McDonalds Corporate Business Strategy Analysis

Introduction

McDonald’s Corp was founded in 1955 in Illinois, US, as McDonald’s Systems Inc, opening its first franchised restaurant in Des Plaines. McDonald’s was the first real exponent of the fast food principle, trading on a platform of limited menu choice, fast service, high volumes and low prices. This strategy allowed the company to develop swiftly, which it achieved through issuing franchises. Franchising became a core component of expansion strategy not only for McDonald’s but also for fast food as a whole. The first overseas unit was opened in Canada in 1967 and the company established its International Division in 1969. The company expanded into Japan, Germany and Australia in 1971 using the same detailed formula established in the US, after the failure of several attempts to adjust menus to local tastes. (Vignali, 1999; Rowley, 2004; Blackhurst, 2005) Soon after, McDonald’s also entered France and the UK. These six overseas markets remain the core of McDonald’s international business and together with the US account for around 80% of total sales.

By 1968, the chain comprised 1,000 units, which rose to 5,000 units by 1978. By 2001, the company operated around 30,000 units worldwide. Whilst keeping menus limited, McDonald’s diversified its range from its original hamburgers and cheeseburgers. In 1964, the company launched its Filet-o-Fish sandwich, followed by signature burger the Big Mac in 1968, Happy Meals in 1979 and Chicken McNuggets in 1983. (Keynote, 2003; Leitch; 2004) While the majority of sales remain concentrated on burgers and fries, drinks and desserts are important and the brand periodically experiments with other menu additions, such as salads and local specialities. McDonald’s currently gearing up for the introduction of a new salad range in 2006.

The late-1990s saw McDonald’s shift its focus, as burger fast food, especially in the US, seemed dangerously crowded and mature. Consequently, McDonald’s focused on diversification, introducing new menu items and aiming to attract a more adult demographic, while retaining its core consumer base of children. 2000 saw the introduction of salads, low-fat desserts and a wider choice of chicken and fish burgers. The company also began to relax the McDonald’s formula, introducing more regional menu variations and experimenting with new formats, such as cafés and kiosks. This strategy of diversification also resulted in a number of acquisitions during the review period, seeing a shift away from its traditional single-brand focus. In 1998, McDonald’s purchased London-based coffee chain Aroma and in 1999 and 2000 McDonald’s purchased US chains Donatos Pizzeria (Ohio based), Mexican self-service cafeteria brand Chipotle (Denver based) and Boston Market with an emphasis on “home-cooked meal” style fast food.

McDonalds Business Strategy

Beyond acquisitions, McDonald’s also made a series of strategic investments. In February 2001, McDonald’s acquired a minority interest (33%) in the British sandwich chain Pret a Manger. In 2002, McDonald’s formed a joint venture with Fazoli’s, a fast casual Italian restaurant concept based in Lexington, Kentucky, to develop 20-30 Fazoli’s restaurants in the US. (Leitch; 2004) This also gave McDonald’s the option to purchase the entire company at a later date. The company also opened its first multibranded unit, offering Boston Market, Donatos and McDonald’s. However, these acquisitions did not prove wholly successful. In 2002, the company experienced a difficult year, culminating in its first ever quarterly loss. This poor performance was partly due to weak economies in Latin America and APMEA (Asia-Pacific, Middle East and Africa) and to increasing competition in mature US and Western European fast food. However, the company also felt that its strategy of brand diversification was diluting its focus on core brand McDonald’s. In 2002, Aroma was sold to Caffè Nero and in 2003 McDonald’s sold Donatos Pizzeria back to its founder Jim Grote and exited the joint venture with Fazoli’s. It closed down all Donatos outlets outside of the US and also closed down all Boston Market restaurants outside the US. (Rowley, 2004; Blackhurst, 2005)

While McDonald’s currently retains its minority interest in Pret a Manger, it no longer appears to have its previous interest in internationally expanding the brand. McDonald’s originally sought a buyer for the 13 Pret a Manger stores operating in Japan before eventually closing them. McDonald’s stated in 2006 that a decision was yet to be made concerning its remaining Chipotle and Boston Market brands. The McDonald’s brand was therefore the focus for growth in 2003 and the company returned to strong growth of 11% in system-wide sales over the previous year. In September 2003 the company launched its “i’m lovin’ it” brand campaign, an unprecedented, multi-dimensional, global brand campaign. The slogan is designed to help the brand connect with customers around the world. This launch was followed in December 2003 by the unveiling of new global packaging featuring images of people enjoying life’s simple pleasures. Conversion of all packaging in McDonald’s 35,000 restaurants worldwide is expected to be complete by late-2006. Also, in November 2003 McDonald’s announced a new multi-category licensing initiative called McKids. The new McKids retail line will feature top quality, action-oriented toys, casual contemporary clothing, interactive videos and books and will be rolled out in 2006. This innovation is indicative of the company’s current creative focus on marketing the McDonald’s brand.

Early 2006 saw the company focusing on menu innovations and marketing. It signed a multi-year agreement with NBA superstar Yao Ming to act as brand representative. Following much publicised consumer and government concerns regarding obesity, McDonald’s also announced that it will be discontinuing its super size option on meals, although it stated that this was intended to standardise product offerings globally. The brand also announced a new range of salads, which will be rolled out over the course of 2006. In Spring 2006, the company launched a number of initiatives in keeping with its new balanced lifestyles platform which focuses on three key areas: food choice, education and physical activity. One of the key components is Go Active! to be tied in with McDonald’s sponsorship of the Athens 2006 Olympic Games. Olympic themed-promotions continued with its collaboration with AT&T Wireless to introduce the Olympia Trivial Game, using text messaging. So far it is the largest mobile marketing promotion of its kind in the US. The company also announced its Olympic Champion Crew Team, selected from its global pool of employees to serve at the company’s three full-service restaurants at the Athens 2004 Olympics. (Beverland, 2005; Royle, 2005;Perry, 2005)

In addition, a number of new marketing relationships were established with entertainment companies, such as Sony for its Big Mac Meal Tracks promotion in six selected countries, and Warner Home Videos for Ronald McDonald’s videos and DVDs, release in 2006. In 2004 the company have celebrate its 50th anniversary since Ray Kroc opened his first restaurant in Illinois. The company is gearing up to this important year, and announced a new flagship design in one of its most profitable outlets in Chicago.

