Business case for Franchise of McDonalds
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Published: Mon, 5 Dec 2016
This business case is mainly designed for planning about the franchise of Mc Donald Company while this company has been franchise from 1955 and the franchise of this company brings the success in many times. Mc Donald considers franchise is one of the predominant ways of doing business. At present, the Mc Donald’s franchise is one of the greatest food service retailers which have 30,000 restaurants placed in more than 100 countries. For purchasing Mc Donald’s franchise I have to purchase existing restaurant of franchise. By purchasing this, I can save 15% of the cost because initially I have to come up with 25% costs for existing one where new one purchasing cost will be 40% that means the profit of 15% can be gained.
Mc Donald never provides the financial support for franchise and fund must be gained from the non-borrowed personal source. And the statistical figure might be come up to about $3, 00,000.
The key objectives of taking the plan of Mc Donald franchise to achieve profitability. Because the brand image of Mc Donald is already existed in market and it is more recognized. So, I can expand the market easily and profit can be achieved.
There is the opportunity to operate own individual or more than one store. For this reason, I choose the place for establish the franchise of Mc Donald i.e. in Ilford station. Near to this station, any branch of Mc Donald is not placed. Not only this, there is the potentiality of huge customers and highest profitability because the product or menu of Mc Donald are already recognized to the whole world.
For Mc Donald franchise, there is no need to think about new menu and the cooking employees are already extremely efficient and used with all tasks. In Mc Donald franchise, risk is reduced to set up my own business where division of labour and turnover intensity of fixed menu grants for appropriate economies of scale.
Another benefit is that any new products are no need to develop and don’t require to conduct any kinds of market analysis. And also no need to think about brand name or image.
The franchise cost of Mc Donald might be £3, 00,000 where I have to provide 25% of the worth which is considered as unencumbered finance and the rest 75% will be collected from the bank as a loan in order to favourable funding terms.
Another cost is one-off franchise fee of £30, 000 and franchiser training program fee is £5, 000 which is returned after finishing the training program.
Miscellaneous cost: rent which will be paid monthly on premises related to profitability and sales will 12%.
A fee will be paid for use of the Mc Donald system-5% of sales.
National marketing expenses contribution-4.5% of sales.
Returns: in a year, a cash flow will be made where the cash inflow and outflow will about £70, 000 to £98,000 per year. But this statement will not certain because it will be made before debt repayment. The return can be more. The return on investment will currently about 10% which shows the profitability rate of this business.
Paid initial franchise fee: 26th March 2010
Franchiser training program: 27th March 2010 (start)
Go down payment to Mc Donald: 28th March, 2010.
Service providing will be started from 1st April, 2010.
1.2 Literature review:
The report is mainly done on the business plan of Mc Donald franchise. I take the business plan of franchise of Mc Donald, because of several reasons. Today’s business world are very much competitive and it’s become tougher and tougher for successful in the business market. If a person want to start his business as an entrepreneur it may be impossible to become profitable in the business market. Because establishing the new business or enter the market as a new, it is quite impossible to set up his business or become successful. But if we take the plan of establishing the business as a franchiser then it will be easy to achieve profitability in our business. Because, in franchise business, a recognized brand is already existed and all thing are readymade in before. Just spend some money to buy it and start the business.
Franchising can be defined as the exercise of using another company’s brand image and their successful business model. Through this kind of business, we can avoid investment and liability over a chain. The key factors of adopting franchise the business are that we can get the business with a good track record of profitability and that business is easily imitated.
Here, for making business plan, I adopt the Mc Donald franchise because I want to be my own boss in my business, can trade a well established and high quality of product, continuous support, benefits from national marketing carried out by Mc Donald and they receive excess to business forecast information. The best example of franchising is the brand franchising of Mc Donald. Mc Donald allows peoples to establish their own business as Mc Donald franchiser and grant the rights to set up their business. Under the Mc Donald franchise, the franchisee purchases the equipments, fittings and the permission to run the franchise for 20 years. All franchisees of Mc Donald use standardized branding, menus, design layouts and administrative systems of Mc Donald. The Mc Donald franchisees also use the same standards and operating methods or manufacturing and maintain the quality of products.
Any company, when they bring new products or service in the market they have to consider about the customer demand and their choice. They have a huge number of options of spending their money and places to spend it. However, McDonald’s places considerable importance on the improvement of their menu in order to customer need. For this reason a market survey are conducted for analysing the customer demand. Thus, customers’ demands change time to time. Therefore, Care is not only taken to impact negatively the sales of the option of one by recognizing the new option, which will cannibalise sales from the old one (trade off). McDonald’s knows that items on its menu will vary in popularity.
