ASSIGNMENT

on
CASE STUDY (McDonald Corp.)

Assignment No. 01

Submitted To: Prof. Moeed

Submitted By: Umaima Maqsood

Registration No. MBBEE-21-09

Program: MBA

Semester: 1ST

BAHAUDDIN ZAKARIYA
UNIVERSITY
 PARAGRAH NO:1
 He was 27 years old when he became a junior partner with the McDonald
business, franchisee in 1973, barely a year after starting as a $ 115 per
week management trainee in Miami. "
 His two stores each earned $80000 in annual sales, and he pocketed more
than 15% of that profit.
 Not bad at a period when the minimum wage was still less than $2 an
hour and a McDonald's cheeseburger and fries cost less than a dollar with
a standard soda.

PARAGRAPH NO:2
 In 30 years, franchise owner Steinig's four restaurants had average yearly
revenues of $ 1.56 million, yet his face is pinched with stress.
 Sales have not changed since 1999, while costs have continued to rise.
 So when McDonald's started advertising their Dollar 1 menu, the large N
delicious burger steinig revolted.

PARAGRAPH NO: 3
 McDonald's was a juggernaut for decades.
 It grew from a single location in a sleepy Chicago suburb to become an
American icon.
 Today, though, McDonald's is a flailing behemoth teetering from one
disaster to the next.
 PARAGRAPH NO:4
 Following the events of the previous three months, on December 5, after
witnessing McDonald's stock rise 60 percent in three years, the board
sacked chief executive Jack M Greenberg at the age of 60.
 During his time, he introduced 40 new menu items.
 According to consumer studies, service and quality currently trail well
below competitors.

PARAGRAPH NO:5
 The corporation's response was to rehire former vice chairman James R.
Cantalupo, 59, who had led the company during the 1980s and 1990s.
 Unfortunately, 7 weeks later, the company reported its first quarterly loss
in its 47-year history.
 Following that, the business revealed that January sales at stores
operating at least a year declined 2.4 percent, following a 2.1 percent
drop in 2002.

PARAGRAPH NO:6
 When he and his new team present their strategy to analysts in early
April, they are anticipated to focus on getting the basics of service and
quality right, including reinstituting a rigorous "up or out" grading system
that would weed out underperforming franchisees.
 It is pointless to add expansion if the basis is poor, says control.
 He allows himself 18 months to do so, with assistance from Australian-
born chief operating officer Charles Bell, 42, whom Cantalupo has
selected as his successor, and Lenderhausen, a 39-year-old Swede in
charge of global strategy.
 PARAGRAPH NO:7
 However, McDonald's issues extend well beyond cleaning up restaurants
and designing menus.
 Long-term trends are putting pressure on the chain, threatening to push it
to the margins.
 It faces a fast-fragmenting market in which formerly exotic foods like
sushi and burritos have become everyday staples and quick meals of all
kinds can be obtained in supermarkets, convenience stores, and even
vending machines.

PARAGRAPH NO:8
 Cantalupo appeared to admit this when he reduced his near-term sales
growth prediction to 2% yearly, down from 15%.
 No one at Oak Brook headquarters blames the company's problems on the
strong dollar or mad cow disease anymore, a significant departure from
the Greenberg period.
 Perhaps most significant is that the business expects to open just 250 new
stores in the United States this year, 40 percent less than in 2002.
 Sales in Europe increased by only 1%, and the modification this year will
add only 200 units to the 6070, which has 30% fewer new openings than
the previous year.

PARAGRAPH NO:9
 Until a few years ago, franchisees were clamouring to get on board.
 However, in an unprecedented Exodus in Mickey D's history, 26
franchisees departed the system last year, with 68 franchisees
representing 169 shops pushed out for poor performance.
 The firm buys back franchises as a gift that cannot be sold, thus pushing
out a franchise is not cheap.
 McDonald's announced a $292 million pretax charge last quarter to
shutter 719 outlets, 200 of which were closed in 2002 and the remainder
this year.

PARAGRAPH NO:10
 When McDonald's announced a 1% increase in its annual dividend to
$23.5 on October 22, their shares jumped 9% to $18.95.
 Despite the fact that the business predicted a drop in third-quarter profits.
 It was McDonald's greatest single-day gain on the New York Stock
Exchange in at least two years.
 Today, though, the stock is nearing an 8-year low of $13.50, having
dropped 48 percent in the last year.
 One of the few investors ready to give McDonald a chance.

PARAGRAPH NO:11
 The corporation has the resources to increase shareholder dividends.
 Cantalupo was lauded on Wall Street for averting a costly upgrade of the
company's technology that would have cost a billion dollars.
 That would effectively be an admission by McDonald's that they are
giving up on the type of growth for which they signed up.

PARAGRAPH NO: 12
 McDonald's franchisee for 17 years sold his 14 stores back to the
corporation in 2000 when he noticed that eating patterns were evolving
away from McDonald's burgers and toward fresher, better-tasting cuisine.
 As a result, he relocated to competitor Panera Bread Co., a rapidly
developing national bakery and cafe company.
 McDonald's-style quick food is no longer relevant to today's customer,
according to Saber, who plans to establish 15 Panera Bread locations in
San Diego.

PARAGRAPH NO: 13
 The previous owners were anti-preachers.
 However, there are no lines now, and many current franchisees are
dissatisfied; their margins have fallen to a pitiful 4% from a peak of 15%.
 According to Richard Adams, a former franchisee and culinary
consultant, up to 20 franchisees leave McDonald's per month.
 He claims it's because it's so difficult to survive these days.