Principle Activities

McDonald’s Corp’s prime focus is operating and franchising McDonald’s restaurants in burger fast food. McDonald’s restaurants serve a value-priced menu in more than 100 countries around the world with a restricted number of menu choices. McDonald’s also operates the McCafé format in many larger outlets. It is also currently testing the McDonald’s with the Diner Inside concept in the US. The company also operates Boston Market in fast food and Chipotle Mexican Grill in the fast casual segment in the US and has a minority ownership interest in UK-based bakery fast food Pret a Manger. It also operates two 4-star hotels in Switzerland through Golden Arches Suisse SA and its brand, Golden Arches. (Blackhurst, 2005)

The review period saw McDonald’s first diversify and then contract its business focus. It acquired the Aroma coffee-shop chain in the UK prior to selling it in 2002 and the Donatos Pizzeria business in the US prior to selling it in 2003. In 2003, the company also exited a joint venture with Fazoli’s fast casual Italian restaurant. The fate of Boston Market and Chipotle remains undecided currently, although Boston Market will be trialled as part of a co-branding initiative alongside McDonald’s. (Sweney, 2004)

Organisational and Geographic Structure

McDonald’s divisional breakdown is as follows:

US
Europe
APMEA (Asia-Pacific, the Middle East and Africa)
Latin America
Canada

McDonald’s management structure witnessed a structural change in 2001, when Asia-Pacific, the Middle East and Africa grouped together as APMEA. This year also saw the introduction of a separate segment covering Partner Brands and comprising Aroma, Boston Market, Chipotle and Donatos Pizzeria. However, from 2003 McDonald’s opted to focus more on its core brand and as it had shed a number of these brands it removed the Partner Brands segment, replacing it with a less specific segment named “Other”. (Ritson, 2004) In October 2001 McDonald’s US division was reorganized under three divisions, creating 21 new regions from the current 37. (Kotler, 2003) This enabled the division to combine staff functions and improve efficiency. Each region is led by a general manager, whose team reports directly to them. Each region also has a vice president of quality, service and cleanliness. The restructuring freed up operations consultants to spend more time in restaurants, helping owner/operators and restaurant managers to deliver a better restaurant experience to customers.

Number of Units and Employees

McDonald’s increased units and employees strongly overall during the review period, with unit volume growing by 18% and employees by 33%. However, this growth was largely limited to the first half of the review period. In 2003 units remained almost static and employee numbers increased by only 1.5%. In connection with its restructuring in 2001, McDonald’s eliminated approximately 850 positions. 700 were shed in the US and 150 in international markets. However, employee numbers initially continued to grow as the company acquired new brands and expanded its offering. (Rooney, 2005; Arndt, 2004; Boyle, 2004) This slowdown in unit and employee growth in 2002 and 2003 was a key strategy for the company, which claimed it was making a deliberate shift from growing by being bigger to growing by being better. In 2002, McDonald’s registered US$302 million in pre-tax charges related to the closure of 751 under-performing restaurants primarily in the US and Japan, but also in Europe and Latin America. (Royle, 2005)The outlets that were closed mainly had negative cashflows and/or very low annual sales volumes. (Blackhurst, 2005) The company continued its pruning and in 2003, closed about 50 strategically selected restaurants in Latin America, although this was less than the 135 outlets it initially planned to close prior to a reassessment of the region. (Leitch; 2004; Sweney, 2004; Ritson, 2004; Gray, 2003)

Corporate Strategy

Overview of Business Strategy

McDonald’s moved through two distinct company strategies during the review period, shifting its focus from growing through becoming bigger to growing through becoming better. During the first half of the review period, it focused on growth through adding new restaurants, with associated high levels of capital expenditures and increasing levels of debt financing. It also diversified its offering by acquiring new brands, in response to the increasing maturity of US fast food. This strategy combined with challenging economic conditions and increased competition to adversely affect growth. (Beverland, 2005) In 2003, McDonald’s introduced a comprehensive revitalization plan to increase McDonald’s relevance to consumers and improve financial discipline. It focused on adding more customers to existing restaurants. This is aligned around its customer-focused Plan to Win, designed to deliver operational excellence and leadership marketing. This Plan contains aggressive goals and measures for success based on the five drivers of exceptional customer experiences:

People: the use of well-trained and friendly servers and management.
Products: the right range of products available.
Places: restaurants must be clean, contemporary and welcoming.
Prices: prices must cover an affordable range.
Promotions: promotions must resonate with key consumer groups.

The company’s short-term goal is to fortify the foundation of its business but its long-term goal is to create a differentiated customer experience with brand loyalty and sustained returns. To enable this it introduced its multi-level marketing campaign “i’m lovin’ it”, accompanied by new global packaging to be introduced in 2006. It introduced more frequent outlet evaluations by company personnel, independent mystery shoppers and customer research to evaluate performance. (Perry, 2005)

McDonald’s eliminated projects not directly impacting customer experience and narrowed its non-McDonald’s brand activities in 2003. This saw it sell Donatos and its Japanese Pret a Manger outlets. It also extricated itself from the joint venture with Fazoli’s and closed all international Boston Market outlets. (McDonald, 2003; Bryman, 2004) It has announced no plans as yet to divest Chipotle or Boston Market and a dual-branded Boston Market/McDonald’s outlet is planned for trial in Chicago mid 2006 and if successful, may secure its future within the McDonald’s brand portfolio. 2004 and 2005 also saw the company close a large number of under-performing outlets and streamline its international operations. It withdrew from a handful of underperforming markets and closed a considerable number of outlets in the US, Japan and Latin America. It remains committed to growing internationally but now intends to do so by focusing on key countries such as the US and Australia, with growth in these countries hopefully boosting awareness in other countries. McDonald’s has aimed to improve productivity around the board. It increased service speed by making restaurants more competitive by reorganizing the kitchen, front counter, and drive-through zones. It also streamlined its product line by removing certain sizes and slow-moving pieces.

The new strategy bore fruit in 2005 with excellent growth. McDonald’s growth targets for 2006 and beyond are:

Annual sales and earnings increases of 3-5 percent for the whole scheme (constant currencies).
A 6-7 percent annual increase in operating revenue (constant currencies).
Over 15% annual return on additional resources spent (constant currencies).