Action of marketing undertaken and the resources invested will be different depending on the stage a product as reached. For example, a new product launch will typically relate to television and other advertising support. In any time a company will have a products portfolio, where each in a different stage of its cycle. It is accepted that Big Mac are now in the stage of maturity where the options Mc Donald are increasing towards the popularity.
Information about market
Mc Donald is recognized as the one of the best known brands around the whole world. Branding is the term which formulated an image of an organization, service or product. The image of the brand focuses on the customers view on the organization. Brand image is mainly used while an organization shows their loyalty towards their customer through their products or services. A brand can be recognized by marketing communication methods such as: promotion and advertising which is used for developing the designs, colours and images. Similarly, Mc Donald is popular by its most familiar logo- the Golden Arches. The brand image is a significant factor for franchising. Because without strong brand image, it is impossible to become successful in franchising business.
Mc Donald faces competition from other forms of businesses in all its market. In addition, there are some factors such as: economic, legal and technological changes and social factors and many other ingredients may affect the success of Mc Donald. Mc Donald franchising marketing consists of identifying the needs and requirements of customers and tries to meet theses demand in a better way than its competitors and by this the company can get loyal customers.
Mc Donald has some competitors which are Burger King, KFC, Subway, Star Bucks etc. But among them Burger King is the main competitor. And in my new Mc Donald franchising place, these entire competitors branch are existed. If we focus on Mc Donald and Burger King then we can see the first difference between these two is that the Big Mac and the Whopper. But both are concentrating on customer health and taste.
Mc Donald creates the achievement place for children. From this sector, Mc Donald earns a get percentage of their profits. And it is seen that children are requested to their parents to take them to Mc Donald, while Burger King doesn’t give any response to this. They are used to have a sad kids clubs with B-grade promotion, where Mc Donald shows promotional activities through the children’s hit such as: Mattel, Disney and Barbie. Another strategic difference between these two is adult advertising. Mc Donald mainly advertises their salads shows to pacify the mothers who bring their kids in the sign of Golden Arched restaurant where Burger King uses other promotional strategy that is the advertisement of Stacker Sandwich which is made with the layer of cheese and meats which is stacking up to four burgers high.
Sub way provides 265 calories in its meal, while Mc Donald provides a gluttonous 1230 calories. Mc Donald promotes the healthy side of foods by providing salad and water; they are still promoting the Big Mac and Pounder, that doesn’t really help the matter. On other hand, Subway promotes the ”fresh” salad and 5 a day veg. Subway provides either sub with a cookie, crips and/ or drink. Where, Mc Donald provides small chips, medium chips, and large chips, drink and a salad which probably is not much healthier than the chips.
Mc Donald which is treated as a fast food company also gets competition from Star Bucks. Though Mc Donald has the strong marketing growth in fast food business, but the intention of doing competition against Star Bucks carries some risk. It can shown from the research analysis that Mc Donald restaurant has the slow down services where the Star Bucks serves the customer speedy services. But on the other hand, because of slower marketing growth, Star Bucks stock has lost about half its value since last January.
Chances of success:
In case of Mc Donald franchising, I have to meet so many competitors like as: Burger king, Starbucks, Subway etc and may be there create tough competition in the fast food market. But as a Mc Donald franchisee, I can say that there is the possibility of huge success and can be got reasonable returns from this business because Mc Donald is already market recognized brands and it also famous for its healthy foods which bring child, young people in the Mc Donald store.
Mc Donald franchise business is one that can be beneficial for both franchisor and franchisee. So, while the Mc Donald franchisor is benefited through the brand becoming more and more visible and gets franchise fees from the franchisee, the franchisee that is me, take advantage of working with recognized brand, on there chances of success will be more.
Mc Donald is mainly recognized for its delicious burgers and milk shakes. In annual, Mc Donald plan to continue expansion. It is considered as a more suitable place for franchising to own. For becoming successful in Mc Donald franchising, I have to take care about franchising business requirement that is its required resources such as: financial resources, human resources, business experience, ongoing fees, training, raw materials, considerations, growth, and equipment etc. These resources are described below:
Mc Donald franchising headquarters fixed the financial franchise requirement which should be minimum $ 3, 00,000 of non- borrowed personal resources. It is also said that since the cost of each restaurant does vary, the fee of franchise would also different, but the 3, 00,000 is a standard requirement. Among this requirement, 25% is coming from the franchisee and 75% is coming from bank loan.
