in 1975, and in London in 1982.

Braille menus were first introduced in 1979, and picture menus in 1988. In March 1992 Braille and picture menus were reintroduced to acknowledge the 37 million Americans with vision, speech, or hearing impairments.

Quinlan continued to experiment with new technology and to research new markets to keep McDonalds in front of its competition. Clamshell fryers, which cooked both sides of a hamburger simultaneously, were tested. New locations such as hospitals and military bases were tapped as sites for new restaurants. In response to the increase in microwave oven usage, McDonalds, whose name is the single most advertised brand name in the world, stepped up advertising and promotional expenditures stressing that its taste was superior to quick-packaged foods.

McRecycle USA began in 1990 and included a commitment to purchase at least $100 million worth of recycled products annually for use in construction, remodeling, and equipping restaurants. Chairs, table bases, table tops, eating counters, table columns, waste receptacles, corrugated cartons, packaging, and washroom tissue were all made from recycled products. McDonalds worked with the U.S. Environmental Defense Fund to develop a comprehensive solid waste reduction program. Wrapping burgers in paper rather than plastic led to a 90 percent reduction in the wrapping material waste stream.

1990s Growing Pains

It took McDonalds 33 years to open its first 10,000 restaurantsthe 10,000th unit opened in April 1988. Incredibly, the company reached the 20,000-restaurant mark in only eight more years, in mid-1996. By the end of 1997 the total had surpassed 23,000by that time McDonalds was opening 2,000 new restaurants each yearan average of one every five hours.

Much of the growth of the 1990s came outside the United States, with international units increasing from about 3,600 in 1991 to more than 11,000 by 1998. The number of countries with McDonalds outlets nearly doubled from 59 in 1991 to 114 in late 1998. In 1993 a new region was added to the empire when the first McDonalds in the Middle East opened in Tel Aviv, Israel. As the company entered new markets, it showed increasing flexibility with respect to local food preferences and customs. In Israel, for example, the first kosher McDonalds opened in a Jerusalem suburb in 1995. In Arab countries the restaurant chain used Halal menus, which complied with Islamic laws for food preparation. In 1996 McDonalds entered India for the first time, where it offered a Big Mac made with lamb called the Maharaja Mac. That same year the first Mc-Ski-Thru opened in Lindvallen, Sweden.

Overall, the company derived increasing percentages of its revenue and income from outside the United States. In 1992 about two-thirds of system wide sales came out of U.S. McDonalds, but by 1997 that figure was down to about 51 percent. Similarly, the operating income numbers showed a reduction from about 60 percent derived from the United States in 1992 to 42.5 percent in 1997.

In the United States, where the number of units grew from 9,000 in 1991 to 12,500 in 1997an increase of about 40 percentthe growth was perhaps excessive. Although the additional units increased market share in some markets, a number of franchisees complained that new units were cannibalizing sales from existing ones. Same-store sales for outlets open for more than one year were flat in the mid-1990s, a reflection of both the greater number of units and the mature nature of the U.S. market.

It did not help that the company made several notable blunders in the United States in the 1990s. The McLean Deluxe sandwich, which featured a 91 percent fat-free beef patty, was introduced in 1991, never really caught on, and was dropped from the menu in 1996. Several other 1990s-debuted menu itemsincluding fried chicken, pasta, fajitas, and pizzafailed as well. The grown-up (and pricey) Arch Deluxe sandwich and the Deluxe Line were launched in 1996 in a $200 million campaign to gain the business of more adults, but were bombs. The following spring brought a 55-cent Big Mac promotion, which many customers either rejected outright or were confused by because the burgers had to be purchased with full-priced fries and a drink. The promotion embittered still more franchisees, whose complaints led to its withdrawal. In July 1997 McDonalds fired its main ad agencyLeo Burnett, a 15-year McDonalds partnerafter the nostalgic My McDonalds campaign proved a failure. A seemingly weakened McDonalds was the object of a Burger King offensive when the rival fast-food maker launched the Big King sandwich, a Big Mac clone. Meanwhile, internal taste tests revealed that customers preferred the fare at Wendys and Burger King.

Late 1990s Comeback?

In response to these difficulties, McDonalds drastically cut back on its U.S. expansionin contrast to the 1,130 units opened in 1995, only about 400 new McDonalds were built in 1997. Plans to open hundreds of smaller restaurants in Wai-Marts and gasoline stations were abandoned since test sites did not meet targeted goals. Reacting to complaints from franchisees about poor communication with the corporation and excess bureaucracy, the head of McDonalds U.S.A. (Jack Greenberg, who had assumed the position in October 1996) reorganized the unit into five autonomous geographic divisions. The aim was to bring management and decision-making closer to franchisees and customers.

On the marketing side, McDonalds scored big in 1997 with a Teenie Beanie Baby promotion in which about 80 million of the toys/collectibles were gobbled up virtually overnight. The chain received some bad publicity, however, when it was discovered that a number of customers purchased Happy Meals just to get the toys and threw the food away. For a similar spring 1998 Teenie Beanie giveaway, the company altered the promotion to allow patrons to buy menu items other than kids meals. McDonalds also began to benefit from a 10-year global marketing alliance signed with Disney in 1996. Initial Disney movies promoted by McDonalds included 101 Dalmatians, Flubber, Mulan, Armageddon, and A Bugs Life. Perhaps the most important marketing move came in the later months of 1997 when McDonalds named BDD Needham as its new lead ad agency. Needham had been the companys agency in the 1970s and was responsible for the hugely successful You Deserve a Break Today campaign. Late in 1997 McDonalds launched the Needham-designed Did Somebody Say McDonalds? campaign, which appeared to be an improvement over its predecessors.

Following the difficulties of the early and mid-1990s, the late 1990s were perhaps shaping up as transition years for a corporate turnaround. Several moves in 1998 seemed to indicate a reinvigorated McDonalds. In February the company for the first time took a stake in another fast-food chain when it purchased a minority interest in the 16-unit, Colorado-based Chipotle Mexican Grill chain. The following month came the announcement that McDonalds would improve the taste of several sandwiches and introduce several new menu items; McFlurry dessertsdeveloped by a Canadian franchiseeproved popular when launched in the United States in the summer of 1998. McDonalds that same month said that it would overhaul its food preparation system in every U.S. restaurant. The new just-in-time system, dubbed Made for You, was in development for a number of years and aimed to deliver to customers fresher, hotter food; enable patrons to receive special-order sandwiches (a perk long offered by rivals Burger King and Wendys); and allow new menu items to be more easily introduced thanks to the systems enhanced flexibility. The expensive changeover was expected to cost about $25,000 per restaurant, with McDonalds offering to pay for about half of the cost; the company planned to provide about $190 million in financial assistance to its franchisees before implementation was completed by year-end 1999.

In May 1998 Greenberg was named president and CEO of McDonalds Corporation, with Quinlan remaining chairman; at the same time Alan D. Feldman, who had joined the company only four years earlier from Pizza Hut, replaced Greenberg as president of McDonalds U.S.A.an unusual move for a company whose executives typically were long-timers. The following month brought another firstMcDonalds first job cutsas the company said it would eliminate 525 employees from its headquarters staff, a cut of about 23 percent. In the second quarter of 1998 McDonalds took a $160 million charge in relation to the cuts. McDonalds announced in September 1998 that it planned to purchase $3.5 billion of its common stock by year-end 2001. This flurry of 1998 activity boded well for the future of an Americanand increasingly a globalinstitution.

Principal Subsidiaries

McDonalds Australian Property Corporation; McDonalds Deutschland, Inc.; McDonalds Development Italy, Inc.; McDonalds Property Company Limited; McDonalds Restaurant Operations, Inc.; McDonalds System of France, Inc.; McDonalds Sistemas de España, Inc.; Restaurant Realty of Mexico, Inc.; McDonalds Australia Limited; McDonalds Properties (Australia) Pty., Ltd.; Restco Comercio de Alimentos Ltda. (Brazil); McDonalds Restaurants of Canada Limited; McDonalds Danmark A/S (Denmark); McDonalds France, S.A.; McDonalds GmbH (Germany); McDonalds Immobilien GmbH (Germany); McDonalds Restaurants Limited (Hong Kong); Italian Restaurant Financing S.R.L. (Italy); MDC Inmobiliaria de Mexico S.A. de C.V.; McDonalds Nederland B.V. (Netherlands); McDonalds LLC (Russia); McDonalds Restaurants (Swisse) S.A. (Switzerland); McDonalds Restaurants (Taiwan) Co., Ltd.; McDonalds Restaurants Limited (U.K.).

Further Reading

Bigness, Jon, Getting the Sizzle Back at McDonalds, Chicago Tribune, August 30, 1998.

Branch, Shelly, McDonalds Strikes Out with Grownups, Fortune, November 11, 1996, pp. 157+.

______, Whats Eating McDonalds?, Fortune, October 13, 1997, pp. 122+.

Burns, Greg, Fast-Food Fight, Business Week, June 2, 1997, pp. 34-36.

Byrne, Harlan S., Welcome to Me World, Barrons, August 29, 1994, pp. 25-28.

Canedy, Dana, McDonalds Burger War Salvo, New York Times, June 20, 1998, pp. DI, D15.

Cohon, George, with David Macfarlane, To Russia with Fries, Toronto: M & S, 1997, 335 p.

Donlon, J.P., Quinlan Fries Harder, Chief Executive, January/February 1998, pp. 45-49.

Gibson, Richard, McDonalds Makes Changes in Top Management, Wall Street Journal, May 1, 1998, pp. A3, A4.

______, Some Franchisees Say Moves by McDonalds Hurt Their Operations, Wall Street Journal, April 17, 1996, pp. Al, A10.

______, Worried McDonalds Plans Dramatic Shifts and Big Price Cuts, Wall Street Journal, February 26, 1997, pp. Al, A6.

Gibson, Richard, and Bruce Orwell, New Mission for Mickey Mouse, Mickey D, Wall Street Journal, March 5, 1998, pp. Bl, B5.

Kroc, Ray, Grinding It Out: The Making of McDonalds, Chicago: H. Reguery, 1977, 201 p.

Leonhardt, David, McDonalds: Can It Regain Its Golden Touch?, Business Week, March 9, 1998, pp. 70-74, 76-77.

Love, John F., McDonalds: Behind the Arches, New York: Bantam Books, 1986, 470 p.

Machan, Dyan, Polishing the Golden Arches, Forbes, June 15, 1998, pp. 42-43.

Papiernik, Richard L., Mac Attack?, Financial World, April 12, 1994, pp. 28-30.

Serwer, Andrew E., McDonalds Conquers the World, Fortune, October 17, 1994, pp. 103+.

Watson, James L., ed., Golden Arches East: McDonalds in East Asia, Stanford: Stanford University Press, 1997, 256 p.

Anne C. Hughes
updated by David E. Salamie

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McDonald’s Corporation

McDonalds Corporation

McDonalds Plaza
Oak Brook, Illinois 60521
U.S.A.
(708) 575-3000
Fax: (708) 575-5814

Public Company
Incorporated:
1955
Employees: 169,000
Sales: $19.93 billion
Stock Exchanges: New York Midwest Pacific Toronto Frankfurt Munich Paris Tokyo Zurich Geneva Basel
SICs: 5812 Eating Places

Since its incorporation in 1955, McDonalds has not only become the worlds largest quick-service restaurant organization, but has literally changed Americans eating habits. On any given day, nearly seven percent of the American population will eat a meal at a McDonalds restaurant; in a year, 96 percent of Americans will visit a McDonalds. The company stands head and shoulders above its competition, commanding by far the leading share of the fast-food market. The companys growth is best described as phenomenal; McDonalds has recorded increasing sales and earnings every quarter since it went public in 1965.

In 1954 Ray Kroc, a seller of Multimixer milkshake machines, learned that brothers Richard and Maurice (Dick and Mac) McDonald were using eight of his high-tech Multimixers in their San Bernardino, California, restaurant. His curiosity was piqued, and he went to San Bernardino to take a look at the McDonalds restaurant.

The McDonalds had been in the restaurant business since the 1930s. In 1948 they closed down a successful carhop drive-in to establish the streamlined operation Ray Kroc saw in 1954. The menu was simple: hamburgers, cheeseburgers, french fries, shakes, soft drinks, and apple pie. The carhops were eliminated to make McDonalds a self-serve operation, and there were no tables to sit at, no jukebox, and no telephone. As a result, McDonalds attracted families rather than teenagers. Perhaps the most impressive aspect of the restaurant was the efficiency with which the McDonalds workers did their jobs. Mac and Dick McDonald had taken great care in setting up their kitchen. Each workers steps had been carefully choreographed, like an assembly line, to ensure maximum efficiency. The savings in preparation time, and the resulting increase in volume, allowed the McDonalds to lower the price of a hamburger from 30 cents to 15 cents.

Believing that the McDonald formula was a ticket to success, Kroc suggested that they franchise their restaurants throughout the country. When they hesitated to take on this additional burden, Kroc volunteered to do it for them. He returned to his home outside of Chicago with rights to set up McDonalds restaurants throughout the country, except in a handful of territories in California and Arizona already licensed by the McDonald brothers.

Krocs first McDonalds restaurant opened in Des Plaines, Illinois, near Chicago, on April 15, 1955. As with any new venture, Kroc encountered a number of hurdles. The first was adapting the McDonalds building design to a northern climate. A basement had to be installed to house a furnace, and adequate ventilation was difficult, as exhaust fans sucked out warm air in the winter, and cool air in the summer.

Most frustrating of all, however, was Krocs initial failure to reproduce the McDonalds delicious french fries. When Kroc and his crew duplicated the brothers methodleaving just a little peel for flavor, cutting the potatoes into shoestrings, and rinsing the strips in cold waterthe fries turned into mush. After repeated telephone conversations with the McDonald brothers and several consultations with the Potato and Onion Association, Kroc pinpointed the cause of the soggy spuds. The McDonald brothers stored their potatoes outside in wire bins, and the warm California breeze dried them out and cured them, slowly turning the sugars into starch. In order to reproduce the superior taste of these potatoes, Kroc devised a system using an electric fan to dry the potatoes in a similar way. He also experimented with a blanching process. Within three months he had a french fry which was, in his opinion, slightly superior in taste to the McDonald brothers fries.

Once the Des Plaines restaurant was operational, Kroc sought franchisees for his McDonalds chain. The first snag came quickly. In 1956 he discovered that the McDonald brothers had licensed the franchise rights for Cook County, Illinois (home of Chicago and many of its suburbs) to the Frejlack Ice Cream Company. Kroc was incensed that the McDonalds hadnt informed him of this arrangement. He purchased the rights back for $25,000five times what the Frejlacks had originally paidand pressed on.

Kroc decided early on that it was best to first establish the restaurants and then to franchise them out, so that he could control the uniformity of the stores. Early McDonalds restaurants were situated in the suburbs. Corner lots were usually in greater demand because gas stations and shops competed for them, but Kroc preferred lots in the middle of blocks to accommodate his U-shaped parking lots. Since these lots were cheaper, Kroc could give franchisees a price break.

McDonalds grew slowly for its first three years; by 1958 there were 34 restaurants. In 1959, however, Kroc opened 67 new restaurants, bringing the total to more than 100.

Kroc had decided at the outset that McDonalds would not be a supplier to its franchiseeshis background in sales warned him that such an arrangement could lead to lower quality for the sake of higher profits. He had also determined that the company should at no time own more than 30 percent of all McDonalds restaurants. He knew, however, that his success depended upon his franchisees success, and he was determined to help them in any way that he could.

In 1960 McDonalds advertising campaign, Look for the golden arches, gave sales a big boost. Kroc believed that advertising was an investment that would in the end come back many times over, and advertising has always played a key role in the development of the McDonalds Corporationindeed, McDonalds ads have been some of the most identifiable over the years. In 1962 McDonalds replaced its Speedee the hamburger man symbol with its now world-famous golden arches logo. A year later, the company sold its billionth hamburger.

In the early 1960s, McDonalds really began to take off. The growth in automobile use that came with the suburbanization of America contributed heavily to McDonalds success. In 1961 Kroc bought out the McDonald brothers for $2.7 million, aiming at making McDonalds the number one fast-food chain in the country.

In 1965 McDonalds Corporation went public. Common shares were offered at $22.50 per share; by the end of the first days trading the price had shot up to $30. A block of 100 shares purchased for $2,250 in 1965 was worth, after nine stock splits, more than $400,000 in 1989. McDonalds Corporation is now one of the 30 companies that make up the Dow Jones Industrial Index.

McDonalds success in the 1960s was largely due to the companys successful marketing and flexible response to customer demand. In 1965 the Filet-o-Fish sandwich, billed as the fish that catches people, was introduced in McDonalds restaurants. The new item had originally met with disapproval from Kroc, but after its successful test marketing, he eventually agreed to add it. Another item that Kroc had backed a year previously, a burger with a slice of pineapple and a slice of cheese known as a hulaburger, had flopped. The market was not quite ready for Krocs taste; the hulaburgers tenure on the McDonalds menu board was short. In 1968 the now-legendary Big Mac made its debut, and in 1969 McDonalds sold its five-billionth hamburger. A year later, as it launched the You Deserve a Break Today advertising campaign, McDonalds restaurants had reached all 50 states.