Consumer Foodservice Operations

Brand Portfolio

The review period initially saw McDonald’s expanding its brand portfolio in response to the threat of declining burger sales, prior to contracting its portfolio once more to focus on reinventing its core eponymous brand. Acquisitions saw it expand into pizza with US brand Donatos, specialist coffee shops with UK brand Aroma, home-style fast food with US brand Boston Market and Mexican fast casual with US brand Chipotle Mexican Grill. Meanwhile, the company also invested in Italian fast casual full-service restaurants with a joint venture in Fazoli’s and in premium sandwiches with an investment in UK brand Pret a Manger. The introduction of a single-brand focus in 2005 resulted in the immediate streamlining of its portfolio. Donatos was sold and McDonald’s extricated itself from the Fazoli’s joint venture. Aroma had already been shed in 2004 and while McDonald’s retained a minority interest in Pret a Manger it closed a number of outlets in Japan. It also closed the international outlets of Boston Market and stated that the fate of Boston Market and Chipotle currently remains undecided with a planned co-branded Boston Market/McDonald’s test outlet planned for mid 2006. This leaves McDonald’s Corp able to focus on the McDonald’s brand, which it did with considerable success in 2005. Following a poor performance in 2004, with the company’s first ever quarterly loss, growth returned strongly in 2005 following its revitalization campaign.

Concept and Product Development

2000-2005 saw McDonald’s broadening its focus from burger fast food to incorporating a number of new brands, including Aroma, Donatos, Boston Market and Chipotle. However, following a poor performance in 2005 the company decided to switch back to a single-brand focus and concentrate on growing through improvements in its core brand rather than growing through being bigger in terms of units and brands. This resulted in the company shedding or reducing its interest in most brands other than McDonald’s and a rejuvenated approach to product development for its core brand.

“I’m lovin’ it”

A key element of its revitalization strategy was leadership marketing centered around its “i’m lovin’ it” campaign, launched in September 2005. This is an unprecedented, multi-dimensional and global brand campaign designed to connect with customers in a global, relevant and culturally significant way. The slogan is more than simply a tagline and was integrated into every aspect of the business from employee training to national sponsorships, promotions and all local street marketing. The slogan is intended to create an emotional bond with McDonald’s and focuses on how people live, what they love about life and what they love about McDonald’s. While the campaign is intended to reach an almost universal consumer base, the brand’s partnership with Justin Timberlake is primarily aimed at “teens” and young adults. Justin Timberlake was chosen, as he unusually possesses both huge mass appeal and a contemporary and fashionable image. Timberlake appeared in the launch advertisements for the “i’m lovin’ it” campaign and sings the theme line. McDonald’s also sponsored his European tour, which featured a song based around the campaign.

The second generation of “i’m lovin’ it” adverts was rolled out in May 2006 tailored to specific local markets. The company reported that consumer advertising awareness of the new global campaign reached 86% within the first six months.

In December 2005, McDonald’s unveiled new and innovative global packaging inspired by the “i’m lovin’ it” global brand campaign. This features images of people enjoying life’s simple pleasures and aims to further connect the brand with customers worldwide in a fresh and relevant way. Beginning in January 2006, the United States, Canada, and Latin America would be among the first markets to use the latest global packaging for adult serving bags and cold cups. All of McDonald’s 35,500 restaurants around the world are planned to be converted by late 2006. This represents the first time that McDonald’s has used a single set of brand packaging with a single brand message concurrently around the world. In November 2005, McDonald’s announced ambitious plans to introduce a major new multi-category licensing initiative called McKids. This retail line will feature quality, action-oriented toys, casual contemporary clothing, interactive videos and books. It is intended to reflect today’s active lifestyles and provide a contemporary approach to targeting children. It will unify all retail licensed products under one brand, with a single-focus look and vision. The new McKids brand will be introduced beginning in spring 2006 in the US, Canada, Mexico, Japan, China, Australia, Korea and Taiwan, with additional countries to follow.

Nutrition Comes to Fore

In August 2005 McDonald’s appointed a Director of Worldwide Nutrition to guide McDonald’s nutrition and active lifestyles initiatives. Following this, McDonald’s turned its attention to innovation healthy eating. With obesity hitting dangerous levels in many markets and a lot of media and consumer attention in the connection between obesity and fast food eating, this is a hot topic right now. In 2004, two New York teens sued McDonald’s, alleging that dining at the fast food restaurant caused them to gain weight. Despite the passage of the Personal Responsibility in Food Use Act in March 2006, which prohibits people from engaging in comparable conduct, the possibility of regulatory intervention to restrict food advertising persists, with several countries proposing a “fat levy” on unhealthy foods. Many consumers are currently striving to lose weight or improve their diets and McDonald’s, like competitors, wants to be viewed as part of the solution, rather than as part of the problem. McDonald’s already offers Premium Salads in the US, the Salads Plus Menu in Australia, which features several products with 10g of fat or less and introduced healthier Happy Meal choices in 2005. In spring 2006, the company rolled out its Salads Plus Menu in Europe, introduced first in Germany, the UK and France with the aim of expanding to 16 countries in total by the end of the year. This represented the biggest shake-up to the company’s permanent menu in its history. Main course chicken salads, yoghurts, fruit, and organic milk were released in the UK and Germany at the end of March before being rolled out throughout the continent. French chef Olivier Pichot created the latest items at a McDonald’s culinary studio in Paris.

The company also stated that sales of Chicken McNuggets soared 35% since the company began making them with all-white meat to appeal to health-conscious consumers. In the UK, the company reduced the salt content of its Chicken McNuggets to appease government bodies and parental concern about children’s dietary intake. It also stated its commitment to providing customers with increased transparency of dietary information in-store, on packaging (including tray liners) and on the internet. However, further changes are imminent. Over the course of 2006, super sized fries and drinks will be phased out across McDonald’s units except in certain promotions, although the company claimed this was chiefly in order to standardise menus. The brand offered chicken-breast strips and low-carbohydrate versions of its sandwiches in spring 2006 and tested five or six new products, including flatbread deli sandwiches in the US. In terms of low-carbohydrate items, however, Burger King and smaller competitors such as Hardee’s already offer low-carbohydrate burgers and non-burger competitors Subway and TGI Friday’s actually have Atkins-endorsed ranges. McDonald’s gave consumers the option of choosing salad over fries as well as offering bun-less burgers. The corporation is creating a pan-European smart labeling scheme based on pictograms to assist consumers in making smarter product decisions. The corporation intends to devote 20% of its ad expenditure in Germany and the United Kingdom to advertising the latest menu products at first.

Consumer Foodservice Sales

Over the review era, McDonald’s increased customer foodservice revenue by 19 percent. However, this statistic conceals a bad showing in the center of the decade, with development of just 1% and 2% in current value terms in 2003 and 2004, respectively. The firm has experienced its first quarterly loss in 2004. However, in 2005, the organization launched a revitalization strategy that included a worldwide awareness initiative and a removal of non-core interests. In the United States, it increased revenue by extending operating hours and offering a value menu, as well as focusing more on activities. This culminated in a system-wide revenue increase of 11% in 2005 compared to the previous year.