Mc Donald often wants to recruit high experienced people for joining its bandwagon. As a Mc Donald franchiser, I have huge business opportunities but for using these opportunities I need the high skilled and experienced people who are the efficient on managing or owning business units, low level workers who have the experience of serve the customer and also dealing with the customer.
In case of Mc Donald franchising, franchisor has to be made a contract with Mc Donald for 20 years. And this contract indicates that building ownership consists the property used for example: equipments of kitchen, seats, decorator, fittings are all possessed by McDonalds and are carried on lease by the franchisee. So, there is no need to spend money on purchasing these equipments because these equipments are already provided by Mc Donald.
Budgeting of Mc Donald Franchising
Liquid assets: N/A
Net worth: N/A
Franchisee fee: £ 30,000
Required owner capital: 75,000 (25%)
Bank loan: 2, 25,000 (75%)
Total investment: 3, 00, 000
Total investment: 3, 00,000
Franchise fee: 30,000
Service fee: 30,000
Contribution to national
Marketing spend 27,000
Total cost: £ 4, 64,000
Total sales per day: number of customer Ã- per day selling
= 200Ã- 100
Monthly sales= £20,000Ã-30
= £ 6, 00, 000
N.B: 5 of the 10 people average 50 sales a day, that’s over 200 sales per day. If it converted into Pound it would be around £20,000 in sales per day and £ 6, 00,000.
Here, rent is 12% of sales
Service fee is 5% of sales
Contribution to national marketing spend is 4.5% of sales.
So, profit= total sales – total cost
= £ 6, 00, 000- 4, 64, 000
= £ 1, 36, 000
Staff training and development:
As a franchisee, I take the existing store of Mc Donald which is placed on Ill ford. So, there is need to train myself as a franchisee and for this purpose Mc Donald provides training to franchisee for being able to run the business efficiently. For becoming a franchisee, every franchisee has to complete a full time training program for which franchisee pays money to Mc Donald after completing the training program this money is refunded to franchisee. This program is lasting for nine months. It is very much important for a franchisee to start work with Mc Donald, wearing the staff uniform and learning all things from cooking and making food to serving customers and also learn cleaning.
Training is held on regional training centre focuses on areas such as: leadership skill, team building, business management and handling customer enquiries. The franchisees will have to recruit, train and motivate their work force, so they must learn the skill of human resource management. At the end of the training program, they learn about stock control and ordering, profit and loss accounts and the legal side of hiring, and recruiting staff. As a result, no franchisee of Mc Donald would have to ask a member of his or her staff to do something that they couldn’t do themselves. Knowing this can also be powerful motivator of the staff.
Mc Donald is not only providing the training to it franchisee, it shows that the success and profitability of Mc Donald mostly connected to the success of the franchisee. An experienced and high skill full professional consultant team offers continuous support on all things from human resources to accounting and IT business controls. These field consultants may become valued partners of business and are a sounding board for ideas.
In case of Mc Donald franchising, here for running business, I take the existing store of Mc Donald and in accordance to Mc Donald franchising business, in existing business there is no need to recruiting, selecting and hiring and train the employee. Because the old one store, there is already all staffs are recruited and trained. And these staffs are highly skill full for doing all types of restaurant jobs such as: customer service, cleaning and managing the store also. Because, Mc Donald, whenever recruit staff on its store they at first give 3 or 4 days training to new recruited person so that he will be able to do his work effectively and efficiently and he doesn’t face any difficulty in sensitive work that is servicing the customer.
Cost of staff training and development:
I already mention that in case of old one store there is no need to recruit, hire, select and train the staff because on that store all things are available in readymade. Not only staff, equipment and store are also placed in right position. And there is the huge possibilities of achieving profit because the cost is only occurred from rent, service fee, franchisee training fee, contribution to national marketing spend. And franchisee training cost is: 5,000 and it is also refundable.
Sources of resources:
An initial investment that is 40% of the total cost in case of a new restaurant and 25% for existing restaurant is needed to be paid to the company where rest of the money being paid in at least 7 years. In order to down payment, there also have to meet some specification. Mc Donald franchising financial resources are coming from non- borrowed and personal resources. It may be including of bonds, securities and debentures; cash in hand; real estate or business equity. In case of financing, Mc Donald doesn’t provide any financial support though there is the possibility of getting the benefits of achieve loans at lower rates. In the time of franchise, Mc Donald has to be paid monthly rent and service fees.