In 1968 McDonalds opened its 1,000th restaurant, and Fred Turner became the companys president and chief administrative officer. Kroc became chairperson and remained CEO until 1973. Turner had originally intended to open a McDonalds franchise, but when he had problems with his backers over a location, he went to work for Kroc in 1956. As operations vice-president, Turner helped new franchisees get their stores set up and running. He was constantly looking for new ways to perfect the McDonalds system, experimenting, for example, to determine the maximum number of hamburger patties one could stack in a box without squashing them and pointing out that seconds could be saved if McDonalds used buns that were presliced all the way through and werent stuck together in the package. Such attention to detail was one reason for the companys extraordinary success.

McDonalds spectacular growth continued in the 1970s. Americans were more on-the-go than ever, and fast service was a priority. In 1972 the company passed $1 billion in annual sales; by 1976, McDonalds had served 20 billion hamburgers, and system wide sales exceeded $3 billion.

McDonalds pioneered breakfast fast food with the introduction of the Egg McMuffin in 1973 when market research indicated that a quick breakfast would be welcomed by consumers. Five years later the company added a full breakfast line to the menu, and by 1987 one-fourth of all breakfasts eaten out in the United States came from McDonalds restaurant.

Kroc was a firm believer in putting something back into the community where you do business. In 1974 McDonalds acted upon that philosophy in an original way by opening the first Ronald McDonald House, in Philadelphia, to provide a home away from home for the families of children in nearby hospitals. Twelve years after this first house opened, 100 similar Ronald McDonald Houses were in operation across the United States.

In 1975 McDonalds opened its first drive-thru window in Oklahoma City. This service gave Americans a fast, convenient way to get a quick meal. The companys goal was to provide service in 50 seconds or less. Drive-thru sales eventually accounted for more than half of McDonalds system wide sales.

In the late 1970s competition from other hamburger chains such as Burger King and Wendys began to intensify. Experts believed that the fast-food industry had gotten as big as it ever would, so the companies began to battle fiercely for market share. A period of aggressive advertising campaigns and price slashing in the early 1980s became known as the burger wars. Burger King suggested that customers have it their way; Wendys offered itself as the fresh alternative and asked of other restaurants, wheres the beef? But McDonalds sales and market share continued to grow. Consumers seemed to like the taste and consistency of McDonalds best.

During the 1980s McDonalds further diversified its menu to suit changing consumer tastes. Chicken McNuggets were introduced in 1983, and by the end of the year McDonalds was the second largest retailer of chicken in the world. In 1987 ready-to-eat salads were introduced to lure more health-conscious consumers. The 1980s were the fastest paced decade yet. Efficiency, combined with an expanded menu, continued to draw customers. McDonalds, already entrenched in the suburbs, began to focus on urban centers and introduced new architectural styles. Though McDonalds restaurants no longer looked identical, the company made sure food quality and service remained constant.

Despite experts claims that the fast-food industry was saturated, McDonalds continued to expand. The first generation raised on restaurant food had grown up. Eating out had become a habit rather than a break in the routine, and McDonalds relentless marketing continued to improve sales. Innovative promotions, such as the when the U.S. wins, you win giveaways during the Olympic games in 1988, were a huge success.

In 1982 Michael R. Quinlan became president of McDonalds Corporation and Fred Turner became chairperson. Quinlan, who took over as CEO in 1986, had started at McDonalds in the mailroom in 1963, and gradually worked his way up. The first McDonalds CEO to hold an MBA degree, Quinlan was regarded by his colleagues as a shrewd competitor. In his first year as CEO the company opened 600 new restaurants.

McDonalds growth in the United States was mirrored by its stunning growth abroad. By 1991, 37 percent of system wide sales came from restaurants outside of the United States. McDonalds opened its first foreign restaurant in British Columbia, Canada, in 1967. Since then the company established itself in 58 foreign countries and now operates more than 3,600 restaurants outside of the U.S., through wholly owned subsidiaries, joint ventures, and franchise agreements. Its strongest foreign markets are Japan, Canada, Germany, Great Britain, Australia, and France.

While western Europes population far exceeded that of the United States in 1992, it had only 1,300 restaurants. Latin America, with twice the population of the United States, sufficed with 200 restaurants. Chinas first McDonalds restaurant, located in Shenhen, made a profit in its first year of operation. Beijing and Shanghai restaurants soon followed, giving Chinas 1.1 billion people three places to find the golden arches. In March of 1992, two native Czechoslovakians opened a McDonalds in Prague, and it took three years of bureaucratic red tape to open the Jakarta, Indonesia, restaurant.

In the mid-1980s, McDonalds, like other traditional employers of teenagers, was faced with a shortage of labor in the United States. The company met this challenge by being the first to entice retirees back into the workforce. McDonalds has always placed great emphasis on effective training. It opened its Hamburger University in 1961 to train franchisees and corporate decision makers. By 1987, more than 30,000 people had received Bachelor of Hamburgerology degrees from the 80-acre Oak Brook, Illinois, facility. The corporation opened a Hamburger University in Tokyo in 1971, in Munich in 1975, and in London in 1982.

The McDonalds Corporation operates only 20 percent of its restaurants. It receives 20,000 franchise inquiries a year. In 1991, 350 new licensees joined the corporations extensive training program, and of these more than 60 percent were women and minorities. By the end of 1991, there were more than 12,000 system wide restaurants.

Braille menus were first introduced in 1979, and picture menus in 1988. In March of 1992, Braille and picture menus were reintroduced to acknowledge the 37 million Americans with vision, speech, or hearing impairments.

Quinlan continued to experiment with new technology and to research new markets to keep McDonalds in front of its competition. Clamshell fryers, which cooked both sides of a hamburger simultaneously, were tested. New locations such as hospitals and military bases are being tapped as possible sites for new restaurants. In response to the increase in microwave oven usage, McDonalds, whose name is the single most advertised brand name in the world, has stepped up advertising and promotional expenditures stressing that its taste is superior to quick packaged foods.

McRecycle USA began in 1990 and included a commitment to purchase at least $100 million worth of recycled products annually for use in construction, remodeling, and equipping restaurants. Chairs, table bases, table tops, eating counters, table columns, waste receptacles, corrugated cartons, packaging, and washroom tissue are all made from recycled products. McDonalds worked with the U.S. Environmental Defense Fund to develop a comprehensive solid waste reduction program. Wrapping burgers in paper rather than plastic led to a 90 percent reduction in the wrapping material waste stream.

Although it took McDonalds 33 years to open its first 10,000 restaurants, the company plans to open the next 10,000 by 2005, mainly by taking advantage of strong opportunities overseas. The companys ability to adapt to the changing tastes and habits of its customers has made it the virtually unassailable leader in the fast-food industry. McDonalds commands $13 billion of Americas $93 billion quick-service food industry, but considers its area of national sales growth to be the $200 billion eat out market. Providing more loose seating, rather than the conventional bolted down tables and chairs, has been considered as one way to relax the atmosphere and attract more families as dinner patrons. Pizza, chicken, and pasta menu additions also have been tested.

By the spring of 1992, the company was testing Menu Vision television network in 12 eastern U.S. restaurants. Computer-generated images of menu items and promotional deals were displayed on monitors. McNews, a closed network of live entertainment provided by Turner Broadcasting, also was tested.

In July 1992, the corporation announced a new program for investors who own less than 50 shares, which would allow them to purchase additional McDonalds shares or donate the new issues to selected charities without incurring brokerage commissions. During the 30-day offer, McDonalds made matching donations equal to the value of all shares donated, up to a combined maximum of $100,000 worth of stockall to attract and retain small individual investors. New challenges will undoubtedly arise, but the company seems to have plenty to look forward to.

Principal Subsidiaries

McDonalds Deutschland GmbH; McDonalds Development GmbH; McDonalds Hamburgers Limited; McDonalds Italia Sri.; McDonalds Restaurants of Canada Ltd.; McDonalds Restaurants (Hong Kong) Ltd.; McDonalds Sistemas de España; McDonalds System of Australia Ltd.; McDonalds System of France SARL; McDonalds System of New Zealand Ltd.

Further Reading

Kroc, Ray. Grinding It Out: The Making of McDonalds, Chicago, H. Reguery, 1977; Love, John F., McDonalds: Behind the Golden Arches, New York, Bantam Books, 1986.

updated by Anne C. Hughes

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Mcdonald’s Corporation

Mcdonalds Corporation

McDonalds Plaza
Oak Brook, Illinois 60521
U.S.A.
(708) 5753000

Public Company
Incorporated:
1955
Employees: 169,000
Sales: $5.57 billion

Stock Index: New York Midwest Pacific Toronto Frankfurt Munich Paris Tokyo

Since its incorporation in 1955, McDonalds has not only become the worlds largest quick-service restaurant organization, but has literally changed Americans eating habits. On any given day, nearly 7% of the American population will eat a meal at a McDonalds restaurant; in a year, 96% of Americans will visit a McDonalds. The company stands head and shoulders above its competition, commanding by far the leading share of the fast-food market. The companys growth is best described as phenomenal; McDonalds has recorded increasing sales and earnings every quarter since it went public in 1965.

In 1954, Ray Kroc, a Multimixer milkshake machine salesman, heard about Richard and Maurice (Dick and Mac) McDonald, two brothers who were using eight of his high-tech Multimixers in their San Bernardino, California restaurant. His curiosity was aroused, so he went to San Bernardino to take a look at the McDonalds restaurant.

The McDonalds had been in the restaurant business since the 1930s. In 1948, they closed down a successful carhop drive-in to establish the streamlined operation Ray Kroc saw in 1954. The menu was stripped to the bare essentials: hamburgers, cheeseburgers, french fries, shakes, soft drinks, and apple pie. The carhops were eliminated to make McDonalds self-serve. There were no tables to sit at, no juke-box, no telephone. As a result, McDonalds attracted families rather than teenagers. Perhaps the most impressive aspect of the restaurant was the efficiency with which the McDonalds workers did their jobs. Mac and Dick McDonald had taken great care in setting up their kitchen. Each workers steps had been carefully choreographed, like an assembly line, to insure maximum efficiency. The savings in preparation time, and the resulting increase in volume, allowed the McDonalds to lower the price of a hamburger from 30 cents to 15 cents.

Kroc believed that the McDonalds formula was a ticket to success, and suggested that they franchise their restaurants throughout the country. When they hesitated to take on this additional burden, Kroc volunteered to do it for them. He returned to his home outside of Chicago with rights to set up McDonalds restaurants throughout the country, except in a handful of territories in California and Arizona already licensed by the McDonald brothers.

Ray Krocs first McDonalds restaurant opened in Des Plaines, Illinois, near Chicago, on April 15, 1955. As with any new venture, Kroc encountered a number of hurdles. The first was adapting the McDonalds building design to a northern climate. A basement had to be installed to house a furnace. Adequate ventilation was difficult: exhaust fans sucked out warm air in the winter, and cool air in the summer.

Most frustrating of all, however, was Krocs initial failure to reproduce the McDonalds french fries. The McDonald brothers produced delicious french fries, but when Kroc and his crew duplicated their methodleaving just a little peel for flavor, cutting the potatoes into shoestrings, and rinsing the strips in cold waterthe fries turned into mush. After repeated telephone conversations with the McDonald brothers and several consultations with the Potato and Onion Association, Kroc pinpointed the cause of the soggy spuds. The McDonald brothers stored their potatoes outside in wire bins, and the warm California breeze dried them out and cured them, slowly turning the sugars into starch. In order to reproduce the superior taste of these potatoes, Kroc devised a system using an electric fan to dry the potatoes in a similar way. He also experimented with a blanching process. Within three months he had a french fry which was, in his opinion, slightly superior in taste to the McDonald brothers.

Once the Des Plaines restaurant was rolling, Kroc began to seek franchisees for his McDonalds chain. The first snag came quickly. In 1956 he discovered that the McDonald brothers had licensed the franchise rights for Cook County, Illinois (home of Chicago and many of its suburbs) to the Frejlack Ice Cream Company. Kroc was incensed that the McDonalds hadnt informed him of this arrangement. He purchased the rights back for $25,000five times what the Frejacks had originally paidand marched forward.

Kroc decided early on that it was best to set up the restaurants first, and then franchise them out, so that he could control the uniformity of the stores. McDonalds continues to own most of the real estate for its restaurants. Early McDonalds restaurants were situated in the suburbs. Corner lots were usually in greater demand because gas stations and shops competed for them, but Kroc preferred lots in the middle of blocks to accommodate his U-shaped parking lots. Since these lots were cheaper, Kroc could give franchisees a price break.

McDonalds grew slowly for its first three years; by 1958 there were 34 restaurants. In 1959, however, Kroc opened 67 new restaurants, bringing the total to more than 100.

Kroc had decided at the outset that McDonalds would not be a supplier to its franchiseeshis background as a salesman warned him that such an arrangement could lead to lower quality for the sake of higher profits. He also determined that the company should at no time own more than 30% of all McDonalds restaurants. But he knew that his success depended upon his franchisees success, and he was determined to help them any way he could.

In 1960, McDonalds advertising campaign, Look for the golden arches, gave sales a big boost. Kroc took the view that advertising was an investment that would in the end come back many times over, and advertising has always played a key role in the development of the McDonalds Corporationindeed, McDonalds ads have been some of the most identifiable over the years. In 1962, McDonalds replaced its Speedee the hamburger man symbol with its now world-famous golden arches. A year later, the company sold its billionth hamburger.

In the early 1960s, McDonalds really began to take off. The growth in automobile use that came with the suburbanization of America contributed heavily to McDonalds success. In 1961, Kroc bought out the McDonald brothers for $2.7 million and dreamed of making McDonalds the number-one fast-food chain in the country.

In 1965, McDonalds Corporation went public. Common shares were offered at $22.50 per share; by the end of the first days trading the price had shot up to $30. A block of 100 shares purchased for $2,250 in 1965 was worth, after nine stock splits, more than $400,000 in 1989. McDonalds Corporation is now one of the 30 companies that make up the Dow Jones Industrial Index.

McDonalds success in the 1960s was largely due to the companys successful marketing and flexible response to customer demand. In 1965, the Filet-o-Fish sandwich, billed as the fish that catches people, was introduced in McDonalds restaurants. The new item had originally met with disapproval from Kroc, but after its successful test marketing, he eventually agreed to add it. An item that Kroc had backed a year previously had flopped. It was a burger with a slice of pineapple and a slice of cheese known as a hulaburger. The market was not quite ready for Krocs taste, however; the hulaburgers tenure on the McDonalds menuboard was short. In 1968 the now-legendary Big Mac made its debut. Its two all-beef patties special sauce lettuce cheese pickles onions on a sesame seed bun slogan was a hit. In 1969, McDonalds sold its five-billionth hamburger. A year later, as it launched the You Deserve a Break Today advertising campaign, McDonalds restaurants had reached all 50 states.

In 1968 the company opened its one-thousandth restaurant and Fred Turner became president and chief administrative officer of McDonalds. Kroc became chairman, and remained CEO until 1973. Turner had originally intended to open a McDonalds franchise, but when he had problems with his backers over a location he went to work for Ray Kroc in 1956. As operations vice president, Turner helped new franchisees get their stores set up and running. He was constantly looking for new ways to perfect the McDonalds system, experimenting, for example, to determine the maximum number of hamburger patties one could stack in a box without squashing them and pointing out that seconds could be saved if McDonalds used buns that were pre-sliced all the way through and werent stuck together in the package. Such attention to detail was one reason for the companys extraordinary success.

McDonalds spectacular growth continued in the 1970s. Americans were more on-the-go than ever, and fast service was a priority. In 1972, the company passed $1 billion in annual sales; by 1976, McDonalds had served 20 billion hamburgers, and systemwide sales exceeded $3 billion.

McDonalds pioneered breakfast fast food with the introduction of the Egg McMuffin in 1973 when market research indicated that a quick breakfast would be gobbled up by consumers. In 1977, the company added a full breakfast line to the menu. By 1987 one-fourth of all breakfasts eaten out in the United States came from McDonalds restaurant.

Chairman Ray Kroc was a firm believer in putting something back into the community where you do business. In 1974, McDonalds acted on that philosophy in an original way by opening the first Ronald McDonald House, in Philadelphia, to provide a home away from home for the families of children in nearby hospitals. Twelve years after this first house opened, 100 similar Ronald McDonald Houses were in operation across the United States.

In 1975, McDonalds opened its first drive-thru window in Oklahoma City. This service gave Americans a fast, convenient way to get a quick meal. The companys goal was to provide service within 50 seconds, quicker where possible. Drive-thru sales eventually accounted for more than half of McDonalds systemwide sales.

In the later 1970s competition from other hamburger chains like Burger King and Wendys began to heat up. Experts believed that the fast-food industry had gotten as big as it ever would, so the companies began to battle fiercely for market share. A period of aggressive advertising campaigns and price slashing in the early 1980s became known as the burger wars. Burger King suggested that customers have it their way; Wendys offered itself as the fresh alternative and asked Wheres the beef? But McDonalds sales and market share continued to grow. Consumers seemed to like the taste and consistency of McDonalds best.

During the 1980s McDonalds further diversified its menu to suit changing consumer tastes. Chicken McNuggets were introduced in 1983; by the end of the year McDonalds was the second-largest retailer of chicken in the world. In 1987, ready-to-eat salads were introduced to lure more health-conscious consumers. The 1980s were the fastest-paced decade yet. Efficiency, combined with an expanded menu, continued to draw customers. McDonalds, already entrenched in the suburbs, began to focus on urban centers and introduced new architectural styles. Though McDonalds restaurants no longer looked identical, the company made sure food quality and service remained constant.

