As the fast-food chain reports record results, we wonder what makes it a worldwide winner.
McDonald's Corporation (NYSE: MCD.US), the world's most successful chain of fast-food restaurants, yesterday unveiled its 2011 results. As we've come to expect from the ever-expanding group, McDonald's numbers hit new heights.
Big Mac's big numbers
Last year, McDonald's worldwide revenue rose 12% to an all-time high of $27 billion, the ninth year in a row of sales growth.
What's more, despite consumers tightening their belts, McDonald's managed to increase its operating margin by 0.6 percentage points to 31.6%. As a result, its net income for the year climbed 11% to $5.5 billion, which works out at earnings per share of $5.27, up an impressive 15%.
However, the burger giant unveiled plans to spend $2.9 billion in 2012 refurbishing 2,400 restaurants and opening 1,300 new outlets. Also, it warned that profits could be hit by higher ingredient costs, currency rates and raised tax rates. Then again, the group aims to offset some of these additional expenses through higher menu prices.
After this announcement, McDonald's shares slipped 2.2% to $98.75, which values the group at over $100 billion and makes it one of the world's largest corporations.
Fast-food facts
Although brothers Dick and Mac McDonald opened their first 'Bar-B-Que' restaurant in 1940, the business as we know it today really started taking off under Chicago salesman Ray Kroc. In 1961, Kroc bought out the McDonald brothers for $2.7 million and, over the next half-century, McDonald's began an incredible expansion programme.
Today, McDonald's has more than 33,000 restaurants across the world, employing 1.7 million people in 119 countries. What's more, four out of five of its restaurants (80%) are franchises, run by entrepreneurs keen to jump aboard the McDonald's bandwagon.
Here in the UK, McDonald's opened its first restaurant in 1974 in Woolwich, London. Today, the group has 1,200 outlets across Britain and Ireland, employing 87,500 people. Together, these serve around 2.5 million visitors each and every day, and the group sources 55% of its ingredients from 17,500 British and Irish farms.
Yesterday, the burger chain announced plans to create 2,500 new UK jobs in 2012, taking its UK workforce to 90,000. More than half of these new jobs are expected to go to the under-25s.
10 ingredients of McDonald's 'secret sauce'
Of course, the big question is what makes McDonald's such an incredible corporate success story? As someone who's watched McDonald's share price rise eightfold from its 2003 low of $12 (but without buying!), here are my thoughts:
1. Franchising
Worldwide, 80% of McDonald's restaurants are franchised; in the UK, this proportion is 60%. Franchising enables McDonald's to expand quickly and cheaply, while still retaining absolute control of its brand, menu and pricing.
2. International expansion
McDonald's is simply huge in the US, but it also has a presence in 118 other countries. In the UK, McDonald's has been an established brand for 37 years and is as much a part of our high streets as well-known brands such as Boots and NatWest.
3. Global, but local
While McDonald's is a multi-national behemoth, it also adapts its business and menu to suit local markets. This 'global, but local' approach enables it to capture a wider slice of foreign markets. For example, in some countries, McDonald's sells beer and, in India, where Hindus don't eat beef, McDonald's menus have vegetarian and non-beef menu options.
4. The brand is the business
The McDonald's brand is one of the most valuable in the world, being easily and universally recognised. Everywhere you go, McDonald's restaurants have an instant 'recognisability factor' -- the familiar red-and-gold livery, plus the 'Golden Arches' and the world's favourite clown, Ronald McDonald.
What's more, the firm fiercely protects its brand, so woe betides anyone who tries to put 'Mc' in a food product's name!
5. 'Old and new' menu
The McDonald's menu sticks rigidly to old-fashioned favourites such as the Big Mac, Chicken McNuggets and breakfast McMuffins. However, the group is also willing to experiment, adding or deleting items from its menu according to their popularity and local tastes.
This 'core and satellite' approach has given a huge boost to boost McDonald's sales since its problems in the Nineties, when it struggled to grow sales. For example, its new healthier menus and inexpensive all-day coffee have helped McDonald's to snare a whole new group of customers.
6. Low prices
Gourmets will sneer at McDonald's menu, arguing that its products are low on taste and high on fat and sugar. Nevertheless, its low prices (including the UK's well-established 99p Saver Menu) bring tens of millions of people through its doors every day.
7. Meal sizes
As well as catering to all budgets, McDonald's menu offers meals of all shapes and sizes. While its 'super sized' range has been blasted by anti-obesity campaigners, McDonald's also offers bite-sized meals for those with smaller appetites. What's more, parents will tell you that its Happy Meals generate considerable 'pester power' from young diners!
8. Film tie-ups and sponsorship
To keep its regular promotions fresh, McDonald's is always tying up with media partners, especially film companies. When the likes of Disney or DreamWorks release a new movie, you can almost guarantee to see this theme in your local McDonald's.
Also, to further expand its brand, McDonald's has a long history of sponsorship at local and national levels, including community football in the UK and officially supporting the Olympics since 1976 (and at London 2012, of course).
9. Recruiting young workers
When it comes to its workers, McDonald's believes in 'getting them young' -- millions of young adults got their first job with McDonald's. While this helps to keep wage bills down, McDonald's also provides industry-leading, on-the-job training and nationally-recognised apprenticeship programmes for young workers.
Last year, McDonald's ranked eighth on a list of the '25 Best Multinational Companies to Work for in the World'. Also, more than half of McDonald's current UK directors started out serving on the shop floor and worked their way up to the boardroom.
10. Free WiFi
In the UK, McDonald's has invested £300 million into providing free WiFi for the growing number of 'data diners' visiting its stores. When I visit my local restaurant, there are usually several diners using laptops or tablet computers while eating or having coffee. McDonald's now boasts that it serves up more emails each day (data-wise, the equivalent of six million messages) than it does big Macs.
What would you argue are the secrets of McDonald's success? Please tell us in the comments box below.
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