Source of financial resources:
Obtaining finance for a new business is very difficult rather than obtaining funds for a franchising business. The key factors for easily getting funds for franchising business is previous track record of franchise business. Because brand and trademark is already established, therefore Mc Donald franchise is considered a lower risk investment.
Franchise Bank Loan:
A franchisee can get loan from commercial bank where this type of bank offer loan to franchise business with lower defaulter rate. In fact, most of the franchising industries expand by taking loan from commercial bank at an average rate of 10 to 12 percent per year. Mc Donald franchising is also expanding by taking loan. Here, as a Mc Donald franchisee I also take the loan from commercial bank. If a potential franchisor has enough capital and they think that they have the skill of operate the business successfully, franchisors will naturally assists with financing in any way that they can. Here, in franchising market, there is also seen that some of the franchisor provide loan application packages for helping the franchisee. A good number of franchisors offer financial help to the franchisee either by financing all or part of the franchisee themselves or by helping them in locating another lender.
Other financial resources:
I can also get financial help from limited partnership, taking loans from friends and family, and second mortgages on existing properties. In end, whatever means a franchisee motivates in financing their franchising, it is necessary to remember that they will need to pertain in making a detailed plan about a new business for showing to prospective lenders how the business will be run.
After considering about financial resources, I have to think about human resources that are about hiring, selecting and training employees. Without employees, a business operation can’t run. Here, Mc Donald offer a limited scope for employee advancement to the level of management which may attract a few motivated persons, most of our work force will be young, inexperienced and just learning about job responsibility. High employee turnover must be expected as employees graduate from high school or college or move on to other work. Good management techniques can make a difference in keeping longer term persuade staff and present continuously.
Implementation of the project:
Before implanting my project that is Mc Donald franchising in Ill ford, there should be describe about leadership and motivation that is how Mc Donald leads and motivate employees to do their jobs.
Leading and motivating employees on Mc Donald:
Employees are considered as the most significant resources in Mc Donald. Basically, Mc Donald Company uses three different motivational techniques such as: financial encouragement, non- financial encouragement and social policy. These three factors are mainly described in Maslow’s hierarchy theory. According to this theory, all kinds of needs must fulfill one after another. The strategy and structure of Mc Donald Company represents that only the simultaneous fulfillment of employee’s needs will be enhanced an employee’s performance. In brief, for enhancing employee’s performance and company’s productivity, Mc Donald uses effective motivational system. In order to present situation, Mc Donald administration staff use situational approach. On the basis of motivation theories, Mc Donald’s administrators have used particular motivational techniques. Having using the procedure of assembly line in food preparation, Mc Donald has assures the standard of quality and high performance. Basically, managers of different stores use different leadership management technique. But in Mc Donald store, every manager use their own management techniques, some managers are stiff and some are easy. And some use the both the hard and soft techniques of management. In fact, there is the mixture of lay back (laissez- faire) and autocratic styles leadership.
Mc Donald’s has achieved the status of one of the most recognizable franchises across the globe through a mixture of successful marketing, consistent service and product, and strong leadership. Mc Donald mainly uses the goal oriented and task-focused leadership styles that still exists in the corporation today.
List of activities:
Assess financial requirements.
Meet the experience requirement as a franchisee.
Fill up the franchise application form.
Pay initial franchise fees and other fees.
Make 20 years agreement with Mc Donald.
Start the business.
These activities are now shown on the critical path analysis:
Task completion time
Assess financial requirement 25.03.2010
Meet franchise experience requirement 28.03.2010
Fill up franchise application form 30.03.2010
Pay initial franchise fees 04.04.2010
Make 20 years agreement 10.04.2010
Start the business 15.04.2010
For becoming successful in Mc Donald franchising, there are some key factors which I have to consider. These key success factors are described below:
People can get the facility of food started from breakfast to meal in the price sector. Whenever any person feeds his family to Mc Donald, he first thinks about its cheap price with delicious and healthy items. In case Mc Donald franchising, it should be considered by a franchisor about its competitive price advantage.
Mc Donald is one of the greatest food retailers that has reached new peaks at what can be achieved out of a global business market. The burger and French fries of Mc Donald are prepare to look, taste and smell very similar across the globe, despite all the variations in environmental differences. And in Mc Donald franchising, standardization of quality is also important.
Location is very important factor for set up the franchising the business. For selecting the location, any franchisor should have to consider its competitor, its marketing environment and consumer forms. For that reason, as a Mc Donald franchisee, I choose place of Ill ford, where the store of Mc Donald are already established and its marketing also going good.