Despite experts claims that the fast-food industry was saturated, McDonalds continued to expand. The first generation raised on restaurant food had grown up. Eating out had become a habit rather than a break in the routine, and McDonalds relentless marketing continued to improve sales. Innovative promotions, like When the U.S. wins, you win giveaways during the Olympic games in 1988, were a huge success.

In 1982, Michael R. Quinlan became president of McDonalds Corporation and Fred Turner became chairman. Quinlan, who took over as CEO in 1986, had started at McDonalds in the mailroom in 1963, and gradually worked his way up.

The first McDonalds CEO to hold an MBA, Quinlan was regarded by his colleagues as a shrewd competitor. In his first year as CEO the company opened 600 new restaurants.

McDonalds growth in the United States was mirrored by its stunning growth abroad. By the late 1980s, 26% of systemwide sales came from restaurants outside the United States. McDonalds opened its first foreign restaurant in British Columbia, Canada in 1967; since then the company established itself in more than 50 foreign countries and now operates more than 2,500 restaurants outside the U.S. Its strongest foreign markets are Japan, Canada, West Germany, Great Britain, and Australia.

In the mid-1980s, McDonalds, like other traditional employers of teenagers, was faced with a shortage of labor in the United States. The company met this challenge by being the first to entice retirees back into the work-force. McDonalds has always placed great emphasis on effective training. It opened its Hamburger University in 1961 to train franchisees and corporate decision makers. By 1987, more than 30,000 people had received Bachelor of Hamburgerology degrees from the 80-acre Oak Brook, Illinois facility. The corporation opened a Hamburger University in Tokyo in 1971, in Munich in 1975, and in London in 1982.

Quinlan continues to experiment with new technology and to research new markets to keep McDonalds in front of its competition. Clamshell fryers, which cooked both sides of a hamburger simultaneously, were tested. New locations such as hospitals and military bases are being tapped as possible sites for new restaurants. In response to the increase in microwave oven usage, McDonalds, whose name is the single most advertised brand name in the world, has beefed up advertising and promotional expenditures, stressing that its taste is superior to quick packaged foods.

It took McDonalds 33 years to open its first 10,000 restaurants. The company plans to open the next 10,000 by 2005, mainly by taking advantage of strong opportunities overseas. McDonalds ability to adapt to the changing tastes and habits of its customers has made it the virtually unassailable leader in the fast-food industry. New challenges will arise, but if McDonalds relatively brief past in any indication of its future, the company has plenty to look forward to.

Principal Subsidiaries

McDonalds Australian Properties Corp.; McDonalds Deutschland, Inc,; McDonalds Restaurant Operations, Inc.; McDonalds Property Co. Ltd.; McDonalds Restaurants of Canada, Ltd.; McDonalds Systems of Australia, Ltd,; McDonalds Properties (Australia) Pty., Ltd.; McDonalds Immobilien GmbH (West Germany); McDonalds Hamburgers Ltd. (U.K.); McDonalds Finance Co., N.V. (Netherlands Antilles).

Further Reading

Kroc, Ray. Grinding It Out, Chicago, H. Reguery, 1977; Love, John F. McDonalds: Behind the Golden Arches, New York, Bantam Books, 1986.

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McDonald's Corporation

McDonald's Corporation

One McDonald's Plaza
Oak Brook, IL 60523
(630) 623-3000
www.mcdonalds.com

In more than one hundred countries around the globe, the sight of two golden arches tells hungry diners that a fast, inexpensive meal is just a few moments away. The arches form the shape of the letter "M," which stands for McDonald's, the world's largest restaurant chain. McDonald's perfected the selling of fast food: burgers, fries, and drinks served and eaten quickly. With its stress on quality, service, cleanliness, and value, the company serves as a model for competing restaurant chains, and other service industries. Each day, forty-five million people eat at least one of their meals at "Mickey D's."

The McDonalds and Their Restaurant

Ray Kroc founded the McDonald's empire, but he borrowed many key ideas from the real McDonalds, brothers Richard (died 1998) and Maurice (c. 1902-1971). Known as Dick and Mac, the McDonalds opened their first restaurant in Pasadena, California, in 1937. It was one of many drive-ins popping up in California at the time. At these restaurants, the staff, called carhops, came to the customers' cars, took their orders, and brought out the food. Some carhops used roller skates to speed up the service.

At the first McDonald's, Dick and Mac served hot dogs, not the more common hamburgers, and diners could stay in their cars or eat inside. Business boomed, and the McDonalds opened a larger restaurant in San Bernardino, with burgers added to the menu and no inside seating. By 1948, the brothers were rich, but they also had competition and their costs were rising. The McDonalds shut their store and reopened with a new concept. They wanted to cut costs and lower prices to attract more business.

The brothers fired the carhops; customers now walked up to a window to place their order. The McDonalds also stopped using dishes and glasses and switched to paper plates and cups, so they did not need a dishwasher. Then the brothers made their burgers a little smaller and cut the price from thirty cents to fifteen cents. The burgers came just one way, with the condimentsketchup, mustard, onions, and picklesalready on them. The focus was on cheap, fast food, not variety. In McDonald's: Behind the Arches, Dick explained, "If we gave people a choice, there would be chaos." Eventually the menu also included French fries and milkshakes. The McDonalds called their new approach the "Speedee Service System." The restaurant's mascot was a small chef with a hamburger for a face; he was later known as Speedee.

McDonald's at a Glance

  • Employees: 212,000
  • CEO: Jack Greenberg
  • Subsidiaries: Italian Restaurant Financing S.R.L; MDC Immobiliaria de Mexico S.A. de C.V.; Restaurant Realty of Mexico, Inc.; Restco Comercio de Alimentos Ltda.
  • Major Competitors: Burger King; Wendy's; Kentucky Fried Chicken; Pizza Hut
  • Notable Menu Items: Big Mac; Egg McMuffin; Quarter Pounder; Filet-O-Fish; Chicken McNuggets; Happy Meal; McSalad Shaker

At first the new McDonald's lost customers, especially the teenagers who wanted carhop service. But as teens stopped hanging out at the restaurant, more families began to come. The United States had just begun its historic "baby boom," as millions of soldiers returning from World War II (1939-45) started families. These new parents and their children would fuel McDonald's growth for decades to come. The families appreciated the restaurant's low prices, and since the kitchen was in full view, they could see that the McDonalds ran a clean operation. Once again, business soared.

Timeline

1948:
Richard and Maurice McDonald open their first fast-food restaurant in San Bernardino, California.
1954:
Ray Kroc takes over franchising for McDonald's.
1955:
Kroc opens his first McDonald's in Des Plaines, Illinois.
1961:
Kroc takes full control of the McDonald's Corporation and opens Hamburger University to train employees.
1963:
Ronald McDonald appears in public for the first time in Washington, D.C.
1965:
First national TV ads appear; Filet-O-Fish sandwich introduced.
1968:
One thousandth McDonald's restaurant opens in Des Plaines; Big Mac introduced.
1971:
First McDonald's opens in Japan, Germany, and Australia.
1979:
McDonald's serves its thirty-billionth hamburger.
1984:
Ray Kroc dies.
1999:
In Chicago, Illinois, McDonald's opens its twenty-five thousandth restaurant.

Kroc Launches the McDonald's Chain

In 1954, a salesman named Ray Kroc visited the McDonalds in San Bernardino. Kroc sold Multimixers, machines that mixed five milkshakes at a time. He was amazed to hear that the McDonalds ran eight Multimixers at once. After he saw the McDonalds's operation, Kroc knew they had developed a new restaurant concept that could be repeated across the country. The McDonalds had already opened ten other stores, including two in Arizona, but Kroc convinced the brothers to let him use his selling skills to make the chain even bigger. In his autobiography, Grinding It Out, Kroc wrote, "Here was a complete package, and I could get out and talk up a storm about it."

Kroc and the McDonalds became partners in a franchise business. Kroc would find franchisees, or people willing to pay to use the McDonald's name and its methods. The franchisees bought a license to run a restaurant for twenty years, then the partners could take over if they chose. The franchisees also paid a percentage of their restaurants' total sales to Kroc and the McDonalds. The franchised stores would form a chain of McDonald's that stretched across the United States.

On April 15, 1955, Kroc opened his first McDonald's, in Des Plaines, Illinois, and sold $366 worth of food. He wanted it to be a model for all the franchised restaurants to follow. The building had one large arch on each side, a feature of most McDonald's for years to come. Kroc used the McDonald brothers' assembly-line approach to cooking food. Certain chefs did just one job over and over, such as grilling burgers or making shakes. Some food was made before customers arrived, so they would not have to wait long once they ordered. Kroc also copied the equipment used in the original McDonald's kitchen. Some of the machines had been specially designed for the restaurant. Kroc, like the McDonalds, wanted to produce food as fast and cheaply as possible. His motto was "Quality, Service, and Cleanliness" (QSC). Later, he added "Value" as well.

Dominating the Industry

The first franchised McDonald's opened in California in 1956. The same year, one opened in the Midwest. One of Kroc's goals was to ensure that each restaurant served exactly the same food, but he ran into a problem with the French fries. At the original San Bernardino restaurant, the potatoes used for the fries sat in wire baskets. The California air helped dry them out and improved their taste. The Midwest McDonald's fries, however, did not dry out before cooking. To improve the taste, Kroc cooked them twicethe potatoes were briefly fried, then allowed to dry before their final cooking. McDonald's is still famous for its tasty fries.

By 1960, the company had more than one hundred restaurants. Kroc and the McDonalds owned some, but most were franchises. In addition to paying a franchise fee and part of their profits, franchisees also paid the company rent on the land where the stores sat. This income eventually earned more money for the McDonald's Corporation than selling food.

During the 1960s, McDonald's saw many changes. Kroc became the sole owner in 1961, paying the McDonalds $2.7 million for their share of the business. The same year, the company opened "Hamburger University" at its Oak Brook, Illinois, headquarters to train employees. In 1962, McDonald's golden arches replaced Speedee as the restaurant's main symbol, and ads told customers to "Look for the golden arches."

Kroc believed in advertising heavily and in targeting children. In 1965, the company introduced a new mascot, a red-haired clown named Ronald McDonald, who became a frequent and friendly face in television commercials. The company was one of the first restaurants to run TV adds, and it spent millions of dollars to promote new products and to create a wholesome image. An ad launched in 1971 featured one of the most famous advertising slogans ever: "You deserve a break today."

McLibel

One McDonald's lawsuit led to some of the company's worst publicity ever. In the so-called "McLibel" trial of 1994 to 1996, the company sued two English citizens, David Morris and Helen Steel. They were accused of libeling McDonald's, deliberately spreading false information about its practices. Among other things, McDonald's was supposedly guilty of selling unhealthy food, destroying rain forests in South America to raise cattle, and mistreating its workers. The company did win, but the judge ruled that some of the statements about McDonald's were true, including the company's role in the cruel treatment of animals killed for meat. The McLibel trial confirmed some people's view of McDonald's as a huge corporation determined to do anything to increase its profits.

Although McDonald's was not the only fast-food chain, it became the largest and most successful one. Customers appreciated Kroc's QSCV approach. The company took advantage of changing lifestyles, placing restaurants in growing suburbs and along the interstate highways that crisscrossed the country. By 1968, McDonald's had one thousand restaurants, and sales reached $1 billion in 1972. Throughout its growing years, the company added new menu items. In 1965, it introduced the Filet-O-Fish sandwich, and three years later the Big Mac appeared. In 1973, McDonald's brought the fast-food concept to breakfast, selling its first Egg McMuffin.

Success Abroad, Trouble at Home

By 1970, McDonald's had restaurants in all fifty states and a few in Canada and the Caribbean. Foreign operations exploded during the 1970s and 1980s, as the company expanded into Asia, Australia, South America, and Europe. Kroc counted on the expertise of local companies to help them adapt McDonald's food and service to other lands. By 1992, almost 40 percent of the company's sales came from overseas.

At home, however, McDonald's began to face some problems. In 1976, a false rumor spread that the company added worms to its meat. Some press stories criticized the quality of the food and the way the company kept track of its finances. During the 1980s, McDonald's also faced stiff competition from Burger King and Wendy's, two other fast-food chains that specialized in hamburgers. In addition, fast food was expanding to include other foods, such as pizza, sandwiches, and Mexican dishes.

Many of McDonald's new menu items were suggested by franchisees. Lou Groen of Cincinnati pushed for adding a fish sandwich, and the Big Mac was created by Jim Delligati of Pennsylvania. One of Ray Kroc's ideas for a new sandwich was the hulaburger. This hamburger with cheese and a pineapple slice flopped.

Even with these concerns, McDonald's kept opening new restaurants and adding new menu items. It also continued to advertise heavily and to appeal to children. In 1979, the company introduced Happy Meals, which packaged a burger, fries, and soda in a colorful cardboard box. Later Happy Meals included toys not available in any store. Thousands of restaurants added outdoor playgrounds and indoor playscapes. McDonald's also placed restaurants in new locations, such as inside airports, museums, and gas stations. By 1995, McDonald's controlled 42 percent of the hamburger fast-food market.

More Problems

In 2001, McDonald's continued to growand face problems. Expensive new equipment designed to improve food quality did not boost sales as hoped. The Federal Bureau of Investigation (FBI) investigated a crime ring that stole prizes used in McDonald's contests. Vegetarians were upset to learn that the company used a beef product to flavor French fries. In France, Jose Bove, a farmer who had earlier been arrested for destroying part of a McDonald's restaurant, staged another protest. Bove is one of many Europeans who think McDonald's threatens the jobs of local farmers and offers poor-quality meals. At his trial in 2000, Bove told reporters, "The fight is going on all over the world against bad food."

Despite its troubles, McDonald's remained the top fast-food restaurant in the world. In 2001, the company had more than twenty-nine thousand restaurants, with more than half of these outside of the United States. It bought more beef, pork, and potatoes than any other U.S. company, and it spent more on advertising. The company planned to open as many as one thousand new stores each year and expand several new restaurant chains it acquired during the 1990sBoston Market and Chipotle Mexican Grill.

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McDonald's

McDONALD'S

McDONALD'S, the world's leading fast food restaurant chain. In 1948, the brothers Maurice and Richard McDonald converted their San Bernardino, California, drive-in to a take-out restaurant serving mainly inexpensive hamburgers and French fries prepared assembly-line style. Ray A. Kroc (19021984) became the brothers' franchising agent in 1954, and expanded the company nationwide, opening his first McDonald's in Des Plaines, Illinois, the next year. Using business-format franchising, Kroc maintained strict corporate-level control of the McDonald's concept, service, and products. Kroc's chief financial officer, Harry Sonneborn, created a system of carefully choosing sites for new stores, then leasing them to franchisees, making rents an important source of corporate revenue and the company the world's largest owner of commercial real estate.

McDonald's mass-marketing strategy emphasized family-oriented and "all-American" themes, "quality, service, cleanliness, and value," and continual innovations, such as the Big Mac in 1968, a line of breakfast foods in the mid-1970s, child-oriented Happy Meals in 1979, and Chicken McNuggets in 1982. In 2001, McDonald's, with 30,000 stores and 395,000 employees serving 46 million people each day in 121 countries, achieved sales of $14.9 billionover 60 percent of that outside the United Statesearning $1.6 billion in net income. The international expansion of McDonald's has made its logo, the golden arches, a leading symbol of globalization and American culture.

BIBLIOGRAPHY

Kroc, Ray, with Robert Anderson. Grinding It Out: The Making of McDonald's. Chicago: Regnery, 1977.

Love, John F. McDonald's: Behind the Arches. Rev. ed. New York: Bantam, 1995.

Mariani, John. America Eats Out: An Illustrated History of Restaurants, Taverns, Coffee Shops, Speakeasies, and Other Establishments That Have Fed Us for 350 Years. New York: Morrow, 1991.

Jeffrey T. Coster

See also Food, Fast .

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McDonald's

McDonald's

From its humble beginnings in 1948 as a drive-in restaurant in southern California, McDonald's grew by the end of the twentieth century into the world's largest food service organization, having served up more than 100 billion hamburgers in half a century of operation. In 1998, the chain claimed 24,500 restaurants in 114 countries—with a new one opening every five hours—where 38 million customers a day are served, 20 million of them in the United States. In five decades, the Golden Arches, Big Macs, and Ronald McDonald have become among the most internationally recognized and controversial icons of American popular culture. Over the company's objections, the prefix "Mc-" has been used informally in English to describe any person or situation whose essential qualities are seen in terms of homogenization, predictability, or banality.

It all started in the late 1940s, on the crest of the postwar automobile boom, when brothers Richard and Maurice McDonald were searching for a way to improve their little octagonal barbecue drive-in business in San Bernardino, California. The concept they created was a revolutionary one that would become the keystone of the nascent fast food industry: an emphasis on efficiency, low prices, big volume, and speedy self-service and a jettisoning of anything that would slow down the transaction, such as carhops, plates, forks, knives, glassware, dishwashers, tipping, and less popular menu items. When the brothers reopened their restaurant with their "McDonald's New Self-Service System" on December 20, 1948, confusion at first reigned, but soon the 15-cent prepackaged McDonald's hamburger that came with ketchup, pickle, and onion became extremely successful. Within a few months, customers were lining up to buy the nine available menu items: hamburger, cheeseburger, french fries, potato chips, pie, coffee, milk, soft drinks, and milkshakes.