PARAGRAPH NO:14
 One of the most vexing issues with franchises is the top-down approach
used by Greenberg and other previous CEOs to address pricing and menu
issues.
 Many restaurant owners still complain about the $18000 to $100,000 they
had to spend in late 1990s install business required "made for you"
kitchen renovations in each establishment.
 Reggie Webb, who owns 11 McDonald's restaurants in Los Angeles,
claims that sales have dropped by an average of $50000 at each of his
locations during the last 15 years.
 He'll have to open his pocketbook again if McDonald's chooses to repair
his units in the following 200 locations.
 Franchises account for 70% of the $150000 cost.

PARAGRAPH NO: 15
 When McDonald's slashed prices in a pricing war in 1997, sales
decreased for the next four months, and the lesson should have been
plain. "
 Pulling aggressively on the pricing lever is risky. "
 It risks cheapening the brand," says Sam Rovit, a partner at Chicago
consulting firm Bain & Co. Cantalupo, on the other hand, is continuing
with the $ 1 menu concept that he initiated last year. "
 Burger King and Wendy's International Inc. both concede that the
technique is hurting sales.

PARAGRAPH NO:16
 As a last option, McDonald's is closing the poorest franchises.
 Owners who fail the rating and inspection systems will be given a second
opportunity.
 But if they don't improve, they'll be fired.

PARAGRAPH NO:17
 The decrease in McDonald's once-vaunted services and quality may be
traced back to its 1990s expansion, when headquarters stopped assessing
franchises for cleanliness, lines, speed, and services.
 According to a 2002 poll by Columbus market research global growth
group, McDonald's ranked third in average service time after Wendy's
and sandwich restaurant Chick-fil-a inc.
 Wendy's required an average of 127 seconds to put, feel, and order vs 151
seconds for Chick-fil-a and 163 seconds for McDonald's.

PARAGRAPH NO:18
 Franchising works best when the market is expanding and the owner may
be rewarded for fulfilling targets.
 In the past, franchisees that outperformed McDonald's national sales
average were often rewarded with the opportunity to establish or purchase
more restaurants.
 However, with declining sales, those incentives are insufficient. "

PARAGRAPH NO: 19
 By the late 1990s, it was obvious that the system was losing steam.
 New menu items aimed at adults, such as the reduced fat McLean deluxe
Arch deluxe burgers, were a flop.
 According to Consultant Michael, who owns a franchise consulting
business in West hart fort, Conn., McDonald's offer de pizza that didn't fit
through the drive through window and salad shakers that were so tightly
zipped that dressing couldn't flow through them.
 By 1998, McDonald's had seen its first annual earnings decrease, and
then-CEO Michael R. McDonald was a McDonald's veteran.

PARAGRAPH NO: 20
 Greenberg received points for baking the modification rapid U.S.
expansion.
 He also expanded its business by acquiring Chipotle Mexican Grill and
Baston Market Corp. However, he was unable to focus on the new
initiatives while also increasing quality, rolling out new kitchens, and
inventing new menu items, according to Los Angeles franchise web: "we
would have been better off trying fever things and making them work."
 Greenberg was unable to reverse declining sales and profit, and following
last year's catastrophic fourth quarter, he resigned at the December 5
board meeting.

PARAGRAPH NO:21
 According to insiders, Cantalupo, who had resigned only a year before,
was the only candidate seriously considered to take over, despite
shareholder requests for an outsider.
 Cantalupo has opted to work with younger McDonald's actives home he
believes will offer enthusiasm and fresh ideas to the table.
 Former McDonald's president you are up started as a shop manager in his
home Australia at the age of 19 and rose through the ranks.
 He eventually found success in France where he abandoned McDonald's
cookie shaped orange and yellow restaurants in favour of personalized
ones that serve regional fare such as the ham and cheese Croque
eventually found success in McDo.

PARAGRAPH NO:22
 Lenderhausen has an MBA from the Stockholm School of Economics and
spent two years working for a Boston consulting firm.
 However, he quips that he grew up in a French fry vat since his father
introduced McDonald's to Sweden in 1973.

PARAGRAPH NO: 23
 According to industry analysts, In N Out, a thriving California burger
company with 160 locations, is a good example.
 Its burgers are grill ban order no heat lights to warm up precooked food
Today, In N Out ranks first among fast food restaurants in San Diego,
according to fast food consumer track consultant Sandelman &
Associates Inc. "The burger category has incredible strength," says David
C. Novack, chairman and CEO of Yum Brands, parent company of KFC
and Taco Bell. "
 That's America cuisine; folks adore hamburgers."

PARAGRAPH NO: 24
 Take, for example, Irwin Kruger in New York, who just erected a 17000
square foot showcase unit in x square with video monitors, playing
movies, trailers, breakwalls, dramatic lighting, and significant profits. "
 We expect to have sales of over $5 million this year and earnings of more
than 10%," adds Kruger.
 McDonald's gathered its top ad agencies together in February to set out a
plan that went beyond the omnipresent Disney movie tie-ins.

PARAGRAPH NO: 25
 It will take nothing short of a marketing miracle to restore McDonald's
young vitality.
 According to Robert S. Goldin, executive vice president at food
consultant technomic Inc., they are at a critical juncture and what they do
today will shape whether they just fade away or recapture some of the
magic and greatness again.
 As McDonald approaches middle age, Cantalupo and his team may have
to settle for stable and reliable.