Introduction

McDonald's is the largest food service company in the world. It served over 16 billion customers in 2002. Its success is based on selling quality products cheaply and quickly. Ray Kroc took over the business in 1955. He based its further success on rapid growth. He saw that a quick way to grow was through franchises. Around 70% of McDonald's are now franchises.

Franchise

A franchise is when a business sells the right to sell its products or brand to other people. The two parties are:

• the franchisee who buys the franchise

• the franchiser that sells the franchise.

All McDonald's franchisees around the world use the same branding, menus, designs and systems. There are advantages to the franchise for both partners.

Franchisee

The advantages for the franchisee include the following.

• They are their own boss.

• They are selling a well known product. This is a product that is seen all over the world.

• They have to complete a high level, full time training programme. This includes doing all the jobs in a McDonald's. This helps them to really know the business. Above all, it helps them to manage staff.

• Further support is always on hand once the franchise is running.

• They gain from national marketing of the brand.

• They gain from McDonald's knowledge of the market. It helps them to predict sales and growth in order to avoid future problems.

Franchiser

The advantages for the franchiser include the following.

• Franchises attract people who have ideas and are willing to take risks in return for profit. These are called entrepreneurs. Having such people on board means that McDonald's is never short of new ideas. A number of new products have been developed by franchisees including the Egg McMuffin, the Filet-o-Fish and drive-thrus.

• The business enjoys rapid growth.

• The business has an income from rents (based on sales) and from people buying franchises. A new 20 year franchise costs upwards of £150,000.

Suppliers

McDonald's is also keen to ensure good supplies. It develops quality standards to make sure suppliers are up to the mark. Suppliers are then able to share in McDonald's success.

Conclusion

McDonald's only takes on eager and dedicated franchisees. It knows the sort of people that will make a success of a business. It makes sure that franchisees are risking their own money as these are the right people to make a success of a business.