In 1952, McDonald's sold more than one million hamburgers and half a million orders of french fries, which were becoming famous for their "perfect fry" due to the proper aging of potatoes. The brothers planned to franchise their self-service system and designed, with architect Stanley Meston, the prototype restaurant with its two giant golden arches. The first McDonald's franchise opened in May, 1953, in Phoenix, Arizona. In 1954, there were nine franchise restaurants in operation and twelve others already sold. That same year, intrigued by the 20,000 milkshakes sold every month by the McDonald's business, Ray Kroc (1902-1984), the exclusive distributor of the "Multimixer" milkshake machine, went to San Bernardino to see the McDonald's operation at first hand. Immediately, he foresaw the gigantic potentialities of the concept and became the exclusive franchising agent for the McDonald brothers in the United States. In 1955, he formed the new franchising company under the name of McDonald's System, Inc. and opened his first McDonald's restaurant in Des Plaines, Illinois. In 1961, Kroc bought out the McDonald brothers for $2.7 million.

Kroc did not invent McDonald's, but he transformed and developed it into a leading institution that has revolutionized the food service industry and altered traditional eating habits throughout the world. The astounding popular success of McDonald's and its unprecedented growth, first in the United States and later in foreign countries, became a commercial legend. Cleanliness, friendly service, and predictability—its capability to deliver consistent products anywhere in the world—have remained a hallmark of McDonald's. Throughout, Kroc's brilliant strategy called for a heavy investment in advertising and public relations. The theme "Look for the Golden Arches" started in 1960. By 1963, McDonald's restaurants were selling one million hamburgers a day, and the company decided to launch a television advertising campaign. In 1966, three years after his first public appearance in Washington, D.C., Ronald McDonald, portrayed by Willard Scott, made his first national television debut. The happy clown became the McDonald's mascot who would attract millions of children and their families to McDonald's restaurants. Children had long been a target group for the chain's marketing: Since the opening in 1971 of the first McDonald's Playland in Chula Vista, California, McDonald's has invested millions in playgrounds and ads directed primarily at children, for whom it introduced the "Happy Meal" in 1979.

In 1966, the year after its advertising started to claim that "McDonald's Is Your Kind of Place," McDonald's became a public company, listed on the New York Stock Exchange. After almost 20 years of price stability, the hamburger rose from 15 to 18 cents and the international expansion started. The first McDonald's restaurant located outside of the United States opened in Canada on June 1, 1967, in Richmond, British Columbia. The one-thousandth restaurant in the chain opened in 1968 and the most popular burger, the "Two all-beef patties, special sauce, lettuce, cheese, pickle, onions, on a sesame-seed bun," internationally known as the "Big Mac," was added to the menu. In 1972, the Quarter Pounder was introduced, and the McDonald's corporation achieved the one-billion-dollar sales mark. By 1970, McDonald's was represented by 1,600 restaurants in the 50 U.S. states and in four other countries. The 1970s saw an expansion of the restaurant's locales from brightly lit roadside stands surrounded by parking lots to smaller, "townhouse" establishments in urban settings.

During the 1970s, such slogans as "You Deserve a Break Today," "We Do It All For You," and "Nobody Can Do It Like McDonald's" permeated the everyday life of millions of customers. Meanwhile, McDonald's entered the breakfast trade with the highly successful introduction of the Egg McMuffin in 1973. By 1980, 35 billion hamburgers had been sold, and in 1985, McDonald's became one of the thirty companies that make up the Dow Jones Industrial Average. By 1990, when the 80-billion burger milestone had been reached, its 11,800 restaurants in 54 countries accounted for $18.7 billion in sales.

With its aggressive expansion into the global market, McDonald's has come to epitomize North American culture, but especially the United States and its brand of capitalism. In 1971, the corporation entered the Asian, Australian, and European markets. While the Dutch McDonald's restaurant failed, "Makadonaldo" on the Ginza in Tokyo, Japan, became an immediate success. In 1998, Japan held its own as the largest McDonald's market outside of the United States, with more than 2,400 restaurants. In 1979, McDonald's started doing business in South America. With the collapse of Soviet-style communism in the late 1980s, the emergence of McDonald's in socialist or post-socialist societies attracted extensive media coverage and increased the brand's notoriety. The opening of the first McDonald's restaurant in Moscow on January 13, 1990, attracted 30,000 customers and was billed by the media as an important symbolic event, as if the Russians had conceded in the famous "kitchen debate" between Richard Nixon and Nikita Khrushchev in the 1950s. The opening of the first McDonald's restaurant in Africa in 1992 was not much noticed, but on April 23 of that year, 40,000 Chinese lined up in front of its first outlet in Beijing, China. The popularity and prosperity of McDonald's in the Czech Republic, East Germany, Hungary, Poland, and Slovenia have been the focus of numerous documentaries and articles.

Not surprisingly, such an extraordinary success has also generated protests and criticisms from very different groups, ranging from the far left to the far right and including environmentalists, nutritionists, religious fundamentalists, cultural critics, and heritage preservationists, among others. McDonald's has taken a stance of being responsive to many of these concerns. Responding to civil-rights activists in the 1970s who faulted the chain's hiring practices, the corporation developed training programs for minorities and women. In 1990, McDonald's USA launched the McRecycle program, and in 1991, initiated a Waste Reduction Action Plan to recycle its packaging products. The restaurants started to offer more dietetic meals by using vegetable oil in the cooking of french fries and adding salads, low-fat muffins, reduced-fat ice cream, and the Grilled Chicken Deluxe to their menus. In India, McDonald's restaurants serve vegetable McNuggets and a mutton-based Maharaja Mac. In Israel, kosher hamburgers are available, and in Muslim countries, menus are certified as halal. McDonald's has also started to design buildings and signs respecting the local architecture. In Miami's Little Havana, a McDonald's restaurant evokes a hacienda, while on Long Island, New York, a restored 1860s house accommodates the fast-food outlet.

McDonald's has borne the brunt of American and European intellectuals who fault it for being an agent of cultural imperialism and globalization responsible for homogenizing indigenous cultures and destroying local traditions. In the United States, the rising popularity of franchised fast-food restaurant chains in the 1950s coincided with the steady decline of traditional Mom and Pop eateries and the subsequent homogenization of the roadside landscape. In the early 1970s, most of the old stainless-steel "railcar" diners, which offered regional cooking and atmosphere, could not compete with the fast-food chains and were demolished or abandoned, though diners did experience a resurgence of sorts by the 1990s. In 1990, in Hartsville, Tennessee, McDonald's opened its own Golden Arch Cafe as an outlet resembling a traditional 1950s-style diner; the cafe offers sit-down service from a menu that includes lasagna, Salisbury steaks with two vegetables, and grilled chicken platters, with only the french fries a vestige of the fast-food concept.

Close attention to consumption practices reveals more complex interaction patterns. While McDonald's has affected some influential changes in consumer habits, local cultures and identities have constrained McDonald's to adapt to place and reveal local idiosyncrasies. Some obvious examples of this have included changes in menu items, like the Teriyaki McBurger in Japan, McLacks in Norway, or Kiwi Burgers in New Zealand; the provision of beer with meals and large smoking sections in Belgium, France and Germany; or nomenclature changes to adapt to the metric system. These changes, however, often mask the fact that the process of production and distribution of the food has changed considerably from traditional methods.

For most customers outside the United States, McDonald's offers an altered cultural and social experience that starts when the threshold is crossed. In Asia, James L. Watson noticed that "East Asian consumers have quietly, and in some cases stubbornly, transformed their neighborhood McDonald's restaurant into local institutions…. In Beijing, Seoul and Taipei, for instance, McDonald's restaurants are treated as leisure centers, where people can retreat from the stresses of urban life. In Hong Kong, middle school students often sit in McDonald's for hours—studying, gossiping, and picking over snacks…. One surprise was the discovery that many McDonald's restaurants in East Asia have become sanctuaries for women who wish to escape male-dominated settings." In Europe, the facades of the restaurants are designed to conform to the local architecture, and the interior design varies depending on the city, with references made to the local culture such as Modernisme in Barcelona, Art Nouveau in Brussels, or Art Déco in Paris. Design quality compensates for the lack of space and higher densities of European McDonald's restaurants. Contrary to the situation in North America, fast food in Europe does not mean fast consumption. Numerous McDonald's restaurants in Paris have become afternoon meeting places for elderly women who enjoy chatting while drinking a coffee and eating an apple pie. French teenagers have adopted McDonald's restaurants as headquarters where they can spend hours socializing with their friends. Eating in Europe is a social and often familial event that takes time, and people like to share it in a pleasant atmosphere. Consequently, comfortable, individual chairs and real plants had to replace the original fixed chairs and plastic foliage. Some McDonald's restaurants in Europe supply free daily newspapers at breakfast-time and dress their tables with cotton tablecloths and small vases of dried flowers. Thus, while McDonald's captured the spirit of postwar America and built its national fame on the rationalization of the fast-food concept, the international success of McDonald's restaurants rely on their ability to sell the American myth through a pseudo-American experience exotic enough to fit local imaginations and expectations about America but flexible enough to be adapted to local customs.

Despite the global economic turbulence of the late 1990s, the international division of the McDonald's Corporation achieved continuous growth and success while simultaneously, in the United States, it faced dramatic difficulties under competition from other restaurant concepts. In 1998, the company decided to adapt the lessons learned abroad to the United States, and made a radical cultural, operational, and strategic turn in the management of its domestic market. The company's domestic operations were decentralized and streamlined into five divisions based on geographic regions. Like their international counterparts, independent franchises in the United States have become collaborators in marketing and advertising, with a say in the menu. The company is experimenting actively with new products such as the Cajun Chicken Sandwich or the McFlurry to respond better to local competitive situations. After four decades of success based on perfect uniformity and predictability, McDonald's enters the twenty-first century with decentralization, flexibility, and pluralism as its new mantra.

—Catherine C. Galley

—Briavel Holcomb

Further Reading:

Alfino, Marc, John S. Caputo, and Robin Wynyard, editors.McDonaldization Revisited. Westport, Connecticut, Praeger, 1998.

Boas, Max, and Steve Chain. Big Mac: The Unauthorized Story of McDonald's. New York, Dutton, 1976.

Fishwick, Marshall, editor. Ronald Revisited: The World of Ronald McDonald. Bowling Green, Ohio, Bowling Green University Press, 1983.

Kroc, Ray. Grinding It Out: The Making of McDonald's. Chicago, Contemporary Books, 1977.

Leidner, Robin. Fast Food, Fast Talk: Service Work and Routinization of Everyday Life. Berkeley, University of California Press, 1993.

Love, John F. McDonald's: Behind the Arches. New York, Bantam, 1995.

Ritzer, George. The McDonaldization of Society: An Investigation into the Changing Character of Contemporary Social Life. Thou-sand Oaks, Sage Publication, 1993.

——. The McDonaldization Thesis: Explorations and Extensions. London, Sage Publications, 1998.

Robison, Richard, and David Goodman, editors. The New Rich in Asia: Mobile Phones, McDonald's, and Middle-Class Revolution. London, Routledge, 1996.

Watson, James L., editor. Golden Arches East: McDonald's in East Asia. Stanford, Stanford University Press, 1997.

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McDonald's

McDonald's



The McDonald's fast-food (see entry under 1920s—Food and Drink in volume 2) chain started small but has grown since its founding in 1948 into America's best-known pit stop for hamburgers (see entry under 1950s—Food and Drink in volume 3), French fries (see entry under 1950s—Food and Drink in volume 3), milkshakes, and a variety of other premade delicacies. In addition, aggressive global marketing has enabled McDonald's to become one of the most recognizable brand names in the world.

Brothers Dick (1909–1998) and Mac (c. 1902–1971) McDonald developed the idea for McDonald's with an eye on the growing popularity of the automobile after World War II (1939–45). The first McDonald's restaurants featured "carhops" who would serve customers food orders in their cars. In time, the brothers abandoned the carhop concept in favor of a standardized self-service system. In this way, customers could have speedier access to nine standard menu items. Most popular among these were hamburgers, cheeseburgers, milkshakes, and French fries. The restaurants grew so popular that they were soon "franchised" or sold to individual operators around the country who agreed to abide by McDonald's cooking system. Ray Kroc (1902–1984), a milkshake tycoon, opened the first franchised McDonald's in Des Plaines, Illinois, in 1955. Kroc bought the company from the McDonald brothers for $2.7 million in 1961.

Under Kroc's guidance, McDonald's grew even more popular. The company's "golden arches" and its clown mascot Ronald McDonald were marketed all over America, particularly to families with children. A number of new menu items were introduced, including the "Big Mac," McDonald's signature sandwich, in 1968 and the "Happy Meal," aimed at kids, in 1979. In 1973, the restaurant even began serving breakfast. By the 1970s, McDonald's had become a vital part of many Americans' daily lives.

It was no surprise, then, that the company began to expand globally as well. The 1970s saw McDonald's restaurants in Europe, Japan, and South America. With the collapse of communism in Russia and improved relations in China, McDonald's opened its doors there, too. Some citizens in these countries complained that the burger giant was "Americanizing" their culture, but people of all ethnic backgrounds continued to line up for the company's inexpensive, filling food.

McDonald's global reach has made it a reliable reference point for popular culture. The 1994 film Pulp Fiction, for example, included a long, rambling conversation between two hit men about what people call various McDonald's sandwiches in foreign countries. Like Coca-Cola (see entry under 1900s—Food and Drink in volume 1), Levi's (see entry under 1950s—Fashion in volume 3), and Budweiser (see entry under 1960s—Commerce in volume 4), McDonald's is one of those all-American brand names that keeps popping up all over the world.


—Robert E. Schnakenberg


For More Information

Boas, Max, and Steve Chain. Big Mac: The Unauthorized Story of McDonald's. New York: Dutton, 1976.

A Brief History of McDonald's.http://www.mcspotlight.org/company/company_history.html (accessed February 19, 2002).

Kroc, Ray. Grinding It Out: The Making of McDonald's. Chicago: Contemporary Books, 1977.

Love, John F. McDonald's: Behind the Arches. New York: Bantam, 1995.

McDonald's.http://www.mcdonalds.com (accessed February 19, 2002).

Schlosser, Eric. Fast Food Nation. New York: Houghton Mifflin, 2001.

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McDonald's Corporation

McDonald's Corporation

2111 McDonald's Dr.
Oak Brook, IL 60523
Free: 800-244-6227
URL:http://www.mcdonalds.com

McDonald's USA National Employee Scholarship Program (Undergraduate/Scholarship)

Purpose: To recognize and support the McDonald's USA student-employees for their education. Focus: General studies. Qualif.: Applicants must be currently employed at a McDonald's restaurant and have at least four months continuous employment at the time of application; must work a minimum of 15 hours per week; must be high school seniors or college students planning to attend an accredited institution offering postsecondary education and/or career training and instruction in the fall; must be employed by McDonald's or a McDonald's owner/operator at the time the scholarship awards are announced. Criteria: Recipients are selected based on documented academic achievement, community involvement and job performance.

Funds Avail.: $1,000. To Apply: Applicants must complete most of the application online and print out the rest. Deadline: March 1.

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McDonald's Corporation

McDonald's Corporation

founded: the first mcdonald's opened in 1948, but the franchising operation that would become mcdonald's corporation was founded in 1955.



Contact Information:

headquarters: 1 kroc dr. oak brook, il 60521 phone: (630)575-3000 fax: (630)575-3392 toll free: (800)621-7825 url: http://www.mcdonalds.com

OVERVIEW

From a hamburger stand operated by the Mac brothers in San Bernardino, California, McDonald's Corporation has grown to become the best known and most popular fast-food restaurant chain in the world. At the end of 1997, McDonald's had 23,132 franchised and company-owned restaurants, or "stores," with 12,380 in the United States. In 1997, 2,110 new stores opened and the company planned to open between 2,400 and 2,800 additional units worldwide, with over 70 percent of those units outside the United States.



COMPANY FINANCES

In 1997 worldwide sales were $33.6 billion. Total revenues were $11.4 billion. Average sales per store were $1.6 million. Net income per share was $2.35. In the 1997 annual report, Chairman Mike Quinlan forecasted, "We expect net income per common share growth in the range of 10 to 15 percent in each of the next five years, excluding foreign currency translation."



ANALYSTS' OPINIONS

While acknowledging that the company remains the leader in the fast-food business, a December 1996 report by Natwest Securities stated that, in 1996, McDonald's stock price had been outperformed by the Standard & Poor's 500 (an index of 500 company stock prices). Indeed, McDonald's stock price has not been reflective of the mid- to late 1990s bull market. An October 1996 report by Bear, Stearns & Company discussed the company's challenges: "McDonald's shares have been under pressure as it has become increasingly evident that the company has problems in its U.S. operations; sales have been soft recently despite heavy marketing for the new Deluxe sandwich line and the Summer Olympics sponsorship." However, the report recommended that investors purchase the stock, and it anticipated success for efforts to increase the amount of the average order in U.S. stores. In 1998 industry analysts praised the appointment of Jack Greenberg to the helm. A New York Times report quoted Wheat First Union's Jeffrey Omohundro, who said, "His leadership in those areas is being recognized. I think it's Greenberg's ship, and he is the captain."




