When people think about the franchising concept, McDonald's usually comes up first as a prime example. And though McDonald's was not the first franchise business – Isaac Singer, the inventor of the sewing machine gets credit for originating the franchise idea -- the hamburger chain certainly exemplifies franchising success.
The first “McDonald's” restaurant was opened by brothers Dick and Mac McDonald in 1940 on Route 66 in San Bernadino, California. The menu had about 25 offerings, and “carhops” brought the food out to patrons (usually teenagers) waiting in their cars.
Today, McDonald's franchise network is the world’s leading food service retailer, with more than 30,000 franchise restaurants serving 52 million people in more than 100 countries. Of those stores, more than 70 percent are owned by independent operator franchisees.
How did the chain grow from a single store to the most popular fast food restaurant and successful franchise operation in the world?
Raymond Kroc gets the credit as the driving force behind McDonald’s successful franchise growth. He did not start out as a restaurant owner, but as an equipment supplier to restaurants after mortgaging his home and investing all his savings in an exclusive distributorship for a milk shake maker called “Multimixer.”
In 1954, the McDonald's restaurant caught Kroc’s attention because it was using eight Multimixers. Kroc went to visit the restaurant and was amazed at the speedy business operation that served so many people at once. The McDonald brothers had already begun to franchise their restaurant concept and had four locations going by the time of Kroc’s visit.
Kroc recognized the opportunity to sell lots of Multimixers and made a proposal to the brothers to let him franchise restaurants outside of their home base in California. (Ray Kroc was not the only one impressed by the McDonald's restaurant, which was also visited by James McLamore, founder of Burger King, and Glen Bell, founder of Taco Bell.)
In 1955, Kroc launched “McDonald's Systems, Inc.” as a legal structure to run his franchises, and by 1958 McDonald's had sold 100 million hamburgers. In 1961, the McDonald brothers agreed to sell all the business rights to Kroc for $2.7 million. The company went public in 1965, and 100 shares purchased then for about $2,250 would have grown to 74,360 shares now worth over $3 million.
The first McDonald's franchise opened outside the US in British Columbia, Canada in 1967. Since then, McDonald's has spread all over the world, with its largest franchise store featuring more than 700 seats opening in Beijing, China in 1992.
One essential factor that contributes to franchise success is a consistent commitment to standards. McDonald's franchise restaurants became well-known for the inspired and defining vision created by Kroc for his restaurant business. “Quality, Service, Cleanliness and Value” was the company’s motto, and customers knew that no matter where they travelled, they could rely on those qualities at every McDonald's they visited.
Kroc’s brilliant marketing insights produced many winning strategies. He launched “Hamburger University” in 1961 in Elk Grove, Illinois, to train all franchisees in every aspect of McDonald’s management. Kroc also targeted families as his best market share. This resulted in the debut of the “Ronald McDonald” clown character on television in 1963, first played by Willard Scott.
McDonald’s success thrives on adapting to consumer demands
But the franchise chain’s success also rests on another key component, which at first glance might seem contrary to franchising principles – continual innovation and adaptation to market conditions.
First started as a simple hamburger, french fries and milkshake restaurant, McDonald's franchise operation experimented and expanded its menu to cater to changing tastes and consumer demand.
- In 1963, McDonald's introduced the “Filet-of-Fish” sandwich in the Cincinnati area for Catholics who did not eat meat on Friday. This was the first new offering added to the standard menu and went national the following year.
It is interesting to note that many of the new products added to McDonald’s menu over the decades were developed by franchisees.
- For instance, the “Big Mac” introduced in 1968 was the brainchild of Jim Delligatti, one of the earliest McDonald's Systems franchisees. The “Egg McMuffin” was developed in 1973 by McDonald’s franchisee Herb Peterson in the US. A Canadian franchisee, Ron McLellan, invented The McFlurry in 1997.
- In 2005, another adaptation to the times and consumer demand was the provision of WiFi with Nintendo in select locations; and delivery service in Singapore, where customers can phone in their order and have it delivered 24 hours a day, seven days a week. The company has also departed from its standard free-standing units, and installed quick service kiosks in busy places, like malls and airports.
McDonald's franchise business has not only survived but thrived through boom times and recessions and has successfully reacted to consumer trends. It was one of the first franchise restaurants to post nutritional information about its menu, and now offers salads and other healthy options in recent years.
If you would like to get your bite of the profitable franchise restaurant industry why not find out more about well-known and some up-and-coming fast food franchises, which have been influences by the world’s most successful franchise business - McDonald’s.