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PART 1 • INTRODUCTION
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McDonald’s Expands Globally While Adjusting Its Local Recipe
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cDonald’s Corporation is a fast-food legend whose famous
golden arches can be found in 118 different countries. The
company is the undisputed leader in the quick-service restaurant
(QSR) segment of the hospitality industry, with more than twice the
system-wide revenues of Burger King. McDonald’s built its reputation
by promising and delivering three things to customers: inexpensive
food with consistent taste regardless of location; quick service; and a
clean, familiar environment.
The company was also· a pioneer in the development of convenience-oriented features such as drive-through windows and indoor
playgrounds for children. Today, thanks to memorable advertising and
intensive promotion efforts, McDonald’s is one of the world’s most
valuable brands. The golden arches are said to be the second most
recognized symbol in the world, behind the Olympic rings. In the
United States alone, McDonald’s typically spends about twice as much
on advertising as Burger King and Wendy’s.
Today, however, the company faces competitive attacks from
several directions. During the 1990s, a wide range of upscale food
and beverage purveyors arrived on the scene. For example, consumers
began flocking to Starbucks coffee bars where they spent freely on
lattes and other coffee-based specialty drinks. The "fast-casual"
segment of the industry that includes companies such as Panera
Bread, Casi, and Baja Fresh is attracting customers seeking higherquality menu items in more comfortable surroundings. Meanwhile,
Subway overtook McDonald’s as the restaurant chain with t he most
outlets in the United States. Some industry observers suggested that,
in terms of both food offerings and marketing, McDonald’s was losing
touch with modern American lifestyles.
Until recently, the picture appeared brighter outside the United
States. Thanks to changing lifestyles around the globe, more people
are embracing the Western-style fast-food culture. McDonald’s
responded to the opportunities by stepping up its rate of new unit
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Source: Hasan Jama Ii/AP Wide World Photos.
openings. McDonald’s International is organized into – three
geographic regions: (1) Europe; (2) Asia/Pacific, Middle East, and
Africa (APMEA); and (3) Other Countries. In 2005, the offices of the
country heads for Europe and Asia were moved from headquarters to
their respective regions; now, for example, the head of APMEA
manages his business from Hong Kong. Commenting on the change,
Ken Koziol, vice president of worldwide restaura nt innovation,
explained, "McDonald’s was built on a strong foundation of a core
menu that we took around the world but we need to make sure we
are more locally relevant. Taste profiles and desires are changing."
Asia-Pacific
The Indian market appears to hold huge potential for McDonald’s. In
fall 1996, the company opened its first restaurants in New Delhi and
Bombay. In Delhi, McDonald’s competes with Nirula’s, a quick-service
restaurant chain with several dozen outlets; in addition, there are
hundreds of smaller regiona l chains throughout India. The U.S.-based
Subway chain opened its first Indian location in 2001; Pizza Hut, KFC,
and Domino’s Pizza have also entered the market The Pizza Hut on
Juhu Road in Bombay is housed in a three-story-tall building with large
plate glass windows and centra l air conditioning. On most nights a
long line of customers forms outside.
.
Indian demand for meals from the major food chains is growing
at a double-digit rate; annual total sales exceed $1 billion. With those
Donald’s identifies strategic locations in areas with
trends in mind, mf
heavy pedestrian traffic, such as the shopping street in Sandra in the
Bombay suburbs. Other restaurant locations include a site near a
college in Vile Parle and another opposite the Andheri train station; in
all, McDonald’s India operated 208 locations at the end of 2010. Plans
ca ll for opening another 40 outlets in 2011. Prices are lower than in
other countries; most sandwiches cost about 40 rupees (less than $1 ).
Drinks cost 15 rupees, and a packet of French fries is 25 rupees.
A complete meal costs the equivalent of about $2.
Because the Hindu relig ion prohibits eating beef, McDonald’s
developed the Chicken Maharaja Mac specifically for India. Despite
protests from several Hindu nationalist groups, the first McDonald’s
attracted huge crowds to its site near the Victori a railway terminal;
customers included many tourists from across India and from abroad as
well as locals commuting to and from work. In short order, however,
Hindu activists renewed their protests, this time accusing t he company
of using beef tallow in its cooking. Management responded by posting
signs reading "No beef or beef products sold here," but the doubts
raised by the controversy kept many potential customers away.
Since that time, McDonald’s has worked steadily to prove that it
is sensitive to Indian tastes and traditions. As is true throughout the
world, McDonald’s emphasizes that most of the food ingredients it
uses-as much as 95 percent-a re produced locally. In addition, to
accommodate vegetarians, each restaurant has two separate food
preparation areas. The "green" kitchen is devoted to vegetarian
fare such as the spicy McAloo Tikka potato burger, Pizza McPuff,
and Paneer Salsa McWrap. Meat items are prepared on the ‘red side.