HISTORY

Dick and Mac McDonald opened their first McDonald's restaurant in December 1948 in San Bernardino, California. While the brothers did some franchising of the McDonald's name, it was Ray Kroc, a milkshake machine salesman, who saw the potential for franchising McDonald's restaurants around the country. Kroc's prototype store, in Des Plaines, Illinois, is a museum today. In 1961 Kroc bought out the McDonald brothers for $2.7 million in cash. That same year, he opened Hamburger University in the basement of a MacDonald's restaurant in Elk Grove Village, Illinois, as a training facility for new franchisees and store managers.

By 1963 McDonald's restaurants were selling a million hamburgers a day. In 1965 the company went public. In 1967 McDonald's opened its first international store in Canada. The signature "Big Mac" was introduced in 1968. In 1975 the first McDonald's "drive-thru" operation was established in Sierra Vista, Arizona. In the late 1990s drive-thrus accounted for about half of McDonald's domestic sales.




STRATEGY

McDonald's winning formula has remained constant over the years: It provides quality food and fast service, in a clean environment, at an affordable price. McDonald's also markets extensively to children, correctly figuring that, when parents bring their families to McDonald's, they will buy menu items themselves. The focus on children has made the chain highly popular: the company's Ronald McDonald "spokesclown" is recognized by 96 percent of American children. In 1998 McDonald's signed a long-term deal with the Walt Disney Company to include Disney merchandise as giveaways in its Happy Meals. The company offers extensive support to its 4,500 franchisees and affiliates, who own and operate about 85 percent of the McDonald's restaurants around the world. These services include technical, marketing, and management assistance. Franchisees are expected to meet strict standards on food quality, service, and cleanliness, thus ensuring that customers have a consistent, positive experience at all McDonald's restaurants.

In 1998 McDonald's introduced a sweeping, new plan to improve efficiency and returns. This plan, the "Made for You" concept, will revamp kitchens and promote sandwiches to be made specially for the customer, while keeping the products fresher. A computer-based production system, for which McDonald's developed its own proprietary software, will replace the traditional "batch" method, whereby food is prepared often before the customer even enters the store. The new layout will allow McDonald's to expand its menu more easily, as well. In Restaurant Business, Claire Babrowski, McDonald's executive vice-president of restaurant systems, called these changes "the most significant operating cost improvement we've had in five or six years." The company will contribute toward each franchise's equipment-conversion costs.




INFLUENCES

McDonald's 1996 market share among burger-specialty chains, a nearly $40 billion domestic business, fell to 42.1 from 42.3 percent the previous year. At the same time, McDonald's strongest rival, Burger King, increased its market share from 18.2 to 19.2 percent, while Wendy's accounted for 11 percent, up from 10.7 percent. These developments prompted McDonald's to launch one of its biggest promotions ever in 1997: "Campaign 55," special sale prices of $.55 on selected sandwiches, with the purchase of any size drink and fries. (The name was a reference to the year McDonald's Corporation began operations.) However, according to a Wall Street Journal report, "the most dramatic price cut in the history of the fast-food industry may not be quite as dramatic as it seems." The report noted that, while the price of the Big Mac dropped to $.55 from about $1.99 on April 25, 1997, 25 percent of McDonald's restaurants surveyed by the Journal had raised their prices on French fries and soft drinks, which customers had to purchase in order to get the hamburger discount.

The plan had been expected to set off a price war in the industry, but results were disappointing. Two weeks into the campaign, sales at 3,000 U.S. McDonald's units actually fell by as much as 6 percent. One reason the promotion may not have been more effective is that competitors had reacted with promotions of their own. Burger King sold its Whopper for $.99 "with no strings attached," and Wendy's introduced a popular line of pita sandwiches. However, McDonald's claimed the press reports on the promotion were inaccurate, and that the promotion was meeting expectations.

A McDonald's promotion that included Teenie Beanie Babies with the purchase of a Happy Meal was extremely successful. On the day that promotion was launched in early 1997, average store sales were up 15.4 percent from a year earlier. The promotion, which was intended to last a month, ended after a week, as consumers stormed McDonald's stores to obtain the 100 million Teenie Beanies that McDonald's had purchased for the promotion.

CURRENT TRENDS

As the fast-food sandwich market has become increasingly competitive, McDonald's has modified its menu in order to remain strong. In 1998 various regions tested a potential hit, the "McDonald's Big Xtra," or "MBX," a 4.5 ounce burger launched to compete with Burger King's Whopper, and reminiscent of the 1980's "McDLT." Also in 1998, in response to consumer feedback, McDonald's brought back its "Filet-O-Fish" sandwich, which had been replaced in 1996 by the larger "Fish Filet Deluxe." From time to time, the chain offers novelty sandwiches, such as the "Cheddar Melt" or the "McRib," on a promotional basis.



PRODUCTS

McDonald's is known primarily as a hamburger chain, but offers a variety of other fast-food sandwiches, as well as breakfast entrees and smaller "Happy Meals" for children. Since 1983, "Chicken McNuggets" have been a popular feature. Restaurants serve four sizes of soft drinks, including "Super Size," as well as several flavors of milkshakes. In addition, some restaurants bring out a mint "Shamrock Shake" for St. Patrick's Day. French fries are a staple of lunches and dinners at McDonald's, and the breakfast menu includes hash-browns.




CORPORATE CITIZENSHIP

In 1984, after Ray Kroc died, Ronald McDonald Children's Charities was founded in his memory. It provides funds worldwide to organizations that promote education, the arts, and civic and social services, and for medical research. Its most visible manifestations are the Ronald McDonald House Charities, which provide "homes away from home" for families of seriously ill children who are being treated at nearby hospitals. In 1996 Ray Kroc's widow, Joan Kroc, donated $50 million to the cause. Since its inception, the foundation has granted over $100 million to various non-profit children's organizations.

McDonald's established a major partnership with the American Red Cross to provide relief to thousands of families who have been affected by natural disasters. The company participated in many other charitable and educational programs in the 1990s, and its franchisees were involved in programs in their local communities. Additionally, in the 1990s, McDonald's launched a major initiative to use more recycled materials in its restaurants. The average recycled content in McDonald's packaging increased from 17 percent in 1990 to 42 percent in 1995, when its U.S. restaurants used nearly 120,000 tons of recycled packaging. McDonald's is also a member of the Paper Task Force, a group of U.S. companies organized by the Environmental Defense Fund to study and promote the use of recycled materials by American business. In 1998 McDonald's received the Environmental Protection Agency's "Green Lights Retail Partner of the Year" award for its use of energy-efficient lighting fixtures.




GLOBAL PRESENCE

McDonald's extensive international operations were its main growth area in the early to mid-1990s. In its 1996 Annual Report, McDonald's stated that its international operations were playing an increasingly important role toward building its bottom line. In 1995, for example, 7,030 McDonald's restaurants in 89 countries outside the United States produced sales of $14.0 billion, compared to the $15.9 billion produced by McDonald's U.S. restaurants. While the McDonald's menu is virtually standard in every location in the United States, international restaurants offer standard menu items as well as other items that appeal to the host country's "cultural preferences." For example, some serve rice dishes in Japan; beer in Germany; Kiwi burgers in New Zealand; spaghetti in the Philippines; and salmon sandwiches (called "McLaks") in Norway. In Islamic countries, such as Saudi Arabia, McDonald's restaurants offers a "Halal" menu.

In 1997 there were 4,500 McDonald's restaurants in 17 Asia/Pacific countries. That year, it opened 37 in the Philippines and 44 of its 100 stores in Indonesia; but in March 1998, the company closed 13 locations in the latter due to the continuing economic crisis. As of 1998 the company planned to invest $1.5 billion more in Asia and the Pacific Rim to open an additional 2,000 stores by the year 2000.

FAST FACTS: About McDonald's Corporation


Ownership: McDonald's Corporation is a publicly owned company traded on the New York Stock Exchange as well as trading floors in Basel, Chicago, Frankfurt, Geneva, Munich, Paris, Tokyo, and Zurich.

Ticker symbol: MCD

Officers: Jack M. Greenberg, Pres. & CEO, 55, $1,340,987; Michael R. Quinlan, Chmn., 53, $2,176,500; Alan Feldman, Pres.; James R. Cantalupo, VChmn. & CEO of McDonald's International, 54, $1,340,987

Employees: Over 267,000 (1997)

Chief Competitors: Major competitors include: Burger King; Wendy's; Subway; Taco Bell; and Arby's.




EMPLOYMENT

McDonald's is committed to diversity in the work-place. Executives, company staff, and store managers are eligible to participate in a profit-sharing plan, based on level of compensation. In 1997, no officers received merit raises, owing to an underwhelming company performance for 1996.

CHRONOLOGY: Key Dates for McDonald's Corporation


1948:

Dick and Mac McDonald open their first McDonald's in San Bernardino, California

1955:

Ray Kroc opens the prototype McDonald's franchise in Des Plaines, Illinois

1961:

Kroc buys out the McDonald brothers; opens Hamburger University

1963:

Ronald McDonald debuts on television, played by Willard Scott

1965:

McDonald's goes public

1967:

The Big Mac debuts

1974:

Ronald McDonald House, for parents of critically ill children, is created

1975:

The drive-thru operation is established in Sierra Vista, Arizona

1984:

Ray Kroc dies and Ronald McDonald Children's Charities is founded in his memory

1994:

McDonald's opens in Kuwait to 15,000 people and a seven-mile long drive-thru line

1998:

Disney signs a long term deal with McDonald's to include Disney merchandise as Happy Meal giveaways




TEENIE BEANIES TAKE OVER MCDONALD'S

How long would you wait in line at McDonald's? If you are looking to get a Teenie Beanie Baby, you could be waiting for hours.

In 1997 McDonald's launched a campaign to include a Teenie Beanie Baby, made by Ty Inc., in every Happy Meal sold. Unfortunately, the corporation underestimated the popularity of the toys, and the restaurants were bombarded with Beanie-crazed customers looking to collect all of the toys as they were released.

In 1998 McDonald's announced that it would once again include the Teenie Beanie Babies in its Happy Meals. In an effort to control the demand, the corporation ordered about 150 million of the tiny toys, up from 84 million in 1997. Also changed from their previous year's experience, McDonald's made arrangements in their contract with Ty Inc. that a food purchase was required to obtain the toys. McDonald's franchise owners wanted to make sure the headaches from the crowds and crazed collectors was worth the owners' time and effort.

One Teenie Beanie fan admitted that she purchased ten toys each trip saying, "I don't smoke, I don't drink, I gotta have some vice." Watch out in 1999 for fans like this, because McDonald's already has plans for Teenie Beanie Baby III.




SOURCES OF INFORMATION

Bibliography

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canedy, dana. "mcdonald's executive promoted to chief." new york times,1 may 1998.

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gibson, richard. "big price cut at mcdonald's seems a mcflop." wall street journal, 9 may 1997.

——. "burger flip-flop: worried mcdonald's plans dramatic shifts and big price cuts." wall street journal, 26 february 1997.

——. "mcdonald's says price cuts are approved." wall street journal, 3 march 1997.

——. "prices tumble on big macs, but fries rise." wall street journal, 25 april 1997.

gibson, richard, and calmetta y. coleman. "how burger king finally became a contender." wall street journal, 27 february 1997.

leonhardt, david. "mcdonald's: can it regain its golden touch?" business week, 9 march 1998.

lubow, arthur. "steal this burger." new york times, 19 april 1998.

"mcdonald's announces quarterly cash dividends." pr news-wire, 20 january 1998.

"mcdonald's announces strategic initiatives." pr newswire, 26 march 1998.

"mcdonald's announces supplemental 1997 financial information." pr newswire, 19 february 1998.

"mcdonald's brings back filet-o-fish sandwich after two-year hiatus." knight-ridder/tribune business news, 12 march 1998.

"mcdonald's—can it regain its golden touch?" business week, 9 march 1998.

"mcdonald's corporation." hoover's online, may 1998. available at http://www.hoover's.com.

mcdonald's corporation 1995 annual report. oak brook, il: mcdonald's corporation, 1996.

mcdonald's corporation 1997 annual report. oak brook, il: mcdonald's corporation, 1998.

"mcdonald's kroc donates $50m to children's charities." nation's restaurant news, 22 january 1996.

"mcdonald's launches 14th annual gospelfest: a celebration of gospel music." pr newswire, 14 april 1998.

"mcdonald's plans over $1 billion expansion in asia/pacific." pr newswire, 9 april 1998.

millman, nancy. "55-cent burger is mcbait." chicago tribune, 27 february 1997.

nadeau, susan. "interview—mcdonald's closes 13 indonesia stores." reuters, 9 april 1998.

"no mcdonald's officers got '97 salary hikes." reuters, 7 april 1998.

raffio, ralph. "did somebody say mcdonald's was hurting?" restaurant business, 15 february 1998.

ruggless, ron. "rensi: women, minorities crucial to success at mcd." nation's restaurant news, 28 april 1997.

"steve's big mcbreak." restaurant business, 1 april 1998.

tannenbaum, jeffrey a., and michael selz. "mcdonald's price cut: entree of woe for weak chains." wall street journal, 27 february 1997.

"welcome to mcdonald's." oak brook, il: mcdonald's corporation, 1996.



For an annual report:

telephone: (800)621-7825



For additional industry research:

investigate companies by their standard industrial classification codes, also known as sics. mcdonald's primary sics are:

5812 eating places

6794 patent owners & lessors

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McDonald's Corporation

McDonald's Corporation

CAMPAIGN 55 CAMPAIGN
DID SOMEBODY SAY MCDONALD'S? CAMPAIGN
I'M LOVIN' IT CAMPAIGN
WE LOVE TO SEE YOU SMILE CAMPAIGN

McDonald's Plaza
Oak Brook, Illinois 60523
USA
Telephone: (630) 623-3000
Fax: (630) 623-5004
Web site: www.mcdonalds.com

CAMPAIGN 55 CAMPAIGN

OVERVIEW

In 1996, McDonald's, the world's biggest fast food restaurant chain, found itself in a proverbial pickle. A tight labor market, additional costs resulting from minimum wage increases, and price pressures on raw materials sent the burger giant's operational costs spiraling upward, which in turn helped to depress profits. All this came at a time when McDonald's major rivals, Wendy's International and Burger King Corporation, were using innovative marketing strategies to eat into the Golden Arches' share of the pie.

McDonald's first attempt to arrest these trends was the May 1996 introduction of the Arch Deluxe, a "premium" sandwich targeted at adult consumers. The strategy seemed valid at a time when inflationary forces were ascendant in the economy. In order to sustain profits, McDonald's needed to develop a product consumers would be willing to spend more money on. The only problem was that the Arch Deluxe proved to be unpopular with consumers. Furthermore, the ad campaign designed to promote the new entree featured grimacing children clearly turned off by the new "grown-up" burger. McDonald's had consequently alienated one of its core markets—little kids—in pursuit of invigorated sales to adult customers. As Arch Deluxes piled up on warming racks waiting for consumers who were not buying them, the burger giant scrambled to rethink its approach.

The result was an ambitious price-cutting promotion that seemed to fly in the face of the economic winds that had spawned the Arch Deluxe. The new campaign was heralded by months of anxious anticipation. In a statement to the press at the end of 1996, McDonald's announced that it was "on the threshold of an unprecedented value offering that will be good news for our customers, our franchisees, and our business … and bad news for the competition."

Consumers across the country got a taste of the new direction almost immediately. As of April 11, 1997, price promotions began to figure more prominently in McDonald's national advertising. Before then, these efforts were usually focused on the local or regional level. After two weeks of "national price point advertising," the new national campaign began on April 25, 1997. Dubbed "Campaign 55" for the year McDonald's was founded, the promotion lowered the price on a rotating slate of sandwiches with the purchase of french fries and a soft drink. A similar deal was launched on a rotating basis through the chain's breakfast menus. The value pricing plan was accompanied by a new advertising campaign, "My McDonald's," created by the Leo Burnett Agency, McDonald's longtime ad partner. As the overall architect of the campaign, Burnett received the bulk of the ad work, although McDonald's other roster shops, DDB Needham Worldwide and Burrell Communications, also received some assignments.

The stakes were enormous. McDonald's was luring its customers into restaurants with a 55-cent promise and risking their anger when they were hit with a $1.79 actual price tag after the mandatory purchase of fries and a drink. If consumers refused to accept the deal, they could view McDonald's as having reneged on a promise. More importantly, the chain's pursuit of sales volume came at the expense of franchisee profitability—a strategy that threatened to erode the sometimes tenuous bonds of trust between the parent company and its retail partners. "Campaign 55" would prove to be a marketing debacle for McDonald's and its partners at Leo Burnett. When the dust settled, the landscape of two of America's signature industries—fast food and advertising—had been dramatically changed.

HISTORICAL CONTEXT

In 1982 McDonald's, citing the need for a bigger agency, jettisoned Needham in favor of its crosstown Chicago rival, Leo Burnett. One of Burnett's first campaigns introduced consumers to the children of "Camp Nippersink," solidifying the burger giant's hold on the kids' market. By 1988, however, the Golden Arches began a long-term effort to win the hearts and minds of the adult dinner crowd. One of the first campaigns in this initiative, "Mac Tonight," parodied a familiar Brecht-Weillsong—to little apparent effect. The Arch Deluxe failure was thus only the last in a series of unsuccessful attempts to secure the adult market. That misstep, compounded by eight straight quarters of declining sales, prompted McDonald's executives to rethink its marketing approach. The end result was "Campaign 55."