Particularly in the review era as a whole and in 2005, company-operated channels grew more than those owned by franchisees and associates. This was partially attributed to the business’s 2002 takeover of the Boston Market chain, which is run entirely by the company. A general yet gradual transition towards business-operated channels also occurred, with the company expanding the unit range in key areas. Despite this, franchising is still important to the business, with franchised or related units accounting for 72 percent of total system revenue in 2005.

Unit Profile

McDonald’s maintains a versatile unit placement policy. The most important factors to weigh are consumer convenience and the company’s long-term sales and earnings opportunities. Before making a decision, McDonald’s looks at travel and walking habits, census statistics, school enrollments, and other related data. McDonald’s actively separates unit selection from franchisee selection to ensure consistency, with franchisees expected to be equally adaptable in their place if accepted. McDonald’s Corp. either buys the property and builds the units itself, or secures long-term contracts on restaurant locations, ensuring long-term occupancy privileges and lowering prices. (Bryman, 2004) A large number of outlets are built in standalone city centre or busy suburban sites. However, during its policy of rapid unit expansion in the 1990s, McDonald’s was a pioneer in seeking non-traditional locations for its outlets. It has outlets in airports, gas stations, theme parks, shopping malls, retail units and colleges. McDonald’s follows a policy of adapting outlets to suit their environment, with play areas offered in suburban outlets with a large number of child customers or business centers offered in airport McDonald’s. (Parker, 2003) Gas stations are an important area of focus for McDonald’s, which joined forces with major oil brands and independents in the US to develop co-branded facilities from the 1990s onwards. (Schröder, 2003) These offer an outlet with dining room and drive-through connected to the gas station and convenience store. There are over 400 co-branded units of this nature currently in existence and they are particularly important in areas where high land costs can preclude development or rural areas with lower sales expectations.

Management Type

McDonald’s was a pioneer of the franchise system and remains committed to growth through franchising. Unsurprisingly, therefore, franchised outlets account for the majority of units, with a share of 58% in 2005. They increased in unit volume by 14% over the review period as a whole and by 2% in 2005 over the previous year. However, directly operated outlets were the fastest growing in terms of unit volume. Their volume increased by 48% over the 2001-2005 period, primarily due to the acquisition of Boston Market in 2002. (Wier, 2002) This brought with it over 700 company-operated outlets in the US. However, in 2005 company operated unit volume declined slightly as the company turned its attentions from sales growth through expansion to sales growth through improved same-store sales and innovative marketing. Affiliated-operated outlets declined by 6% over the review period and by 5% in 2005 alone. These outlets are operated under joint venture agreements and are principally located in Argentina, Japan, Malaysia, the Philippines and the US. Earlier decline during the period occurred due to the restructuring of its operations in the Philippines. Decline in 2005 occurred with the company continuing restructuring in Latin America and curtailing its Pret a Manger joint venture in Japan.

Formats

Generally, McDonald’s minimum site size for traditional outlets is 32,616 sq ft (3,030 sq m), although it is prepared to be flexible in its size requirements for exceptional sites. Ideally, the company seeks a corner or corner wrap location with signage on two major streets and close to an intersection with traffic signals. Its building size is up to 5,500 sq ft (510 sq m) with a minimum height of 22 ft (7m) and sites must offer parking to meet all applicable codes. Most McDonald’s units are of a standardized design, with counter service, dine-in areas and takeaway options. Some units include additional facilities such as drive-through services, which are particularly common in the US, and children’s’ play areas. 2005 saw the introduction of wi-fi Internet access to a number of outlets. In 23 countries worldwide and approximately 400 outlets there are in-site McCafé areas. This brand was initially developed as standalone outlets but is now invariably housed in traditional McDonald’s outlets. McCafé serves premium specialty coffees, cakes and pastries.

Another store-within-a-store concept that McDonald’s makes use of is its McDonald’s with the Diner Inside. This offers the option of tip-free table service and Classic American diner favorites along with McDonald’s traditional menu, with a greater focus on breakfast and dinner. These outlets also feature a “Diner to Go” area for ordering and pick-up. However, the concept currently remains limited to a small number of units in the US. In addition to traditional outlets, McDonald’s makes use of satellite units, which are scaled-down units with limited menus. These are mainly located in the US, Canada, Japan and Brazil and are often used in alternative locations, such as retail units (notably Wal-Mart), shopping centers, train stations and leisure areas. In 2005, McDonald’s opened 513 traditional McDonald’s restaurants and 319 satellite restaurants and closed 486 traditional restaurants and 184 satellite restaurants. Within satellite units, McDonald’s is experimenting with alternatives on a regional level, with formats such as McTreat Spots and McSnacks, offering desserts and snacks respectively. In mid 2005, it was reported that the company plans to pilot a dual-branded outlet featuring McDonald’s and Boston Market side-by-side within the same building but having separate kitchens and counters

Geographical Spread

More McDonald’s outlets are based in the US than any other region, with this country having a share of 44% in unit volume terms in 2005. However, McDonald’s is the most global of all the leading consumer foodservice players, with over half its units being located beyond the US and a presence in over 100 countries worldwide. North America remains a key focus for the brand, however. Canada was the fastest growing area during the review period as a whole and in 2005, growing unit volume by 3% in this year. Also, the US remains the major focus area for the brand, which intends to follow a strategy of boosting global sales through a stronger presence in key countries. Europe is another growth area, increasing unit volume by 13% over the review period as a whole and by 2% in 2005 alone. Europe is a key area of focus for McDonald’s in 2006, with the brand introducing new menus to key countries France, Germany and the UK before expanding new menus to a further 13 countries.

APMEA is the second most significant region, comprising Asia-Pacific, the Middle East and Africa. However, while this region grew by 10% over the review period as a whole, its unit volume declined by 1% in 2005 over the previous year. This occurred as the brand scaled back its operations in Japan. However, in 2006 it intends to focus its attention on growing brand equity in key country Australia. Latin America was the slowest growing region during the review period and witnessed a 2% decline in unit volume in 2005 over the previous year. This occurred as the company closed a number of outlets, although it scaled back its initial restructuring plans from 135 outlets following a strategic reassessment. From 2004, Partner Brands were considered separately from the regional split of McDonald’s outlets. The company shed a number of Partner Brand units and brands in 2005 and the remaining units were reclassified as “Other”. These outlets declined by 13% in 2005 alone, as McDonald’s focused on reducing their number and are likely to continue to reduce in 2006 whilst exploring the possibility of dual-branding with Boston Market.