Even the mayonnaise is made without eggs. Some of the new menu
items developed for India are being introduced in Europe and the
United States.
China is currently home to the world’s largest McDonald’s; China
is also the fastest-growing market in terms of number of new store
openings. The first Chinese location opened in mid-1992 in central
CHAPTER 1 • INTRODUCTION TO GLOBAL MARKETING
Beijing, a few blocks from Tiananmen Square. Despite having a
20-year lease for the site, McDonald’s found itself in the middle of a
dispute between the central government and Beijing’s city government. City officials decided to build a new $1.2 billion commercial
complex in the city center and demanded that McDonald’s vacate the
site. McDonald’s was forced to abandon the location. Despite the
turbulent start, McDonald’s now has more than 1,000 restaurants in
China. Plans call for opening 600 new locations by 2013. The restaurants purchase 95 percent of their supplies, including lettuce, from
local sources.
"The tastes of the urban, upwardly mobile Indian are evolving,
and more Indians are looking to eat out and experiment. The
potential Indian customer base for a McDonald’s or a Subway is
larger than the size of entire developed countries."
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yellow, and the golden arches are displayed more subtly. Overall, the
restaurants don’t look like McDonald’s elsewhere. The first redesigned
store is located on the Champs Elysees on a site previously occupied
by a Burger King; called "Music," the restaurant provides diners with
the opportunity to listen to music on iPods and watch music videos on
1V monitors. In some locations, lime green Danish designer armchairs
have replaced plastic seats. As McDonald’s locations in France
undergo style makeovers, some franchisees report sales increases of
10 to 20 percent. Encouraged by these results, McDonald’s has
embarked on an ambitious program to refurbish several thousand
outlets in various countries.
Central and Eastern Europe
January 31, 2010, marked the 20th anniversary of McDonald’s arrival
in the Soviet Union. The first Moscow McDonald’s was built on
Pushkin Square, near a major metro station just a few blocks from the
Sapna Nayak, food analyst at Raobank India
Kremlin. It has 700 indoor seats and another 200 outside. It boasts
800 employees and features a 70-foot counter with 27 cash registers,
In Asia and elsewhere, McDonald’s protects itself from currency ·
equivalent to 20 ordinary McDonald’s rolled into one. For its 20th
fluctuations by purchasing as much as possible from local suppliers.
birthday celebration, the Pushkin Square location offered customers a
For example, the company’s Singapore locations now buy chicken
"buy one, get one free" hamburger promotion; accordion-wielding
patties from Thailand rather than from the United States. However,
musicians provided background music.
French fries must still be imported from Australia or the United States .
Khamzat Khazbu latov was selected to manage the first store;
. To help offset higher costs, McDonald’s offers customers the choice of
today, he is director of McDonald’s operations for all of Russia.
rice as a side dish at a lower price.
At present, there are 235 McDonald’s restaurants in Russia, and the
company employs more than 25,000 people. To ensure a steady supWestern Europe
ply of high-qual ity raw materials, the company built McComplex, a
huge $50 million processing facil ity on the outskirts of Moscow.
The golden arches are a familiar sight in turope, particularly in
France, Germany, and the United Kingdom. There is even a four-star
McDonald’s also worked closely with local farmers to boost yields and
quality. Now th~ facility has been turned over to private companies
Golden Arch hotel in Zurich . Overall, Europe contributes about
that today prO’vfae 80 percent of the ingredients used in Russia . For
40 percent of both revenue and operating income, mak ing it a key
world region.
example, W imm-Bill-Dann supplies da iry products to McDonald’s; in
France’s trad ition of culinary excellence makes it a special case in
2002, it became the first Russian company to be listed on the New
Europe; dining options rang~ from legendary three-star Michelin
York Stock Exchange. Overall, 100,000 people are employed by comrestaurants to humble neighborhood bistros. From the time
panies in McDonald’s supply chain .
Ukra ine and Belarus are among the other members of the
McDonald’s opened its first French outlet in 1972, policymakers and
media commentators have voiced concerns about the impact of fast
Commonwealth of Independent States with newly opened restaurants. The first Ukrainian McDonald’s opened in Kiev in 1997; by
food on French culture . Even so, with nearly 1,000 outlets, France
today represents McDonald’s third-largest market in Europe.