In a December 1996 memo, McDonald's Chairman Jack Greenberg outlined the burger maker's overall market strategy. He wrote of the company's intention to "reenergize and focus … U.S. marketing efforts and develop a national value proposition." It was a significant departure for a company that had always offered its price promotions on the local and regional level. In late February 1997, several senior Burnett executives met at McDonald's Oak Brook, Illinois, headquarters to map out an advertising strategy for "Campaign 55." At the same time, McDonald's franchisees were being briefed on the new pricing strategy via closed-circuit television. Shortly thereafter, franchisees were given a chance to approve the national discount plan. At least 75 percent of the burger maker's 2,700 owner-operators needed to give a thumbs-up in order for the plan to go forward. They did so, but not without trepidation. Many owner-operators viewed the pricing plan as a drastic, even desperate move and an overreaction to the sales slump. Some expressed skepticism about whether the "home office" had done the research to make certain this was what consumers wanted. Many of these reservations would prove to be prescient in the weeks and months to come.

On April 4, 1997, McDonald's restaurants across the United States began offering 55-cent Egg McMuffin breakfast sandwiches with the purchase of hash browns and a drink. Three weeks later, on April 25, the promotion was expanded to Big Macs as well. Quarter Pounders were next up in the rotation, with their price reduction commencing in mid-June. McDonald's dedicated $66 million worth of national advertising to the value-pricing plan, much to the dismay of some regional shops, which had benefited enormously when McDonald's diverted $150 million from national to regional advertising in 1996.

TARGET MARKET

As a national campaign with an enormous advertising budget, "Campaign 55" was theoretically aimed at all fast food consumers across the United States. But in a fast food market dominated by large chains, the real target was those consumers who had strayed to other burger purveyors on the issue of value pricing. In the late 1990s, fast food was one of the most developed sectors in the restaurant industry, with the fast food hamburger category being perhaps the most competitive; there seemed to be McDonald's, Wendy's, and Burger King outlets on most every corner. And consumers were using increasingly sophisticated criteria to decide where and how to spend their money. In this environment the goal for these companies was market share gain.

McDonald's aim with "Campaign 55" was to convince customers to visit its restaurants instead of its competitors. Very often a promotion like a price-cutting program can play a big part in convincing the customer. Wendy's, with its 99-cent Super Value Menu, and Burger King, with its 99-cent Whopper and $2.99 Whopper Meal Combo, had stolen away some of McDonald's pricing edge, and had scored notable market share gains. McDonald's hoped that customers who had been wooed away by the promise of value would respond favorably to "Campaign 55."

COMPETITION

For quite some time, McDonald's had understood the root of its troubles: smaller chains were using seemingly tastier, more diverse menus and shrewd marketing to eat into their market share. Burger King in particular relied on product-focused ads to score sales increases of 2.6 percent per store for the year ending September 30, 1996.

While McDonald's overall sales remained strong, the company felt it had to do something to stem the market share erosion. It responded initially by opening more restaurants. The thinking was that even if store volume did not increase, sales would go up because of the increased number of stores. In addition McDonald's could collect more rent and franchise fees. But franchisees soon called for a halt in expansion. They found their own profits plummeting as new outlets opened up close by, cannibalizing their sales. A program to introduce new sandwich items, such as the Arch Deluxe, also failed. McDonald's seemingly was left with no alternative but to slash prices.

As word leaked out about the nature of the promotion, industry observers began to fear a burger price war. The prospect of falling profit margins helped to depress stock prices for McDonald's and its major competitors, Wendy's International and Grand Metropolitan, the parent company of Burger King Corporation. Both companies rushed to announce that they had no plans to match McDonald's price cuts. "We've attached ourselves to a strategy that states it's not a great value if it's not a great tasting burger," said Andy Bonaparte, Burger King's director of advertising.

While the Golden Arches was using its partnership with the Walt Disney Corporation to tie into that company's 1997 summer movie releases, Burger King returned fire with adult-targeted tie-ins to the blockbuster film Jurassic Park: The Lost World starting on Memorial Day weekend. Ads for that onslaught were created by Ammirati Puris Lintas of New York. In a special promotion aimed at children, BK Kids Meals were offered with giveaway toys from director Steven Spielberg's The Land Before Time video series.

MARKETING STRATEGY

McDonald's marketing officials expected the value price promotion to spur consumer traffic and nudge patrons into paying full price for the chain's higher-margin french fries and soft drinks. Accordingly, the chain advised its franchisees to increase on-hand packaging and food supplies by 10 to 15 percent in anticipation of a corresponding hike in sales.

While the focus of the campaign was national, the media plan called for a window of local spot promotions in April 1997. McDonald's envisioned "Campaign 55" as an integral part of a summer marketing blitz tied to the June release of the Walt Disney Company's animated feature Hercules and the comedy-adventure film George of the Jungle in July. "Campaign 55 is not a short-term promotion," declared McDonald's spokeswoman Anna Rozenich. "It's designed to increase restaurant profit and cash flow over a long period of time." Indeed, the burger giant planned its marketing calendar around "Campaign 55" well into 1998, the idea being that every month or so a different sandwich would be featured at the discounted price. Initially, the price reduction was to be accompanied by a promise to offer the customer free food if an order was not served within 55 seconds. After complaints from owner-operators about the feasibility of this and all aspects of the marketing plan, however, this feature was abandoned.

Coincident with the April 4 price reduction promotion was the debut of the "My McDonald's" national television campaign created by Leo Burnett. The commercials showed McDonald's owner-operators and restaurant workers expressing the company's core values. Its only seeming relation to the price promotion was the emphasis on the year 1955—the year McDonald's was founded and when the "core values" presumably were formulated. "This is not in the least a price promotion," remarked McDonald's senior vice president of marketing Brad Ball.

LATE-NIGHT PUBLICITY

An old adage says that there is no such thing as bad publicity. But some say that an even older adage dictates: stay out of the monologues of late-night talk-show hosts. The latter could be a sure sign that one has turned into a national joke. And yet that is just what happened to venerable national icon McDonald's in the wake of its much maligned "Campaign 55" promotion. Late Show gabber David Letterman was the emcee for a round of good-natured knife twisting that took the form of a Top Ten List citing "Other Failed McDonald's Promotions." Among the "promotions" on Letterman's list were: "Happy Meals include small containers of nitrous oxide"; "Get 500 Quarter Pounders for the price of 499"; and "Buy any sandwich and have clown makeup permanently tattooed on your face." "The 55-cent McCoronary" topped the list.

The new strategy carried with it a number of inherent risks. First, it seemed to run counter to the economic trends of the day. With operational costs rising, a drastic cut in prices put McDonald's two strikes down in the effort to spur profit margin increases. This was difficult, especially for franchisees, who had already seen their margins erode due to the company's aggressive expansion program. Another risk McDonald's had taken was embarking on a dual campaign. In doing so, they faced one of marketing's toughest challenges: boosting sales while building a brand identity at the same time. There seemed to be little doubt that McDonald's needed to do both. Superior brand advertising by Burger King and Wendy's was having the effect of luring away once-loyal McDonald's customers; the accompanying drop in sales meant McDonald's had to sell more food. But the quest for a quick sales spike is not always consistent with the long-term goal of building a brand identity.

OUTCOME

Reaction to "Campaign 55" was sharply negative from its inception. Many observers were taken aback by the degree of discounts offered. Others saw the abrupt shift in strategy as a sign that McDonald's was confused about its marketing direction. "For the past year, McDonald's has bounced around in terms of its marketing strategy," said Stacy Jamar, a restaurant analyst with Smith Barney, "from last year taking the high road with deluxe sandwiches to this year's pseudo price discount." "I don't think it's a viable long-term solution to the problem they have in the U.S., which is a product problem," declared Damon Brundage of NatWest Securities. Indeed, many analysts saw "Campaign 55" as little more than a quick-fix—a pricing gimmick designed to stop the decline in sales while the company scrambled to devise and implement a real solution to its long-term problems.

For a while, the burger giant ignored these brickbats. The program had achieved some success at the breakfast level, because it spurred sales of combo meals, raising the average customer's bill. And in mid-May, McDonald's announced that unit sales of its Big Mac sandwich had more than doubled since the price reduction. The company enjoyed its strongest comparable April store sales in years. But part of that boost could be attributed to a popular "Teeny Beanie Baby" toy giveaway promotion that same month.

While official figures showed a spike in sales, there was anecdotal evidence to suggest that restaurants were not, in fact, selling more Big Macs than when the promotion began. And any increase in traffic was offset by customer confusion about where the deal actually was. "It's a price promotion that doesn't tell you the price," scoffed Ron Paul, an industry analyst and president of Technomics. His concerns were echoed by McDonald's owner-operators. "I think it's because the offer is confusing," said Dick Adams, the chairman of an independent association of about 100 McDonald's franchisees. "Customers come in expecting to buy a 55-cent Big Mac and they have to buy a conventional meal package." Many customers complained that they did not realize they had to buy fries and a drink to get the 55-cent price deal on their sandwich. Some customers quickly learned to supplement their entree with just a small drink and small fries. Under this arrangement franchisees found they actually lost money.

The ad campaign also proved to be ill-fated. There was considerable confusion over how the pricing plan tied in to the brand-building "My McDonald's" ad theme. As many analysts had predicted, the objectives of the dual ad campaign were not always complementary. While "My McDonald's" tried to build up an image for the brand, "Campaign 55" seemed to drag that image down by concentrating on dollars and cents details.

Finally, in mid-June, following an avalanche of bad press and a near revolt among franchisees, McDonald's discontinued the lunch and dinner components of "Campaign 55." The burger giant moved rapidly to devise a local price initiative to replace the national discount program. That move came as McDonald's prepared to implement a decentralization plan that divided the United States into regions in order to allow regional executives more power to make marketing decisions. And in August 1997, the other shoe finally dropped on "Campaign 55." Following a lengthy review process, McDonald's dropped Leo Burnett as its lead national ad agency and awarded the bulk of the estimated $350 million account to DDB Needham. This closed the book on what analysts considered one of the biggest misfires in marketing history.

FURTHER READING

Benezra, Karen. "McDonald's Looks for Rebound after Campaign 55 Flop." Adweek, June 9, 1997.

Edwards, Cliff. "McDonald's Franchisees Are Formidable Adversaries." Star Tribune, June 5, 1997.

"McDonald's Corp. Says Unit Sales of Big Macs Are Soaring Since It Cut Price of Sandwich." Star Tribune, May 12, 1997.

Whalen, Jeanne. "Beleaguered McDonald's Looks to Local Price Effort." Advertising Age, June 9, 1997.

―――――――. "McDonald's 55 Cent Price Ads to Snare Most of Budget." Advertising Age, April 7, 1997.

                                     Robert Schnakenberg

DID SOMEBODY SAY MCDONALD'S? CAMPAIGN

OVERVIEW

The world's largest fast-food chain by a sizable margin, McDonald's had experienced many years of unbridled growth, but it had faltered in the mid-1990s. Many blamed errors of judgment in marketing, including the introduction of an unpopular burger called the Arch Deluxe in 1997 as well as a confusing discount offer on the chain's signature Big Mac hamburger in 1998. McDonald's, it seemed, had lost sight of the strengths that had made it the industry leader, most notably a keen sense of image that had been burned into customers' minds in the 1970s with classic advertising campaigns such as "You Deserve a Break Today."

As part of its efforts to rejuvenate its image, the company in late 1997 introduced the "Did Somebody Say McDonalds?" campaign with television spots aired throughout the United States. This marked the return of DDB Needham, the advertising agency that had worked with McDonald's from 1971 to 1981 during some of the company's best advertising years. DDB creative director Bob Merlotti created the tagline for the campaign, which ran throughout 1998 and into 1999. Specific spending on "Did Somebody Say McDonald's?" was not disclosed, but McDonald's reportedly spent $604 million on advertising from June 1996 to June 1997. This represented a 12 percent increase over the previous 12-month period.

With "Did Somebody Say McDonald's?" the company sought to return to the ground it had lost—both in the market and in the hearts of its once-loyal customers. But despite the optimistic outlook for the campaign, it failed to drive business and increase sales. In 1999 the company built on the campaign when, at a cost of $100 million, it introduced a local brand-building effort featuring singer Donna Summer. The following year a new campaign, "We Love to See You Smile," was released, replacing the "Did Somebody Say McDonald's?" campaign.

HISTORICAL CONTEXT

In 1948 brothers Dick and Mac McDonald opened the first McDonald's restaurant in San Bernardino, California. Several years later Chicago entrepreneur Ray Kroc happened to stop at the restaurant while on a business trip to Chicago and was instantly taken with the idea. Kroc inked a franchise agreement with the McDonald brothers in 1954 and the following year opened a McDonald's of his own in Des Plaines, Illinois. Fascinated by the idea of mass-producing and selling hamburgers, Kroc improved handsomely on the McDonald brothers' marketing ideas and by 1957 owned a string of McDonald's in the Midwest and California. Four years later he paid the McDonald brothers $2.7 million for their share.

Already by 1962 the chain had sold one billion burgers, and it charted its sales progress with a sign proudly displayed beneath the distinctive "Golden Arches" logo that set its facilities apart from all other fast-food chains. Of course, McDonald's had much more that set it apart: from the beginning Kroc had been taken with the simplicity of the McDonald brothers' stores, most notably the fact that these lacked the clutter typical of most roadside hamburger stands. As he began franchising units—which he did at a rate of more than 500 a year during the 1970s—Kroc issued stringent guidelines regarding virtually every aspect of restaurant operations.

McDonald's signature clown, Ronald McDonald, made his first appearance in 1963, and future years would find him with an array of friends, such as Mayor McCheese. Also in 1963 McDonald's offered its first menu extension, the Filet-O-Fish. Ronald and the expanded menu—which later included breakfast, chicken items, and salads—would become such fixtures of McDonald's that it was hard to imagine a time when they did not exist. Similarly, by the 1990s it was difficult to picture a McDonald's without a drive-through window, but these only made their appearance in 1975.

With the death of Kroc in 1984, McDonald's entered a new era. It expanded rapidly overseas as its U.S. operations began to run up against the inevitable: McDonald's had been so successful in the United States that it seemed likely, or at least possible, that the market would become saturated. Indeed, McDonald's executives would boast that the average customer had to drive no more than four miles to get to the nearest McDonald's. With more than 12,460 restaurants in America by the 1990s, there was one McDonald's for approximately every 290 square miles of U.S. territory; given the fact that the American landmass included vast uninhabited areas in Alaska and the West, this was an impressive figure indeed.

TARGET MARKET

Still, McDonald's sought to work its way into new U.S. markets. Thus in 1993 it began placing restaurants inside the ultra-popular Wal-Mart stores, following a trend toward fast-food restaurants in large retail facilities. By the mid-1990s, however, it seemed that McDonald's had lost sight of its market, as two costly marketing failures seemed to suggest. In 1996 there was the Arch Deluxe, promoted as a burger for adults—as opposed to most McDonald's fare, which, like Ronald McDonald himself, was targeted to children.

The problem with the Arch Deluxe was its relatively high price tag of $2.29, making it the most expensive single item on the McDonald's menu. Marketing for the Arch Deluxe, including billboards featuring children complaining about the "grown-up" burger, did little to spur sales. McDonald's followed this in 1997 with "Campaign 55," a discount promotion offering the signature Big Mac burger for a mere 55 cents. Instead of drawing in more customers, according to Harry Berkowitz of Newsday, this promotion merely "confused and annoyed" them.

"Some marketing experts," Berkowitz wrote in September 1997, "say McDonald's is wrong to focus on whether its burgers are better than the competitions, rather than on its warm, all-American family image." Said industry analyst John Grace, "They lost sight of what the brand stood for. They need to recapture the essence of the McDonald's brand, which is not in the products but in the consumer's mind." Louise Kramer of Advertising Age wrote in May 1999 that many consumers and others rooting for McDonald's in the burger wars wished for a return to the values expressed in the brand's classic "You Deserve a Break Today" campaign created by 1971 by Needham, Harper & Steers, an earlier incarnation of DDB Needham.

As McDonald's faltered during the 1990s, however, it was easy to put too much focus on what the company lacked and not enough emphasis on what it possessed. This was the position of Newsweek International, which in November 1997 listed a number of assets. Among these was "Happy hunting abroad." In contrast to the threatened saturation of the U.S. market, "each day, less than 1 percent of the people on the planet eat McDonald's. That's a lot of mouths yet to feed." There was also "A bodacious brand name. Last year McDonald's trumped Coke as the best known worldwide." And then there was perhaps the most important asset of all: "A lock on the hearts and tummies of American kids—and exclusive rights to Disney promotions through 2006. By then, the population of school-age kids could hit record highs—with record allowances."

COMPETITION

McDonald's was unquestionably the leader of the U.S. burger-chain market and of the fast-food market as a whole. In 1996 it had sales of $16.4 billion, dwarfing the $7.3 billion of Burger King. In fact, McDonald's sales exceeded the combined receipts of Burger King, third-place Pizza Hut, and fourth-place Taco Bell. Fifth in the fast-food market, and third among burger chains, was Wendy's, with $4.4 billion in sales. Next came KFC, followed by seventh-place Hardee's, a burger chain with $3.1 billion in sales in 1996. Below Hardee's were three non-burger chains: Subway, Domino's, and Arby's. In the burger market McDonald's in 1996 held a whopping 42 percent share, compared to Burger King's 19 percent and Wendy's 11 percent. Hardee's held a little more than 7.5 percent, and California-based Jack in the Box an additional 3 percent. All other burger chains rounded out the segment, with a 17 percent share.

