It should come as no surprise, then, that their selection process is rigorous. They look for individuals with a demonstrated ability to lead and manage people, good common business sense, and a track record of success in whatever they are doing. A restaurant background is not necessary, nor is a large amount of capital – although the franchisees will be asked to make a personal investment in the business. They franchise only to individuals, not to partnerships, absentee investors or families.
The Franchise Agreement
The franchise agreement grants to the franchisee the right and authorisation to operate a specific McDonald's restaurant, at a single address, usually for a period of 20 years. These rights include the use of McDonald's trademarks, restaurant decor designs, signage and equipment layout, the formula and specifications for menu items, use of McDonald's method of operation, inventory control, book keeping, accounting and marketing. A separate franchise lease covers the right to occupy the restaurant premises.
Every McDonald's franchisee must successfully complete a training programme which takes, on average, around nine months full-time to complete. Franchise candidates are not charged for the training, but have to fund themselves during this period. Each franchisee has the constant support of a McDonald's Field Consultant who is always available for help and advice, visiting the restaurant on a regular basis. The Field Consultant helps to ensure that restaurant sales and profits are optimised, and that each franchisee is aware of the latest developments within the McDonald's system.
History of McDonald’s in the UK
PHOTO: Ray Croc at the Woolwich Restaurant in 1974
In 1974 the 3000th McDonald’s restaurant was opened. It was opened in Woolwich (South-East London) in October, being the first McDonald’s in the UK. The company admitted that nobody went in and later decided to target children with TV ads. The UK Head Office was sited in Hampstead, North London. Advertising for McDonald’s was not a problem. In 1975, McDonald’s first released their first cinema advertisement in the UK. Thereafter in the following year, 1976, McDonald’s broadcasted their first television advertisement in the UK. Breakfast was introduced in 1982 at the Woolwich restaurant. Then in 1983 the McDonald's Corporation became sole owners of McDonald's in the UK. The Company is named McDonald's Hamburgers Limited. In 1986 the 200th restaurant was opened in Ipswich, United Kingdom. In the same year McDonald’s became the first restaurant to release nutritional information for their customers.
For the past 20 years McDonald’s has been through good and bad times in the UK. They are a public limited company and since 1997 they have had a major drop in their share value, however they are now rising. More restaurants are being opened and are being taken over by franchisees. New menus were initiated to attract more customers and also try to bring in healthy foods to bring in more customers as well as remove the name that had been put upon them as ‘obesity creators’.
Franchising: Easy or Difficult?
A good thing about franchising is that the franchisee will get a lot of help. Whereas when you start a business from scratch, you are on your own, when you start a franchise; the franchisor is there to help you succeed. A good franchise system trains you to be a successful businessperson.
It's not inexpensive. You pay for the name, the marketing expertise, the system, and the training. But know too that not all franchises are expensive. Some are home-based, others are services, and still others are otherwise very affordable and easy to get into.
The other downside is that you have less independence as a franchisee than you would as a regular entrepreneur. The system has been set up as it has for a reason, and in addition, the franchisor trusts you with its brand and goodwill, so you have to do things their way to a certain extent.
The important thing to know is that not all franchises are created equal. Just as in any industry, there are good franchises and not-so-good franchises.
For a McDonald's franchisee, neither is it the cheapest route to riches. A single franchise will cost between £267,647 and £452,058 to setup. In addition, a franchisee's initial cash investment must be a minimum of £103,000 for a conventional purchase, or £60,000 for a Business Facilities Lease. McDonald's does not provide any financing, so an individual must personally meet the financial qualifications. The company is also a severe and jealous guardian, and "a franchisee must divest himself or herself of all other active business interests,” in order to "devote himself or herself full time to the day-to-day operation of the restaurant."
Such solid devotion begins with compulsory participation and completion of a 9 - 12 month training program prior to opening a business. Also you need a degree in ‘Hamburgerology’ before they can trust you with their brand. Every single McDonald's outlet carries the full value of the brand, so a franchisee must have a full and in-depth knowledge of what their brand name represents to the customer.
Why Franchise?
There are many reasons why Dick and Mac McDonald chose to franchise their business, McDonald’s. Some of the reasons were:
- A primary reason for a business to become a franchisor is the ability to expand more rapidly.
- Franchising allows a company to raise money while retaining control over the business.
- Allows full access to international technology, establishes global standards with controlled financial payouts.
Ray Croc was one of the most successful franchisees in the 1950’s. Years later, Ray was not satisfied with the work put in by Dick and Mac McDonald so he decided to buy the business off them. Once bought he knew that one of the most successful ways of business was franchising and he decided to open up more restaurants and began looking for franchisees. He believed that Dick and Mac had no ambition of expanding the business. Franchising has helped McDonald’s a lot. They are a multinational business and are known everywhere around the world.
This is what the first McDonald’s Franchise looked like in America 1955
Sales and Profit
As you can see from the above chart, McDonald’s have been going through a rough time over the last few years. In the middle of 2001 they had a share value of 2190p and then after the first quarter of the trading year in 2003 they had a value of 780p. This was a major loss. Since then they have been on the mend and now, at the end of 2003 they have a share value of 1400p.
In 1974 when the first franchised McDonald’s, in the UK, was opened in Woolwich; it attracted many customers from all around the country. Within 12 years there were 200 McDonald’s in Untied Kingdom. Many people were attracted to McDonald’s due to jobs available and also by the new ‘French Fries’. This boosted the profits.
Recently, since the mid 1990’s the profits began to decrease. They began to devalue. Then in 2002 it took a major drop in profit. This forced them to reconsider their menus and to alter them. Now they began taking out healthier foods such as salads. This helped to bring their profit up and also they increased their sales.
As you can see from this chart, McDonald’s are ever increasing their sales figures. In 1974, they had a mere figure of £25,000 and at the end of the 2001 trading year they have a sales figure of £1613million. This is a major increase. Since the day they first opened in 1974 with one restaurant, they now have about 1,184 McDonald’s restaurants operating in the UK.
Evaluation
From my research I have found out many facts, advantages and disadvantages of operating a franchise. Franchising is a very successful way of expanding your business. Since a franchise is usually a duplicate of an already successful business, it should succeed. Franchising allows an individual to feel the pride and independence of owning his own business. The training an individual receives in a franchise should help him or her avoid mistakes and generate more volume and profits. The success of the franchise owner is in the best interest of the franchisor.
To work out if franchising in McDonald’s was successful I went to many different franchises and discussed with them if their franchise was a successful franchise. I came up with a set of results and made the following pie-chart I thought this to be more visualising to notice the results.
This is a pie chart which I created on Microsoft Excel. It shows that the majority, 94%, of the company’s I spoke to trust that their franchise is very successful or believe it to be somewhat successful. Only 2% know that their franchised company is very unsuccessful.
So I come to my conclusion to say that I believe franchising is a very successful way of enhancing your business. In order to be successful you must be willing to take risks. You would also need to have very good communication and leadership skills. There is a 94% chance of the franchise being a success, so it would be a very good decision to adopt a franchising business.