Franchising, Licencing and Concessions

McDonald’s has been a franchise leader from its creation and is dedicated to franchising as a means of expansion. McDonald’s maintains a high level of influence regarding franchise distribution and assigns qualified franchisees to available locations, requiring complete regional diversity. Sweney (2004, Sweney, Sweney, Sweney, Sweney The majority of franchise options are currently open in small towns. Its hiring procedure does not necessitate prior restaurant experience, but rather strong “simple business sense,” a proven capacity to successfully direct and improve employees, and a track record of previous business and life achievement. Individuals, not companies, partnerships, or passive investors, are qualified to become franchisees. An employee must fulfill financial requirements and be able to commit his or her full time to the restaurant’s day-to-day operations. All other active commercial interests are sold by franchisees. The average expense of a new restaurant is between US$461,000 and US$788,500. The cost depends on the restaurant’s scale, venue, pre-opening costs, supplies, kitchen equipment, signs, and design and landscaping design. In addition, all new McDonald’s restaurants would pay an upfront charge of $45,000 to McDonald’s Corp before they launch. A traditional acquisition requires a minimum cash investment of US$175,000, whereas a Business Facilities Lease requires a minimum cash investment of US$100000 (BFL). Candidates who succeed in other areas but are unable to fulfill the financial standards of a traditional franchising scheme are qualified for BFL franchises.

Franchisees add to the company’s profits by paying leasing and utility costs dependent on a percentage of sales, with nominal rent charges and initial fees. The average franchise agreement lasts for 20 years, and franchising policies are very consistent all around the world. Franchisees in the United States were given the choice of purchasing new restaurant buildings in 2004 and 2003. McDonald’s, on the other hand, phased out this alternative in 2005 and now owns much of the properties, receiving extra rent from franchisees. Many restaurant leases are for a period of 20 to 25 years, with rent escalations and extension opportunities available in certain situations. Franchisees are responsible for the the occupancy charges, such as property taxes, benefits, and repairs. McDonald’s also operates through a number of concession agreements in gas stations, theme parks and retail units. Many of these are operated on a small scale and restricted to one country or region. Gas stations are the chief focus for these concessions, with McDonald’s operating approximately 400 units linked to gas station convenience stores. These agreements are both major and local players and major oil brands linked with McDonald’s in this manner include Amoco, Mobil and Citgo. Meanwhile in theme parks, McDonald’s has an agreement with Disney to operate units in all Disney theme parks. In retailing, McDonald’s major agreement is with Wal-Mart to operate McDonald’s outlets in its retail units.

In 2006, McDonald’s introduced a major new licensing initiative in the form of McKids. This unified all retail licensed products and will include action-oriented toys, casual contemporary clothing, interactive videos and books. US, Canada, Mexico, Japan, China, Australia, Korea and Taiwan were targeted primarily with additional countries to follow. Partner brand Boston Market licenses a range of frozen entrées and jarred gravies manufactured by HJ Heinz Co and sold in supermarkets. Boston Market also operates three “stores within a store” in Stop & Shop grocery stores in Massachusetts.

Company Performance

Sales and Profits

McDonald’s experienced a poor performance in the middle of the review period before returning to strong form in 2005. The worldwide economy weakened in 2003, exacerbated by the terrorist attacks of this year and sales were also hindered by concerns regarding beef safety. Anti-globalisation and anti-US campaigns in 2004 also negatively impacted its performance. Finally, the decision by the company to close a number of under-performing McDonald’s outlets impacted sales in 2004 but is likely to result in a better long-term performance. (Bryman, 2004) The company also feels that its poor performance in 2003 and 2004 stemmed from its diluted focus, thus cutting back on its non-core interests in 2005. Its renewed single-brand focus in 2005 boosted its fortunes dramatically. Therefore, while revenue grew by only 29% during the review period and operating profits declined by 15%, 2005 saw revenue growth of 11% and operating profit growth of 34%. System-wide sales grew by 11% in 2005 following a poor performance in 2004. This was chiefly due to the impressive effects of the “i’m lovin’ it” campaign, along with improvements in menu, service and value initiatives. Extended opening hours and an improvement in the US economy also assisted growth. Revenues also increased by 11% in 2005, chiefly due to this growth in system-wide sales. Operating profit and net profit grew dramatically in 2005, despite an overall decline during the review period. However, net profits were constrained by a US$237 million loss relating to the company’s sale of Donatos Pizzeria, extrication from the Fazoli’s joint venture and closure of outlets.

Performance by Geographic Area and Division

The US continues to account for the largest share of revenues and operating profit, at 35% of revenue in 2005. In common with many regions, it achieved a good level of revenue growth in 2005, with new menu, service and value initiatives and a strengthening economy. However, it was the slowest growing region in terms of profits, growing by only 19% in 2005 over the previous year. This was, however, chiefly due to its already high operating efficiency, with the highest operating margin of all the regions. Canada was the fastest growing region in 2005 in terms of revenue. This was due to McDonald’s continued expansion in the country. However, it remains the smallest area in terms of revenue, accounting for only 4.5% in 2005.

Europe is the next most significant region in terms of revenue, accounting for 34% in 2005. This is impressive, given that it accounts for only 19% of units. Within Europe, France, Germany and the UK are the most significant countries and account for the bulk of sales. Europe achieved a good growth in revenues and profits in 2005, which was chiefly due to expansion and same-store sales growth in Russia and France. However, this good performance was partly offset by weak results in the UK and Germany. APMEA achieved a fairly low growth in revenues of 3% in 2005, benefiting from good growth in Australia and China, although it was affected by SARS in the first half of the year. However, APMEA achieved a striking growth in operating profit of 252% over the previous year. This occurred as the company streamlined its operating processes in China and closed a number of under-performing outlets in Japan. Latin America and Other experienced losses in 2005. This was chiefly due to losses incurred in connection with the closure of a number of under-performing outlets in Latin America and continuing difficult economic conditions in the region. The company is currently in litigation with about a third of its Brazilian franchisees, which further compounded losses. Meanwhile, the sale of Donatos Pizzeria and closure of outlets resulted in losses for “Other”.

Company Efficiency

McDonald’s profit margins experienced a precipitous decline throughout most of the review period, reaching their lowest point in 2004. In that year, the company’s operating profit margin dropped to 14% and net profit margin fell to 6%. The company’s restructuring in 2004 and its shift to a single-brand focuses with the removal of less profitable and non-core interests resulted in a much stronger performance in 2005. In 2005, operating profit margin climbed to 17% and net profit margin to 9%. This strong performance inevitably impacted EPS, although these remained considerably lower than at the start of the review period. The company’s focus on growing sales through an improved performance and same-store sales growth strongly benefited sales per unit and employee. These grew by 11% and 9% respectively in 2005 over the previous year.