Yet by the time it released "Did Somebody Say McDonald's?," the company faced extraordinarily stiff competition from Burger King. Berkowitz wrote, "Customers are gobbling up so many Big Kings—the chain's new, beefed-up version of its archrival's Big Mac—that [New York franchise owner Joe Della Monica] had to take down store signs promoting it at a sale price of 99 cents to avoid running out." This was welcome news to Della Monica, who said that four years earlier, in 1993, "We were in survival mode." At that time Burger King, owned by Britain's Grand Metropolitan PLC, was suffering under an advertising campaign "featur[ing] MTV grunge star Dan Cortese and the loud slogan 'I Love This Place,'" Berkowitz noted. In 1997, by contrast, it ran appealing commercials built around classic songs such as the Troggs' 1960s hit "Wild Thing."

ALGUIEN DIGO MCDONALD'S?

In March 1998 McDonald's unveiled six new Spanish-language spots designed to appeal to Hispanic customers. All featured the company's tagline, "Did somebody say McDonald's?," only in these commercials, created by del Rivero Messianu of Coral Gables, Florida, it was "Alguien digo McDonald's?" Three of the spots were tied to a recent Monopoly game promotion, and others promoted Happy Meals, French fries, and breakfast items. In "Point of View," which, according to Katy Eckmann and Scott Hume of Adweek, was the company's first image ad for Happy Meals, a man harangued his wife with a tale of a tough day on the job. All the while his young son listened thoughtfully, and then he offered his father a McDonald's Happy Meal.

Meanwhile, McDonald's floundered. In an effort to counter the Big King, it test-marketed the Mega Mac, an imitation of Burger King's Whopper that went nowhere. But the Whopper was flame-broiled, while the Big Mac was fried—another negative in the eyes of many consumers eager to minimize fast-food fat. Worse, McDonald's could not compete adequately with either Burger King or Wendy's in the area of special orders. The setup in McDonald's stores was simply too rigid to make special requests anything but a time-intensive exception to the rule; Burger King, by contrast, had proudly announced its ability to handle special orders with the "Have It Your Way" advertising campaign of the 1970s, which had imprinted on the consciousness of millions of customers. McDonald's in 1998 and 1999 experimented with new systems to aid in preparing special orders and to allow it to serve fresher product, as Burger King and Wendy's did, rather than allowing burgers to age under a warming lamp until someone bought them.

MARKETING STRATEGY

The "Did Somebody Say McDonald's?" spots first aired in October 1997. One showed a young man and young woman on a date in a movie theater; when the man turned to the woman and asked if she wanted to go to McDonald's after the movie, an actor on the movie screen asked, "Did somebody say McDonald's?" This caused a general stampede out of the theater, as moviegoers abandoned the feature in favor of the nearest Big Mac. Another spot showed an office worker who innocently announced to his colleagues that he was stopping by a McDonald's and would pick up a burger for anyone who needed one; before he could get out the door, he was besieged with requests.

Of the spots, which would continue airing throughout 1998, an industry analyst told Heather Pauly of the Chicago Sun-Times, "McDonald's has been playing by the other guy's rules by getting overly involved in price rather than reminding people of the emotional part of the product. I think this campaign does that." Likewise Courtney Kane, reporting for the New York Times, noted that "The goal of the campaign … is to bring back warm, fuzzy feelings about the purveyor of Quarter Pounders and Chicken McNuggets."

Meanwhile, McDonald's management and staff at its research kitchens worked on a reconfiguration of the production process so as to provide customers with fresh—and custom-made—burgers. They also experimented with a product called the Big Xtra, or MBX, as it was called at corporate headquarters. If successful, the Big Xtra would simultaneously replace the failed Arch Deluxe and take on Burger King's Whopper. McDonald's CEO Michael Quinlan also expressed an interest in revamping one of the company's most recognizable symbols, Ronald McDonald. "I think we can punch him up a little," Quinlan told Ralph Raffio in Restaurant Business. Raffio noted that the head of McDonald's marketing had indicated that Ronald might be due for a "tweaking." In the future, he suggested, McDonald's famous clown might even age a bit.

OUTCOME

In March 1999 McDonald's announced that it would invest a staggering $100 million in new local brand-building advertisements featuring singer Donna Summer. The latter would sing a version of her 1983 hit "She Works Hard for the Money," only instead of "She works hard for the money / so you better treat her right," the McDonald's jingle would say, "You get more for the money / 'cause McDonald's treats you right." It was the first time Summer—best known as the sexy queen of 1970s disco—had ever rerecorded a song for a commercial. In fact, she recorded it several times, in eight different styles, including swing, big-band, and country versions.

Arnold Communications, which handled local advertising for McDonald's, created the Summer commercials, but the idea of using the song was the brainchild of Maryland franchisee Cathy Bell. When she suggested it before a cooperative of local McDonald's franchisees, response was enthusiastic. Summer proved agreeable to the idea, and Bell told June Arney of the Baltimore Sun, "When I was told [Donna Summer] had agreed to a contract, I said, 'Wow, is this really happening?' Even if you didn't grow up when that song was around, you can relate to it. It's hip. It brings a jazzy overtone to the lyrics." At the end of the commercial Summer whispered, "Did somebody say McDonald's?"

From the introduction of the tagline in 1997, responses to the campaign had been mixed. Yet "Did Somebody Say McDonald's?" harkened back to the classic McDonald's image campaigns of the 1970s as few campaigns since then had managed to do. The company hoped that, given time—and some restructuring both in corporate operations and kitchen management—the tagline would capture popular sensibilities. But in 2000, as McDonald's dismal sales trend continued—a report in Crain's Chicago Business noted that sales averages were up 1.5 percent as a result of increased prices but that actual transaction counts were down about 6 percent—the "Did Somebody Say McDonald's?" campaign was discontinued. Replacing it was "We Love to See You Smile.," a $500 million effort created by DDB Needham.

FURTHER READING

Arney, June. "New McDonald's Ad Owes Idea to Howard Woman; TV-Radio Campaign Starts Today Here and in 9 Other Areas." Baltimore Sun, February 26, 1999, p. 1-C.

Berkowitz, Harry. "Battle of Burgers: McDonald's, Burger King Battle for Fast-Food Throne." Newsday, September 21, 1997, p. F-10.

"DDB Needham Worldwide: Did Somebody Say DDB Needham?." Advertising Age, March 30, 1998, p. S-16.

"Did Somebody Say McDoomed?." Newsweek International, November 17, 1997, p. 31.

"Donna Summer Stars in $100 Mil McD's Push." Advertising Age, March 8, 1999, p. 48.

Eckmann, Katy, and Scott Hume. "McDonald's Making Changes." Adweek (midwest ed.), March 23, 1998, p. 8.

Galloro, Vince. "McDonald's Debuts New Commercials (Did Somebody Say New Commercials?)." Arlington Heights (IL) Daily Herald, July 1, 2000.

Jensen, Trevor. "Scoring Touch." Adweek (eastern ed.), November 2, 1998, p. 28.

Kane, Courtney. "McDonald's Starts a Big Campaign to Revive Its Brand Image." New York Times, October 2, 1997, p. 5.

Kramer, Louise. "DDB's McPlan: Did Somebody Say Evolution? McDonald's Lead Shop Considers Ad Tweaks, Meeting Attendees Say." Advertising Age, May 10, 1999, p. 1.

MacArthur, Kate. "McD's Poised to Launch New Attack Strategy; Recruits Military-Style Consultancy to Battle Slump." Crain's Chicago Business, September 4, 2000.

――――――. "McD's Serves Up $500 Mil Smile with a New Logo; Slice-of-Life Commercial Kicks Off Long-Awaited Campaign This Week." Advertising Age, June 26, 2000.

Oestricher, Dwight. "Buffett Selloff Seen Making Buying Opportunity in McDonald's Stock." Dow Jones News Service, March 16, 1998.

Pauly, Heather. "Big Mac's New Ad Attack." Chicago Sun-Times, October 2, 1997.

Raffio, Ralph. "Did Somebody Say … McDonald's Was Hurting?." Restaurant Business, February 15, 1998, pp. 28-38.

                                              Judson Knight

                                               Rayna Bailey

I'M LOVIN' IT CAMPAIGN

OVERVIEW

By 2003, after nearly 50 years as the king of fast food, McDonald's Corporation was suffering an identity crisis. As Time magazine reported, "The challenges facing McDonald's come supersized. Its home market is all but saturated, its sterling reputation for fast, friendly service and cleanliness is tarnished, and customers are putting a growing premium on freshness and taste, neither of which McDonald's is renowned for." In addition, the company's revenues were shrinking, and it had lowered its earnings expectations for 2002. To reconnect with customers, the company planned remodeling projects in more than half of its U.S. stores, it revamped its menu offerings to include healthier choices, and, to rebuild brand identity, it launched a worldwide marketing campaign, "I'm Lovin' It," featuring singer Justin Timberlake.

Timberlake, however, was suffering his own identity crisis—he had been booed and pelted with water bottles by concertgoers during a performance in Canada—and some McDonald's executives were initially reluctant to sign a spokesman who was unpopular with the type of consumers the company was trying to reach. Nonetheless, Timberlake received a contract worth almost $6 million, and the "I'm Lovin' It" campaign was launched in 2003. Developing the campaign was a combined effort by McDonald's, ad agency DDB Chicago, and the German-based agency Heye & Partner, a division of DDB Worldwide. The campaign featured five television commercials with appearances by Timberlake that focused on the adult market. There were other spots created to "maintain the emotional connection the McDonald's brand has with families and kids," according to a report in the New York Beacon. In addition to the television spots, the campaign included window posters, signs on outdoor poles, ceiling danglers, and special kiosks. Advertising Age estimated the total budget to be $100 million.

The worldwide campaign, the first-ever global marketing effort for McDonald's, was introduced in Germany rather than the United States. As David McHugh reported in the Bergen County (NJ) Record, "Germany was chosen as launch venue because the slogan was dreamed up by a German ad agency, Heye & Partner." The new slogan replaced the company's previous tagline, "We Love to See You Smile," which had been introduced in 2000. Following its launch in Germany, the campaign kicked off in 100 other countries, including the United States. In 2004 the new marketing strategy paid off when Advertising Age named McDonald's the Marketer of the Year for the "brand's marketing achievements around the world."

HISTORICAL CONTEXT

As McDonald's celebrated it 50th anniversary in 2005, the company also could celebrate maintaining its lead in the fast-food burger race. According to PR Newswire, the company had grown from one restaurant in Des Plaines, Illinois, to more than 30,000 restaurants, most independently owned and operated, that served almost 47 million people in more than 100 countries every day. In a 2002 Time magazine article Daniel Eisenberg wrote, "McDonald's opens a new store somewhere around the globe every eight hours." Sales had climbed from $366.12 on opening day at the first restaurant to more than $19 billion in 2004.

In response to competition from other fast-food chains, such as number-two Burger King, and a crowded restaurant market that offered consumers upscale "fast-casual" dining options, McDonald's went on a mission to win customers and revitalize its business. Eisenberg reported that the company planned to bulldoze as many as 1,000 of its aging restaurants and give face-lifts to about 6,000 others. "Remodeling more than half its 13,099 U.S. restaurants, which could cost the company as much as $800 million over the next two years, is only part of CEO Jack Greenberg's latest plan to get bloated old Ronald McDonald back in shape," Eisenberg said.

Greenberg's plans included rolling out a "dollar value menu" for price-conscious customers, adding healthier choices to the menu, and developing new restaurant formats. The last included sit-down diners that would offer home-style menu items like meatloaf and chicken-fried steaks or three-in-one stores that would serve traditional burgers and fries along with Boston Market chicken and Donatos pizzas, both of which, as Eisenberg noted, were owned by McDonald's. In addition, Greenberg proposed launching a $20 million national ad campaign to promote its dollar menu items.

Dave Carpenter, business writer for AP Worldstream, reported that when James Cantalupo took over as McDonald's CEO in 2003 he introduced additional changes, including renewed efforts to "eliminate shoddy service, improve speed and add new menu items, including an entreée-sized salad and the McGriddle breakfast sandwich." Among other changes was the launch of the company's "I'm Lovin' It" campaign, designed to work in all languages and to dispel the chain's image as a fading icon by portraying it as "forever young."

TARGET MARKET

According to Carpenter, the "I'm Lovin' It" campaign was designed to attract "younger and hipper consumers … It's aimed at helping the restaurant chain connect better with customers—especially young adults, moms and kids." He reported McDonald's chief marketing officer as saying, "We know we need to be more modern and more relevant in how we communicate to today's consumers." Charlie Bell, the company chief operating officer, added that, besides appealing to young consumers, the campaign would "be fun, it'll be relevant, it'll be hip, it'll be compelling, and it will connect with people of all ages."

Rance Crain, writing in Advertising Age, said that McDonald's "all-or-nothing bet on the youth market" was a risk. Referring to an ad featuring a cameo by singer Timberlake, Crain wrote, "I think I can say without fear of contradiction that the commercial is off-putting to most of the non-target market … If it doesn't register with kids, the corporate campaign could have a negative impact overall, and McDonald's will have spent $100 million for the privilege of alienating vast swatches of its customers."

COMPETITION

As the Evansville [IN] Courier & Press reported, "McDonald's and Burger King have been going burger-to-burger for more than 30 years, with Wendy's and smaller companies also fighting for consumers' hearts and appetites." Faced with its own declining sales and with competitor McDonald's increasing sales, explained in part by its "I'm Lovin' It" campaign, number-two Burger King launched a counterattack in the burger wars with the reintroduction of its popular "Have It Your Way" slogan and with its "Lunch Break Gang" television ads, which featured a group of 20-something coworkers ordering lunch their way.

The Burger King campaign did not have strong positive results with consumers, however, with USA Today reporting that only 14 percent of those familiar with the ads liked them and thought they were effective, while 30 percent of the people polled said that they did not like the ads. Nevertheless, the Burger King campaign won the Silver Award at the 2004 Cannes Lions and a Bronze Award at the Clios. More importantly, the campaign had a positive effect on Burger King's sales, with increases reported for 10 consecutive months following its launch in February 2004.

Number-three Wendy's responded to declining sales and the 2002 death of company founder and spokesman Dave Thomas by launching a marketing campaign in 2005 that AdAge.com reported was created to help the company "shed its folksy image and one-size-fits-all message." The new theme, "Do What Tastes Right," also was designed to appeal to the chain's core customers—baby boomers—as well as to attract young adults and those in their early teens, Wendy's customers of the future. The marketing budget was increased, and for the first time the company ventured into Internet advertising.

MARKETING STRATEGY

As PR Newswire observed, the "I'm Lovin' It" campaign was "a key part of McDonald's business strategy to connect with customers in highly relevant, culturally significant ways around the world." Part of that strategy was to shoot the "I'm Lovin' It" commercials in various locations worldwide. Jim Kirk reported in the Chicago Tribune that filming was done in Prague in the Czech Republic, Rio de Janeiro in Brazil, Johannesburg in South Africa, Singapore, and other international locations. Larry Light, executive vice president and chief global marketing officer for McDonald's, told the New York Beacon, "The high energy launch in the U.S. is further proof that this global campaign is far more than just advertising or a new theme line. It is a multidimensional approach to customers around the world that goes from television sets and computers to our restaurants … and everything in between."

Mike Roberts, president of McDonald's USA, told PR Newswire that the "theme and attitude of this full-scale campaign is being integrated into every aspect of the business … from crew training and the overall restaurant experience to national sponsorships, promotions and all new local street marketing." He added that the company was "focused on bringing the 'I'm lovin' it' theme to life not only in our advertising but also for every customer who visits our restaurant. This world-class marketing strategy is the latest element of our overall plan to continue revitalizing McDonald's."

In an interview reported by PR Newswire, Timberlake commented on his role in the McDonald's advertising campaign: "I love what McDonald's is doing with this new campaign and it's cool to be part of it. We share the same crowd … people who like to have fun … and that's what this new partnership is all about." In addition to the television spots featuring Timberlake, appearances by the singer were scheduled in selected markets in the United States and Europe, and he performed in a U.S. concert tour titled "McDonald's Presents Justin Timberlake Lovin' It Live." Dean Barrett, McDonald's senior vice president for global brand business, told Advertising Age, "Surprise is a key part of this campaign. The idea is to take 'I'm Lovin' It' to new heights." Writing in AP Worldstream, Carpenter said, "Once packaged with music, video and other creative aspects, McDonald's executives promised that the new campaign will generate a 'wow' effect with consumers and restaurant operators. The intent, they said, is not only to attract more customers but to persuade them to come more often and to build brand loyalty."

OUTCOME

If success can be measured by awards, recognition, and increased sales, McDonald's "I'm Lovin' It" campaign hit the jackpot. In 2004 Advertising Age named the company Marketer of the Year for its achievements. In response to the award Jim Skinner, McDonald's new CEO, said, "I'm lovin' it! We're honored to be recognized with one of the most coveted awards in the advertising and marketing world."