2007, the cha in had expanded to 57 locations in 16 cities. Plans call
However, controversy has kept the company in the public eye. For
for up to 100 restaurants, for a total investment of $120 million.
example, some French citizens objected when McDonald’s became the
McDonald’s has also set its sights on Central Europe, where plans
official food of the World Cup finals that were held in France in 1998.
call for hundreds of new restaurants to be opened in Croatia,
Slovakia, Romania, and other countries. In 2010, McDonald’s Czech
In August 1999, a sheep farmer named Jose Bove led a protest against
Republic restaurants featured a specia l lineup of New York-themed
construction of the 851 st French McDonald’s near the village of
Millau. The group used construction tools to dismantle the partially
sandwiches that were promoted with the iconic "I Heart NY" logo.
finished structure. Bove told the press that the group had singled out
Advertisements promised "Another burger each week"; the offerings
included Wall Street Beef ("grilled beef, cheese, crispy bacon, fresh
McDonald’s because, in his words, it is a symbol of America, "the
place where they not only promote globalization and industrially
‘lettuce and onion with BBQ sauce on an oval bun topped w ith sesame
seeds"); Broadway · Chicken; SoHo Grande; Manhattan Grilled
produced food but also unfairly penalize our peasants." In 2002,
Chicken; and Brooklyn Classic.
executives at McDonald’s France even ran an ad in Femme Actuelle
magazine suggesting that children should eat only one meal at
"McDonald’s comes off as uncool. If you want to be chic, you
McDonald’s per week.
eat sushi. Indian food is even more cutting edge. McDonald’s is
McDonald’s French franchisees experience some of the same
like white bread."
competitive pressures facing the U.S. units; there are also key differences. For example, local bistro operators have enjoyed great success
Daniel, a 26-year-old architectural draftsman in San Francisco
selling fresh-baked baguettes filled with ham and brie, effectively
neutralizing McDonald’s advantage of fast service and low prices.
Refocusing on the U.S. Market
In response, executives hired an architecture firm to develop new
Disappointing financial results led to a management shakeup in
restaurant designs and reimage the French operations.
.
2002, and Jim Cantalupo became CEO. Cantalupo was a retired vice
A total of eight different themes were developed; many of the
redesigned stores have hardwood floors and exposed brick walls.
:hairma~ whose 28~year career at McDonald’s included considerab~le ,;
• ‘_··_::
international experience. He vowed to get the company back on · .,_:;-:
Signs are in muted colors rather than the chain’s signature red and
.
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32
PART 1 • INTRODUCTION
track by focusing on the basics, namely customer service, clean
restaurants, and reliable food. Unhappy with the company’s recent
"Smile" advertising theme, Cantalupo took the extraordinary step of
calling a summit meeting of sen ior creative personnel from 14 advertising agencies representing McDonald ‘s 10 largest international
markets. Foremost among them w as New York-based DDB
Worldwide, the lead agency on the McDonald’s account that handles
advertising in 34 countries, including Australia, the United States,
and Germany. In addition, Leo Burnett is responsible for ads targeting
children. McDonald’s marketing and advertising managers from key
countries were also summoned to the meeting at company
headquarters in Oakbrook, Illinois.
As Larry Light, then-global chief marketing officer for McDonald’s,
noted :
Creative talent is a rare talent, and creative people don’t belong
to geographies, to Brazil or France or Australia. We’re going to
challenge our agencies to be more open-minded about sharing
between geographies.
Charlie Bell, a former executive at McDonald’s Europe who was
promoted to chief operating officer, didn’t mince words about the
company’s advertising. "For one of the world’s best brands, we have
missed the mark," he said before the summit meeting. In June 2002,
the company announced that it had picked t he phrase "i’m lovin’ it"
as its new global marketing theme; the copy w as proposed by Heye
& Partner, a DDB Worldwide unit located in Germany. Tragica lly,
within a few months, both Cantalupo and Bell died unexpect edly.
Jim Skinner, the company’s current chief executive officer, instituted a "Plan to Win" initiative to increase McDonald’s momentum.
The core idea was to make McDonald’s "better, not just bigger. "
Skinner identified f ive main drivers of McDonald’s: people, products,
place, price, and promotion.
Even as McDonald’s executives attempted to come to grips with
the problems facing their company, various business experts were
offering advice of their own . lr;i the mid-1990s, one market analyst
said, "McDonald’s is similar to Gaea-Cola 10 years ago. It’s on the
verge of becoming an international giant, with the United States as a
major market, but overseas as the driving force." Adrian J. Slywotzky,
a’uthor of Value Migration, noted, "McDonald’s needs to move the
question from ‘How can we sell, more hamburgers?’ to ‘What does
our brand allow us to consider selling to our customers?"’ Mark
DiMassimo, chief executive of a New York-based company that
specializes in brand advertising, called McDonald’s "a large lost
organization that is searching for a strategy." In his view, " The
company must focus, focus, focus, and st and fo r one thing."
There is ample evidence that, 10 years after its implementation,
the Plan to Win strategy has been a success. Consumer Reports
lauded the company’s efforts to upgrade its coffee program.