Strategic Evaluation

SWOT Analysis

Strengths

McDonald’s has an almost unassailable position in consumer foodservice, with sales nearly twice those of its nearest competitor.
McDonald’s currently has a rejuvenated corporate identity, having implemented its new slogan “i’m lovin’ it” at every level.
McDonald’s benefits from a wider geographical spread than other competitors and is thus less reliant on mature and competitive US fast food.
Following its sale or closure of a number of non-core interests, the company now has a considerably more streamlined portfolio.
Due to its size, McDonald’s benefits from economies of scale and is able to draw on impressive financial strength.

Weaknesses

While McDonald’s achieved an excellent performance in profits in 2005, there is still much progress to be made before it recovers ground lost during the middle of the review period.
The company currently owns Boston Market and Chipotle, two non-core brands with an undecided future.
McDonald’s initial results to menu and marketing changes were excellent in 2005. However, the brand is planning more innovation in 2006 and it will require considerable skill to shift the emphasis of the brand whilst retaining consumers and brand identity.

Opportunities

McDonald’s revitalisation strategy and new global marketing campaign appear to be resulting in strong growth, which seems set to continue in the near future.
The introduction of a new salad range and a healthier menu focus in Europe is likely to result in good growth for year end 2006 and could influence menu innovation globally.
McDonald’s holds a leading position in many of the world’s major long-term growth markets, including Russia, India, Brazil and China.
McDonald’s McKids licensing range should provide excellent growth in 2006, if it is successfully positioned to appeal to both children and adults.

Threats

As the leading brand in consumer foodservice and a leading US brand, McDonald’s remains under attack from many sources and must continue to face challenges including boycotts, media attacks and even physical attacks on outlets.
Consumer concerns regarding weight and nutrition are high and rising, which could prove challenging for McDonald’s core burger offering and may result in damaging legislation being introduced in key countries.
Although McDonald’s does not currently face any competitor of its size, it could experience long-term erosion by smaller or innovative players with perceived healthier products.

Positioning Vis-à-Vis Competitors

McDonald’s is the leading global player in terms of consumer foodservice system-wide sales and far exceeds its nearest competitor Yum! Brands. Yum! Brands leads in terms of unit volume, although this is unlikely to worry the company in the near future, with its current emphasis on growing same-store sales rather than unit volume. Within burger fast food, McDonald’s dwarfs its competitors, with system-wide sales more than three times the size of its nearest competitor Burger King. However, while McDonald’s continues to outrun the competition, it remains mindful of competition from other global brands such as Burger King and Wendy’s. McDonald’s also faces a major threat from local chains, such as the Quick burger chain in France and Belgium. In the US, it faces competition from players Berkshire Hathaway and CKE, along with a host of smaller chains and independents and the emerging fast casual chains. Burger fast food is an increasingly crowded and mature area, particularly in key countries such as the US.

McDonald’s closest competitors in burger fast food are Wendy’s and Burger King, with the latter being the only brand with a strong international focus. Burger King and McDonald’s have a strong and historic rivalry and their price wars continue in the US. 2006 saw Burger King innovate ahead of McDonald’s by introducing a low-carbohydrate burger, and McDonald’s introduced the option of burgers without buns, in response to heightened concerns about high levels of carbohydrates in foods. KFC acts as a strong rival to McDonald’s in Asia-Pacific, with its sales far exceeding McDonald’s in China in 2005. While KFC is positioned in chicken, its increasing emphasis on chicken burgers places it in competition with McDonald’s, particularly in regions with a cultural or religious aversion to beef. McDonald’s expansion into more diverse brands brought it into competition with a wider range of competitors. Chipotle faces competition from Mexican fast food leader Taco Bell in the US, although it is positioned more in competition with “fresh-Mex” fast casual restaurants, such as Wendy’s Baja Fresh. Boston Market is a chicken fast food brand but competes with traditional full-service restaurants such as Applebee’s.

Finding and Recommendations

Franchising remains the primary engine for growth in overseas expansion for many consumer foodservice operators, although it is still largely confined to fast food. Franchising enables companies to build and extend brand coverage and improve margins through economies of scale. The franchising route to company expansion is an attractive option for ambitious companies keen to expand but prevented from doing so by lack of capital or weakly motivated line-management. Franchising agreements vary between the various operators. Generally, brand franchising consists of a franchiser granting the right to sell its branded goods to someone wishing to set up their own business, the franchisee. A license agreement allows the franchiser to insist on manufacturing or operating methods and the quality of the product. Both franchisees would usually utilize consistent branding, menus, architecture templates, and administration structures to maintain uniformity, both domestically and globally where necessary. In certain franchise deals, the franchisee is granted the freedom to operate a certain named restaurant for a fixed amount of time, such as 10 or 20 years. These privileges which involve the usage of the franchiser’s operational procedures, stock management, bookkeeping, accounting, and marketing, as well as the company’s logos, restaurant furniture and designs, signage and equipment configuration, the recipe and requirements of menu products, and the franchiser’s methods of operation, stock control, bookkeeping, accounting, and marketing.

The consumer foodservice industry was characterized in recent years by industry consolidation, particularly in traditional sectors such as cafés/bars. This trend is expected to continue, as small, independent outlets are unable to compete with emerging niches such as specialist coffee bars. Furthermore, fast food operators are likely to continue to close unprofitable locations – in the short term at least – in order to focus on improving throughput in core locations.

This offers opportunities for consumer foodservice operators to provide outlets offering quick service in convenient locations, at affordable prices. This encompasses sectors such as fast food, 100% home delivery/takeaway and street stalls/kiosks. These trends will also benefit certain FSR, such as casual dining and outlets offering drive-thru or takeaway concepts.

In 2003, there was a strong trend – notably in the US and other developed markets – towards the development of healthier menus and concepts. This was in response to growing concerns over obesity levels, especially among children, which were the object of much publicity. Foodservice operators are likely to continue to develop healthy options, without sacrificing taste. The next few years could also see the introduction of more health foods and drinks targeted specifically at children, including milk, fruit and salads, in order to appeal to nutrition-conscious parents.

Due to the high demand in the US for low-carbohydrate foods, many operators launched low-carbohydrate and Atkins-approved menus and products in 2003. As Atkins and similar diets are becoming increasingly popular in the UK and other developed markets, it is possible that consumer foodservice outlets in these markets will also extend their menus to include low-carbohydrate items over the next few years.