McDonald's Light said that awareness of the "I'm Lovin' It" campaign reached 86 percent of consumers in the top 10 countries tagged by the company. The success of the campaign was "another sign that we're connecting with customers like never before," he said. Noting the international success of the campaign, the Scottish Daily Record & Sunday in Glasgow reported that "McDonald's advertising slogan 'I'm lovin' it' has been crowned king of the catchphrases. The fast-food giant's jingle is being repeated in 43 percent of workplaces, says a new survey."

NOT EVERYONE LOVED MCDONALD'S "I'M LOVIN' IT"

In markets where McDonald's had earned a reputation for bad service or where the stigma of junk food hung over the company's restaurants, its "I'm Lovin' It" campaign was not necessarily loved by consumers. According to Kate MacArthur, writing in Crain's Chicago Business, England was one of those markets. "To win over skeptical Britons," MacArthur said, McDonald's launched a new campaign with the theme "Changes": "The campaign replaces the famous Golden Arches logo with a yellow question mark and carries the line, 'McDonald's. But not as you know it.'" The new campaign, created by the London office of Leo Burnett, McDonald's Chicago-based agency, was designed to replace the negative image British consumers had of the fast-food giant. It was followed by a direct-mail campaign informing people of the chain's new healthful menu choices and smaller portions. Larry Light, McDonald's executive vice president and chief global marketing officer, told MacArthur that the "Changes" campaign was designed "to encourage people to think of us differently and make them aware of new products. There's no intention to abandon either the Arches or 'I'm lovin' it.'"

The Cincinnati Post wrote in November 2003, "The biggest single-month increase at its U.S. restaurants in more than five years lifted McDonald's Corp. to an impressive 8.4 percent gain in comparable sales last month … [The company] attributed the increased business in part to benefits of the first full month of its exhaustive new advertising campaign, featuring the tag line 'I'm lovin' it.'" In addition, the newspaper noted that sales in France, Germany, and Britain, the company's three biggest European markets, also showed increases over the previous year.

FURTHER READING

Carpenter, Dave. "McDonald's New Advertising Tag Line: 'I'm Lovin' It.'" AP Worldstream, June 11, 2003.

Crain, Rance. "Does McD's Need 'Lovin' It'? Wary Kids the Big Unknown." Advertising Age, September 22, 2003.

Eisenberg, Daniel. "Can McDonald's Shape Up? The Fast-Food King Thinks Better Service, Nicer Deécor and Bigger Bargains Will Get Business Cooking Again." Time, September 30, 2002.

"'I'm Lovin' It' Pays Off for McDonald's." Cincinnati Post, November 8, 2003.

MacArthur, Kate. "McD's Taps Timberlake for 'I'm Lovin' It' Tie-In: Fast-Feeder to Pay Pop Star $6 Mil." Advertising Age, August 4, 2003.

――――――. "No Love for McD's Tagline in U.K.: 'I'm Lovin' It' Tough Sell Overseas; Takes Fortnight Off, New Spots Filling In." Crain's Chicago Business, November 1, 2004.

――――――. "Wendy's Overhauls Marketing Strategy." May 19, 2005. Available from 〈http://www.AdAge.com〉.

McCarthy, Michael. "Burger King Tries Old Slogan Again: 'Have It Your Way' Returns to Some Mixed Reviews in Kitschy New Ads." USA Today, May 23, 2005.

"McDonald's and Justin Timberlake Team Up for U.S. and European Concert Tour: 'McDonald's Presents Justin Timberlake Lovin' It Live' Latest Extension of McDonald's Global 'I'm Lovin' It' Brand Campaign." PR Newswire, October 10, 2003.

"McDonald's Named 'Marketer of the Year.'" PR Newswire, December 13, 2004.

"McDonald's USA Launches 'I'm Lovin' It' Brand Campaign: New Partnerships … New Commercials … Relevant to Today's Consumers." PR Newswire, September 23, 2003.

"McDonald's Widens Gap over Burger King in Fast-Food Wars." Evansville [IN] Courier & Press, January 28, 2004.

McHugh, David. "McDonald's Hopes Young Customers Are 'Lovin' It.'" Bergen County [NJ] Record, September 3, 2003.

"Not Lovin' It That Much." Delaney Report, October 27, 2003.

"Office Staff Are 'Lovin' It.'" Scottish Daily Record & Sunday, August 28, 2004.

                                                   Rayna Bailey

WE LOVE TO SEE YOU SMILE CAMPAIGN

OVERVIEW

McDonald's Corporation, with more than 26,000 restaurants serving 43 million customers every day in 2000, was the world's number one fast-food burger chain and also the best known. But despite its brand recognition and international reach, the nearly 50-year-old chain was struggling through an inexplicable sales slump that had industry experts scratching their heads and wondering what the problem was. In an effort to revive its image and boost sales, McDonald's upgraded its restaurants. The overhaul included upgrading the interiors, repainting the exteriors, introducing new menu items and a new food-cooking system, and dressing employees in trendy new uniforms.

To promote the reinvented McDonald's brand and drive consumers into the chain's restaurants, the company had advertising agency DDB Chicago develop a new marketing campaign. Themed "We Love to See You Smile," the $500 million campaign began in June 2000 with a series of eight television spots that emphasized how McDonald's fit into consumers' lives. The first spot featured the chain's famous spokescharacter, Ronald McDonald, interacting with people in various settings. Subsequent spots focused on people going about their lives, but with visits to McDonald's playing a role in their day-to-day activities. Other commercials emphasized different aspects of McDonald's restaurants, such as their drive-through windows or customer service.

Although there were high expectations for the new campaign, it failed to achieve its goals. One year after it began, sales at the chain's restaurants remained stagnant. Further, negative comments about the campaign included the Delaney Report deeming it "ineffective" and Advertising Age noting that it was irrelevant to consumers. In 2001 DDB modified the campaign and introduced a companion tagline, "Variety Is the Smile of Life," which ran along with the original "We Love to See You Smile." The campaign was revised again in 2002, and the tagline was shortened to "Smile." As the chain's sales slump continued, McDonald's charged its two key agencies, DDB Chicago and Leo Burnett, to develop a new campaign. In 2003 Leo Burnett's effort, "I'm Lovin' It," replaced DDB's "Smile" campaign.

HISTORICAL CONTEXT

Ray Kroc opened his first McDonald's restaurant in Des Plaines, Illinois, in 1955 and rang up just over $360 in sales the first day. From those beginnings McDonald's evolved into a chain of fast-food restaurants with a reputation for providing a family-friendly dining environment and for quickly serving a selection of good food. By 2000 the McDonald's chain had grown to become the number one fast-food burger chain, with 26,800 restaurants in 119 countries, serving some 43 million people each day. The chain's iconic spokescharacter, Ronald McDonald, was recognized by 96 percent of children, falling in second behind Santa Claus.

Despite the numbers and worldwide brand recognition, in 2000 McDonald's was suffering through another year of stagnant sales—both in the United States and its international markets—that had industry analysts asking what was going wrong. For July and August 2000 McDonald's reported that sales averages were up 1.5 percent, an increase that was attributable to the higher prices being charged for menu items. But the chain's overall sales transactions for that period were down 6 percent. The company cited a variety of reasons for its below-market sales performance, including currency fluctuations in foreign markets and unsuccessful marketing and advertising in the United States.

To reestablish its brand, to stand out in the over-saturated fast-food arena, and to win back its fleeing customers, McDonald's initiated a makeover of its restaurants. Included in the revamp was repainting the chain's restaurant exteriors in bright, eye-catching colors, upgrading restaurant interiors, installing a new cooking system, adding new menu items, and updating employee uniforms. To promote the changes and assure consumer awareness of the new McDonald's, the company replaced its nearly three-year-old advertising campaign and tagline, "Did Somebody Say McDonald's?" with a campaign created by its agency DDB Chicago. The new campaign, with the theme and tagline "We Love to See You Smile," was released in June 2000.

TARGET MARKET

When planning its campaign, McDonald's identified three specific target markets: mothers, young adults, and families with children. The campaign's goal was to reach each of these demographics and show them that when it was mealtime, McDonald's had a place in their lives. Also targeted by the campaign, with special television spots, were Hispanic and African-American consumers of all ages. Additionally, "We Love to See You Smile" was designed to reach what the company described as "veto-voters," women who did not typically eat at McDonald's and usually made the decisions about where their families would eat when they dined out. Always remembering that primary among its core customers were kids—preteens and teens—the campaign featured spots that would appeal to that age group as well.

COMPETITION

The number two burger chain, Burger King, was founded in 1954 with its first restaurant in Miami. By 2000 it had grown into a chain of more than 11,180 restaurants. But also by 2000 the company had fallen into a sales slump in the United States. Although Burger King reported that overall sales increased 5 percent in 2000, the growth was driven by its international business (which was up 2 percent in the United Kingdom, 8 percent in Spain, and 4 percent in Latin American). In North America sales were stagnant, up just one-tenth a percentage point. After several failed U.S. marketing campaigns—including "Going the Distance," which was released in 1999, and "Got the Urge?" which began in early 2000 and featured the voice of actress Kathleen Turner—the chain noted that it was time for a change. In a Knight Ridder/Tribune Business News report Burger King president Mikel Durham was quoted as saying that the company "didn't feel like the advertising was moving the needle enough. We're not confident that we're driving sales and getting across the key brand message."

To try and reverse its downward sales trend, Burger King put its $400 million advertising account up for review in 2000. Its creative agency at the time was Lowe Lintas & Partners (previously Ammirati & Puris). The agency had created the successful "It Just Tastes Better" campaign, which began in 1996 and ran through 1998. Following the review Burger King awarded McCann-Erickson its U.S. adult general advertising account. In early 2001 Burger King released a new national advertising campaign created by McCann-Erickson. Themed "The Whopper Says," the effort targeted burger lovers of all ages and included two television spots. It gave the chain's Whopper sandwich a personality that the company described in a press release as "entertaining, fun, and confident." Its new tagline was "In the land of burgers, Whopper is king."

In 2000 Wendy's International, founded in 1969 in Columbus, Ohio, was the number three fast-food burger chain with some 6,000 restaurants. While competing fast-food restaurants were reporting sales declines in 2000, Wendy's had the distinction of increasing sales. The chain reported same-store sales increases of 3 percent in its U.S. restaurants in November 2000. For 2001 the chain's same-store U.S. sales continued to increase, inching up a reported 1.6 percent. Helping drive the upward sales trend was the company's marketing program, created by ad agency Bates USA New York. For 11 years its advertising efforts featured Wendy's founder and chairman-CEO, Dave Thomas, and he had become one of the nation's most recognized corporate spokesmen. His affable approach to promoting his company's burgers and other menu items encouraged hungry, time-strapped consumers to stop in for a quick, tasty meal. Things took a sudden turn in 2002, when Thomas died of liver cancer. What followed was an effort described by the company as "Life after Dave," which included boosting the media budget 30 percent to about $308 million in an effort to keep the sales and earnings growth momentum going. Don Calhoon, Wendy's executive vice president of marketing, told Advertising Age that the chain stood out with consumers either with or without the presence of founder and spokesman Dave Thomas. He added that the chain's new advertising would have the "continuity, brand recognition, and emotional ties that Dave has brought us over these years. The perfect replacement for Dave is the Wendy's brand."

MARKETING STRATEGY

McDonald's moved into 2000 looking for a new marketing campaign and slogan to replace its nearly three-year-old theme and tagline, "Did Somebody Say McDonald's?" Although according to McDonald's executives the long-running campaign was a success, the chain's earnings and sales had been slipping for several years. The company hoped that a new marketing effort would boost its sagging sales numbers in the second half of 2000. A new campaign was also necessary to promote the changes that McDonald's had made to its restaurants over several years, from a new cooking system and new menu items to updated uniforms for employees and revamped restaurant interiors and exteriors. To help achieve the company's goals, ad agency DDB Chicago created the campaign and tagline "We Love to See You Smile." The campaign, with a reported $500 million budget, included radio spots and eight television commercials that began airing in June 2000. More than 80 different versions of the original spots were also planned to follow the initial ones.

MCDONALD'S FLASHY RETRO COLORS GET ATTENTION AND COMPLAINTS

In an effort to stand out in the crowd of fast-food chains cluttering the landscape, McDonald's returned to its roots with a new paint scheme for its restaurants. While McDonald's may have considered nostalgic the bright red, yellow, and white colors that began appearing on the exterior walls of the restaurants, some people considered the colors to be garish or tacky. Many communities that were more comfortable with the muted colors the chain had previously used on its buildings took a stand against the new paint. Planning and zoning officials in some smaller cities turned to their ordinances and refused to allow the chain to repaint the restaurants in the new colors. McDonald's restaurants located in the busy commercial areas of bigger cities met with few complaints about the new colors, however. McDonald's executives agreed that in some places the new color scheme may not have been appropriate and left the old colors in place. In a Crain's Chicago Business report a company spokesman was quoted as saying, "We want to make sure we're good neighbors wherever we are."

Each television spot portrayed the different ways that McDonald's connected with a variety of consumers in their daily lives. The kick-off spot was described by Advertising Age as a "slice-of-life commercial" that featured a dancing Ronald McDonald in a parade, then at an outdoor wedding, and finally with a construction crew (one burly member of which was about to enjoy a Happy Meal). The chain's mascot did not appear in subsequent spots, but each maintained the slice-of-life format. In one spot a doctor was shown leaving home to complete her morning rounds at a hospital. When she reached her car, she noticed a message from her children reminding her about breakfast: an M drawn in the condensation that had formed on the car window overnight. Another spot showed a mother and a father preparing to go out for the evening and discussing with their preteen kids which babysitter they should call. When the kids' preferred sitter arrived, she was still dressed in her McDonald's uniform. Other spots featured a McDonald's drive-through; in one, for instance, a teenage couple pulled into the drive-through and placed their order. The girl ordered a Big Mac without onions. Her date followed her lead, looking forward nervously to what not eating onions could mean. Another commercial showed a father sitting at a McDonald's drive-up window in his car while taking dinner orders from his kids on a cell phone. A spot developed for the Hispanic market emphasized the chain's service by following a customer from the time he entered the restaurant until his order was delivered to his table by a McDonald's staffer. Throughout the spot everyone was smiling, emphasizing the "We Love to See You Smile" tagline.

OUTCOME

The 2000 introduction of the much-anticipated "We Love to See You Smile" McDonald's campaign did little to help restore momentum to the chain's earnings. The campaign also only boosted sales slightly. According McDonald's, in the year following the campaign's launch, third-quarter earnings dropped 1 percent, while sales increased just 3 percent. The chain also noted that sales and earnings were expected to remain flat through the end of 2001. "We Love to See You Smile" also led to negative comments from industry insiders as well as from some McDonald's officials and franchisees. The Delaney Report, an ad-industry newsletter, described the campaign as "ineffective," while an unidentified McDonald's source stated that the chain's advertising was "a sad situation." Kate MacArthur of Advertising Age reported in 2000 that responses to the television spots by some of the chain's franchisees were "lukewarm"; in a 2002 article she pointed out that many observers had criticized the campaign, along with past efforts, for being "too milquetoast and conservative to be relevant to contemporary consumers."

In 2001 DDB revamped the McDonald's campaign to help promote additional changes to the chain's menu and again attempt to drive sales. Included in the effort were three new television spots. The spots concluded with two taglines: "Variety Is the Smile of Life" was followed by the original "We Love to See You Smile." Another makeover followed in 2002 with 13 new spots that had an edgier tone and a shortened tagline, "Smile." Despite the revised marketing efforts, by 2003 the chain was still struggling to boost sales and earnings. McDonald's began testing different advertising approaches created by its two key agencies: DDB, which had developed the "We Love to See You Smile" and "Smile" campaigns, and Leo Burnett USA. Later that year the campaign developed by Leo Burnett, "I'm Lovin' It," replaced the "Smile" campaign.

FURTHER READING

Galloro, Vince. "McDonald's Debuts New Commercials." Arlington Heights (IL) Daily Herald, July 1, 2000.

Gallun, Alby F. "McD's Splashy Look; Some Towns Cringe at the Chain's New Color Scheme." Crain's Chicago Business, August 21, 2000.

Kirk, Jim. "2 Agencies Battle to Set McDonald's New Theme." Chicago Tribune, April 14, 2003.

"Let's Try It This Way." Delaney Report, October 29, 2001.

MacArthur, Kate. "McDonald's Varies Menu, Promos." Advertising Age, January 22, 2001.

――――――. "McD's Poised to Launch New Attack Strategy; Recruits Military-Style Consultancy to Battle Slump." Crain's Chicago Business, September 4, 2000.

――――――. "McD's Serves Up $500 Mil Smile with a New Logo; Slice-of-Life Commercial Kicks Off Long-Awaited Campaign This Week." Advertising Age, June 26, 2000.

――――――. "McMakeover; Ad Age's Kate MacArthur Reports on McDonald's Recent Media Road Show Staged to Trumpet the Fast-Food Giant's 'Brand Reinvention' Efforts." Advertising Age, July 17, 2000.

――――――. "New Tone at McD's." Advertising Age, February 2, 2002.

Walker, Elaine. "With Sales Slumping, Burger King Seeks New Ads, Puts Out Account for Review." Knight Ridder/Tribune Business News, September 13, 2000.

                                                  Rayna Bailey

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