Consumers have embraced "better-for-you" menu items such as
· salads and sandwiches. The company is also seeking ways to be
more environmentally conscious by using Jess plastic packaging and
recycling more. Denis Hennequin, the executive in charge of European
operations, is pleased w ith the results of his reimaging campaign. He
said, "I’m changing the story. We’ve got to be loyal to our roots, w e
have to be affordable, we have to be convenient … but w e have to
add new dimensions."
Despite the challenging economic environment, McDonald’s total
stock return for the 3-year period 2007 through 2009 was the highest
among the 30 companies th at comprise the Dow Jones Industrial
Average. The company’s strong financial res ults have given it the
resources to move forward with a remodeling initiative for stores in
the United States. The price tag: A whopping $1 billion. Th e upgrades
are partly a response to the positive results from revamped European
operations; the makeover also reflects an appreciation for retail design
principles used by Apple, Starbucks, and other trendsetters. By 2015,
most of McDonald’s 14,000 U.S. stores will be updated.
McDonald’s executives intend to create a modern, streamlined
environment that will encourage customers to stay longer and spend
more. Some of the changes are dramatic: Gone are the red roofs and
splashes of neon yellow that many associate with iconic spokes-clown
Ronald McDonald. The new color palette includes subtle shades of
orange, yellow, and green. Also on tap: softer lighting and comfortable, stylish new furniture. As Jim Carras, a senior U.S. executive,
noted, "McDonald’s has to change with the times. And we have to do
so faster than w e ever have before."
Discussion Questions
1. Identify the key elements in McDonald’s global marketing strategy. In particular, how does McDonald’s approach the issue of
standardization? Does McDonald’s think global and act local?
Does it also think local and act global?
2. Do you think government officials in developing countries such
as Russia, China, and India w elcome McDonald’s? Do consumers
in these countries welcome McDonald’s? Why or why not?
3. The Plan to Win initiative is built around five factors that drive
McDonald’s business: people, products, place, price, and promotion . As a student of marketing, what can you say about these .
factors?
4. Is it realistic to expect that McDonald’s-or any well-known company-c~
pand globally without occasionally making mistakes
or generating controversy? Why do antiglobalization protesters
around the world frequently target McDonald’s?
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Visit the Web Site
See www.mcdonalds.com
for a directory to country-specific sites.
Sources: Bruce Horovitz, "McDonald’s Revamps Stores to Look More Upscale,"
USA Today (May 8, 201 1), pp. 18, 28; Andrew E. Kramer, "Russia’s Evolution, as
Seen Through the Golden Arches," The New York Times (February 2, 2010), p. 83;
Janet Adamy, "As Burgers Boom in Russia, McDonald’s Touts Discipline," The Wall
Street Journal (October 16, 2007), pp . A 1, A 17; Jenny Wiggins, " Burger, Fries, and
a Shake-Up," Financial Times (January 27, 2007), p. 7; Steven Gray, " Beyond
Burgers: M cDonald’s M en u Upgrade Boosts M eal Prices and Results," The Wall
Street Journal (February 18-19, 2006), pp. A1, A7; Jeremy Grant, " Golde n
Arches Bridge Local Tastes," Financial Times (February 9, 2006), p. 1O; Saritha Rai,
"Tastes of India in U.S. Wrappers," The New York Times (April 29, 2003), pp. W 1,
W7; Bruce Horovitz, "It ‘s Back to Basics for McDonald’s," USA Today (May 21 ,
2003), pp. 1B, 28; Sherri Day, "After Years at Top, McDonald’s Strives to Regain
Ground," Th e New York Times (March 3, 2003), pp. A 1, A 19; Sherri Day and
Stuart Elliot, "At McDonald ‘s, an Effort to Restore Lost Luster," Th e New York
Times (April 8, 2003), pp. B1, 84; Shirley Leung and Suzanne Vranica, "Happy
Mea ls Are No Longer Bringing Smiles at McDonald’s," The Wall Street Journ al
(January 31, 2003), p. B1; Shirley Leung and Ron Lieber, "The New Menu Option
at McDonald’s: Plastic," The Wall Street Journal (November 26, 2002), pp. D1,
D2; Shirley Leung, "McHaute Cu isin e: Armchairs, TVs and Espresso-ls
It McDonald’s? " Th e Wall Street Journal (August 30, 2002), pp. A 1, A6; Bruce
Horovitz, "McDonald’s Tries a New Recipe to Revive Sales," USA Today (J uly 10,
200 1), pp. 1A, 2A; Geoff Win estock and Yaroslav Trofimov, "McDonald’s
Reassures Italians About Beef," The Wall Street Journal (January 16, 2001),
pp. A3, A6.