Generally, stores opening hour is very necessary for set up a business. But it depends on different stores and different place. Numbers of Mc Donald franchisee stores are 198 and these stores have different opening time and end time. In my Mc Donald stores, the opening time is 8 am. I think this opening time is better because it is the right time of taking the breakfast and on that more customers can come to the restaurant.
In case of considering strategic group, Mc Donald is now in group 2 i.e. the main market food retailers- compete on price, offer better ranges and better customer services.
Selected marketing strategy:
There are several strategies such as:
Strategy 1: all unnecessary attributes are removed, leading to lower costs
Strategy 2: offer a range of products but change a lower price.
Strategy 3: hybrid strategies; combination of differentiation and price based strategy.
Strategy 4: the product must be differentiated in a significant way that buyers are prepared to pay extra.
Among these strategies, I take the strategy 3 that is hybrid strategy. This strategy is already used in my Mc Donald store and this strategy includes:
Successful use of price or differentiation strategy can lead to opportunities to develop other strategy.
Superior cost advantage of Mc Donald, which generates profit that are invested in differentiation without destroying the cost advantage.
Differentiation may lead to high sales volume, economies of scale, and lower cost. But in Mc Donald, differentiation leads to lower cost.
Implementation of marketing strategy:
Marketing strategy is basically planned by considering the basis of competition and the standard of quality. Different marketers such as: niche, leader and followers select and implement different strategies in different ways. As a market leader, Mc Donald may choose to consolidate their position in a number of ways to help them achieve competitive advantage. They may:
Exploit their superior cost structure.
Raise barriers through marketing expenditure, blocking access to distribution channels.
Buy competitors and close down their capacity.
Among these ways, Mc Donald use the first one that is exploit their superior cost structure.
While providing the option of new menu item, the most necessary thing is to consider that the customer also have more option to choice their demanded product. Generally, they have a lots of options of their money spending and also spending place. However, McDonald’s places considerable importance on developing a menu which customers want. Market research establishes exactly what this is. However, customers’ demands change time to time. The products which are now interesting, fashionable and attractive in present may be through away in future. Marketing continuously consider customers’ demand. For meeting these changes, McDonald’s should bring new menu items and leave out old ones, and will continue to do so.
Value of customer’s perception is an important factors of the price charged. What a product is worth customers draw the picture of product on their mind. A product is a physical item and it has psychological connotations for the customer. There are some difficulties of using products low price as a marketing tool is that the customer may feel that a low price is symptom of compromised quality. It is very much important when deciding on the price to be fully aware of the brand and its integrity
It includes marketing communication such as advertising which is conducted on TV, radio, in cinema, online, using poster sites and in the press. Other promotional sectors are sales promotions, point of sale display, merchandising, direct mail, telemarketing, exhibitions, seminars, loyalty schemes, door drops, demonstrations, etc. Marketing communications skill is to develop a campaign which applies several of these methods in a way that provides the most effective results.
The most important element of the marketing mix i.e. price is not just about the physical location or distribution points for products. Price gives emphasis on the management of a range of processes involved in bringing products to the end consumer.
Monitoring & controlling:
Majority of the chain of franchising are controlling under both the outlet of company- owned and franchised. In previous, a manager was ran the business and in return he got the salary when the chain is the remainder of the profit. After the time change, franchisee keeps the profit after paying the applicable fees to the chain. Thus, when product is decentralized, then franchisee give incentives as a high amount which are very much significant for a large organization.
As a franchisee, I have to monitor my franchise business because whether it is new or existing one business, every business should monitor by its owner, whether it is run properly or not, whether it gains profit or not, or whether it can satisfy the customer expectation or not. There also has the reason for monitoring the business. Such as: I have to see whether my business is going according to my plan or not also have to detect and react appropriately to deviations and changes to plans.
As an owner of Mc Donald franchising, I have to monitor only its quality and its money. Because, other significant things such as: human resources, machines, materials, space, time, task etc. after monitoring these things, the output such as: progress, costs, job starts, completion, engineering or design changes and variance order also have to monitor. But in case of Mc Donald franchising, there is no need to monitoring the human resources or machines or materials these things. Because, in case of existing store franchising, there all ready all resources and material are ready. For my franchising business, I can visit the store from my head office on logically basis that means on the basis of specific reason.
There are several techniques through which I can monitor and control the franchising business and these techniques are:
Through meetings with clients, parties involved in project (contractor, supplier etc.)
For schedule -update CPA, PERT charts, update Gantt chart.
Using earned value analysis.
Calculate critical ratios.
Tests and inspections.
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