It is possible that the future may see the introduction of nutritional labelling on menus, in order to prevent litigation against foodservice operators accused of contributing to obesity levels. In the US, nutritional-labelling bills were being debated in several states during 2003, which if passed would force chains with between 10 and 20 outlets nationwide to post various nutritional information, including calorie, sodium and saturated fat, on hand-held menus.

There are likely to be further food scares in the future, such as contamination with e-coli or listeria, BSE scares or epidemics such as Asian bird flu. Furthermore, the government introduced stringent policies over imported beef and severe sanctions, which should pave the way for much restored consumer confidence in the long run.

Obesity has become a major concern in many developed markets, and is a growing problem in emerging markets. Obesity plays a significant role in other chronic health conditions, most notably heart disease, and type 2 diabetes, with which it is strongly correlated. Other, less dangerous conditions associated with obesity include osteoarthritis and hypertension. High levels of obesity around the world have been blamed on the growth of the fast food industry, as well as trends towards snacking and more sedentary lifestyles.

While eating in consumer foodservice outlets does not cause obesity and overweight, certain aspects of foodservice are very likely contributing factors for overweight consumers who use consumer foodservice on a frequent basis. Food portions in the US are generally very generous. Indeed, restaurants such as Claim Jumper are famous for piling on the food, and many restaurants in Las Vegas and elsewhere offer unlimited buffets.

A further challenge for diet-minded consumers is the kind of food that is usually served through consumer foodservice channels. While low-fat options are usually available, the more appealing options and signature dishes are usually high in fat and feature fatty meats. Pizza chains compete for bragging rights in terms of pounds of cheese and this feature is not likely to change. Americans love fatty food and the consumer foodservice industry is there to cater to their desires, not those of their doctors. Obesity also became an issue in the UK, particularly among children. In this country, there are believed to be three million cases of child obesity and a total of 10 million people diagnosed as obese.

Obesity is a growing problem in emerging markets, largely due to changing diets as well as less active lifestyles as a result of the introduction of more sophisticated technology and higher disposable incomes. This is the case of India, where there is already a high incidence of coronary heart diseases due to the large intake of buttermilk (ghee) in the north and coconut milk and ghee in the south.

The industry’s response to concerns over obesity was to introduce healthier options and for companies to promote themselves as being healthier than competitors. For example, the low fat message has been a core part of the marketing strategy of Subway, one of the US’s fastest growing fast food chains, for several years. The chain offers a range of low-fat menu items, which are promoted as such through, for example, the “7 subs with 6 grams of fat or less” slogan, and a general focus on the fat content of other items, including even the bread used for sandwiches.

While the largest multibranded FSR operators will probably continue to rationalize their brand portfolios in order to focus on their most successful concepts in the light of increasingly competitive market conditions, co- or multiple branding will become more popular among fast food operators; Brands and Allied Domecq, which are both committed to expanding multibranded units.

Trends towards casual dining will continue in the US and other countries over the forecast period, especially in fast-casual FSR. Although growth in fast-casual concepts is beginning to slow in its original market of the US, there is still plenty of room for growth in other developed markets. The concept of fast food with a more premium positioning, more healthy ingredients and a better class of service is appealing to today’s more discerning consumer.

At the same time, higher disposable incomes and economic growth in other countries are leading to the growth of restaurants positioned at the premium and super-premium end of the market. Specialist coffee shops will continue to grow strongly in many countries, as the coffee culture remains strong in the West, and these outlets offer novelty value in developing markets. Starbucks remains committed to its ambitious development agenda, which would most certainly fuel global expansion.

In the future, a large number of chains will become equipped with technology that will allow better communication between servers and kitchen staff and therefore speed up cooking and service time, and reduce errors. Increased use of the internet and mobile phones will be beneficial to the consumer foodservice industry. It will enable companies to use the internet as a promotional tool, and allow customers to order take-away food by internet and WAP.

Mcdonald’s Strategic Options: Generic Strategies

McDonalds Business Strategy and Generic Strategies are described by a fast food worker’s reaction to the market framework. For a big fast food chain like McDonald’s to gain a viable competitive edge, they could use one of Porter’s three generic tactics.

The first cost leadership approach is for Mcdonald’s to compete for the lowest rates in the sector and to sell its goods and services to a wide range of customers at the lowest prices. This approach would be dependent on Mcdonald’s willingness to keep overhead expenses under check so that they can market their goods competitively and achieve large profit margins, giving them a huge competitive edge.

If Mcdonald’s chooses a new differentiation approach, it would strive to include offerings and merchandise with specific characteristics that consumers enjoy. Mcdonald’s would be able to develop brand loyalty with their products, resulting in price inelasticity among customers. Differentiation may take several forms, including product variety, innovations, unique features, and customer support.

The final target approach may be either a cost leadership or differentiation strategy targeted at a specific, narrow sector. Mcdonald’s pursues a cost leadership approach by focusing on operational efficiencies that can enable the company survive competitive pressures. As a result, it is fair to assume that Mcdonald’s would have regular contacts with the environment’s governmental/regulatory and supplier markets.

Although all overall cost leadership and differentiation strategies are targeted at the general market, Mcdonald’s can opt to confine their goods to particular market areas or sell a narrower line of products to the broad market, thereby following a focus or niche approach, according to this structure. Mcdonald’s, in other terms, pursues a cost leadership or differentiation approach in a particular industry or for specific brands. Any organizations run the risk of being “stuck in the centre” if they attempt to achieve all three. That is not applicable in the case of McDonald’s, since they have a strong business model and a well identified fast food consumer category.

Future Opportunities and Strategies Implementation

Strategy frameworks and structuring tools are key to assessing the business situation. Risk and value trade-offs are made explicit, leading to concrete proposals to add value and reduce risk. Explicit plans for action, including effective planning need to be developed by Mcdonald’s as the strategic alternative. From the generic strategies discussed above, Mcdonald’s is likely to employ two strategic options of focus on fast food market development though partnerships and diversification through new product development.

By entering new fast food markets like China and Japan it can serve as a key growth driver of the company’s revenues and expansion strategy. Mcdonald’s interests in Japan are likely to continue growing in due course, as Asian fast food markets are showing an increase in consumer spending and increased trend towards fast food marketing. These new fast food markets are also demographically high opportunity markets. In the case of Mcdonald’s, one of the suggested strategic options is in international alliances with the local fast fooders in Asian fast food markets. It will be considered as a method of development and may be formed to exploit current resources and competence. By entering into joint ventures or partnerships, in order to gain a larger economies of scale and larger fast food market presence, Mcdonald’s will draw on the extensive local knowledge and operating expertise of the partner whilst adding its own supply chain, product development and stores operations skills to deliver a better shopping experience to customers. However, given the huge scale, potential and complexities of these markets, Mcdonald’s may feel that being the first mover is not necessarily an advantage. The success of the partnership will be related to three main success criteria: sustainability, acceptability and feasibility. Sustainability will be concerned with whether a strategy addresses the circumstances in which the company is operating. It is about the rationale of this expansion-market development strategy. The acceptability relates to the expected return from the strategy, the level of risk and the likely reaction of stakeholders. Feasibility will be regarded to whether Mcdonald’s has the resources and competence to deliver the strategy.

Ansoff’s matrix also suggests that if new products are developed for existing fast food markets, then a product development strategy has to be considered by the management level of a company. In expanding and diversifying Mcdonald’s product mix, it is also crucial to implement internal development when new products are developed. The nature and the extent of diversification should also be considered in relation to the rationale of the corporate strategy and the diversity of the portfolio. By following the changing needs of the customers Mcdonald’s can introduce new product lines. This may require more attention to R&D, leading to additional spending.

Fast food marketing industry is experiencing an overcapacity and innovative services and products being the major competitive advantage. Therefore, innovation has to be a major driver for Mcdonald’s product development. For example, Mcdonald’s can develop a portfolio of different store formats in the UK, each designed to provide a different shopping experience. While the majority of Eastern European and Far Eastern outlets are hypermarkets, Mcdonald’s can also develop different store types in these fast food markets as well. This value added by the uniqueness will eventually lead Mcdonald’s to command a premium price. The management of technological innovation is increasingly involved in strategic decision-making. Mcdonald’s have to exploit their internal strengths and minimize their internal weaknesses in order to achieve sustained competitive advantage.

Conclusion

The success of Mcdonald’s shows how far the branding and effective service delivery can come in moving beyond splashing one’s logo on a billboard. It had fostered powerful identities by making their retiling concept into a virus and spending it out into the culture via a variety of channels: cultural sponsorship, political controversy, and consumer experience and brand extensions.

In a rapidly changing business environment with a high competitors’ pressure Mcdonald’s have to adopt new expansion strategies or diversified the existing in order to sustain its leading fast food market position in an already established fast food marketing market. The company must constantly adapt to the fast changing circumstances. Strategy formulation should therefore be regarded as a process of continuous learning, which includes learning about the goals, the effect of possible actions towards these goals and how to implement and execute these actions. The quality of a formulated strategy and the speed of its implementation will therefore directly depend on the quality of Mcdonald’s cognitive and behavioral learning processes.

In large organizations as Mcdonald’s strategy should be analyzed and implemented at various levels within the hierarchy. These different levels of strategy should be related and mutually supporting. Mcdonald’s strategy at a corporate level defines the businesses in which Mcdonald’s will compete, in a way that focuses resources to convert distinctive competence into competitive advantage.

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Appendix

Table 1 McDonald’s Corp: Number of Units and Employees 2001-2005

Units 2001 2002 2003 2004 2005

26,309 28,707 30,093 31,108 31,129

% growth 7.3 9.1 4.8 3.4 0.1

Employees 314,000 364,000 395,000 412,000 418,000

% growth 10.6 15.9 8.5 4.3 1.5

Table 2 McDonald’s Corp: Consumer Foodservice Sales 2001-2005

US$ million 2001 2002 2003 2004 2005

Operated by franchisees 28,979 29,714 29,590 30,026 33,138

& affiliates

Operated by company 9,512 10,467 11,040 11,500 12,795

TOTAL 38,491 40,181 40,630 41,526 45,933

Table 3 McDonald’s Corp: Number of Units by Management Type 2001-2005

Number of units 2001 2002 2003 2004 2005

Franchised 15,949 16,795 17,395 17,864 18,132

Directly operated 6,059 7,652 8,378 9,000 8,959

Operated by affiliates 4,301 4,260 4,320 4,244 4,038

TOTAL 26,309 28,707 30,093 31,108 31,129

Source: Euromonitor International from company reports

Table 4 McDonald’s Corp: Number of Units by Division 2002-2005

Number of system-wide units 2002 2003 2004 2005 % growth 2002/2005

US 12,804 13,099 13,491 13,609 6.3

Europe 5,460 5,794 6,070 6,186 13.3

APMEA 6,771 7,321 7,555 7,475 10.4

Latin America 1,510 1,581 1,605 1,578 4.5

Canada 1,154 1,223 1,304 1,339 16.0

Partner Brands 1,008 1,075 1,083 942 -6.5

TOTAL 28,707 30,093 31,108 31,129 8.4

Table 5 McDonald’s Corp: Financial Summary 2001-2005

US$ million 2001 2002 2003 2004 2005

System-wide sales 38,491 40,181 40,630 41,525 45,933

% growth 7.0 4.4 1.1 2.2 10.6

Revenue 13,259 14,243 14,870 15,405 17,141

% growth 6.7 7.4 4.4 3.6 11.3

Operating profit 3,320 3,330 2,697 2,113 2,832

% growth 20.2 0.3 -19.0 -21.7 34.0

Net profit 1,948 1,977 1,637 894 1,471

% growth 25.7 1.5 -17.2 -45.4 64.7

Table 6 McDonald’s Corp: Financial Results by Division 2004/2005

US$ million Revenues % value % growth Operating % growth

2005 2004/ 2005 profits 2005 2004/ 2005

US 6,039 35.2 11.4 1,982 18.5

Europe 5,875 34.3 14.4 1,339 31.1

APMEA 2,448 14.3 3.4 226 251.9

Latin America 859 5.0 5.5 -171 n/a

Canada 778 4.5 22.8 163 30.1

Other 1,142 6.7 10.7 -295 341.8

Corporate – 0.0 – -413 n/a

TOTAL 17,141 100.0 11.3 2,832 34.0

Table 7 McDonald’s Corp: Efficiency Indicators 2001-2005

Unit 2001 2002 2003 2004 2005

Operating profit margin (%) 25.0 23.4 18.1 13.7 16.5

Net profit margin (%) 14.7 13.9 11.0 5.8 8.6

Earnings per common share (US$) 1.44 1.49 1.27 0.70 1.15

Sales per unit (US$) 1,463,035 1,399,693 1,350,148 1,334,866 1,475,582

Sales per employee (US$) 1,225,828 1,103,874 1,028,608 1,007,888 1,098,885