Essay Example on McDonald's: Own Your Own Franchise & Enjoy Global Brand Benefits

Introduction

McDonald's operates and franchises the restaurants. They serve a menu of quality foods and beverages. Primarily, the company is a franchisor with the majority of the restaurants being owned, and operated by independent franchising enabling individuals to be their own employers and maintaining control over matters of employment, marketing while they benefit from the strong global brand of McDonald's, its operating system and the financial resources as well.

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McDonald's restaurants that operate directly contribute significantly to the ability to act as a credible franchisor. One specific strength of such expertise of operating the restaurants is the improvement of the operations as well as the success of all restaurants. The company has the franchisees buy food, do the packaging, and purchase other foods from independent suppliers. There is the enforcement of high food safety as well as quality standards. There are quality centers owned by McDonald's designed to promote consistency.

McDonald's has independently owned and operated centers for distribution, which they use to distribute supplies to the restaurants through trained personnel in proper storage, handing, and preparation (Schramade, 2019). The global brand is well-known. McDonald's is a food service business dealing majorly with food and beverages as well. The product element of the marketing mix covers the outputs of the organization that it provides to the target markets. The product line for McDonald's mainly includes sandwiches and hamburger, fish and chicken, snacks and sides, salads, beverages, desserts and also shakes (Meyer, 2018).

McDonald's restaurants tend to compete with a range of international, regional and local retailers of food products. Their competition is on the convenience, service, variety of the menu, and the quality of the product in a global food and beverages industry. The company also continuously endeavors the improvement of its social responsibility and practices to the environment in a bid to achieve sustainability to benefit itself and the surrounding communities.

Burger King Holdings is a Delaware corporation with the restaurant system also inclusive of ownership by the company and franchisees. The generation of revenues for Burger King is from three sources which include the retail sales at the restaurants, revenue from franchises (consists of royalties based on sales percentage from the reports of the franchise, and paid franchise fees) and lastly the property income from leased restaurants.

Burger King has the belief that the restaurant ownership mix provides them with a strategic advantage because the capital needed to grow and maintain Burger King is funded by franchisees. The franchise restaurants happen to have lower capital requirements hence a competitive advantage. Burger King has an attractive business model with the franchised areas that help to generate consistent and profitable royalty stream to them. They have minimal ongoing capital expenditures or incremental expenses.

The basic menu of Burger King consists of hamburgers cheese burgers, sandwiches, breakfast items and drinks among others. Burger King makes use of innovative marketing campaigns, creative advertising and also strategic sponsorships to drive sales as well as generate the restaurant traffic. They have the intention to grow and also strengthen their competitive position through their continued focus on the growth pillars such as products marketing, operations, and development. Driving further sales growth is their motive, which they plan to achieve by focusing on achieving the comparable sales and the potential of the average sales.

Financial Performance of McDonald's

The performance of McDonald's has increased cumulatively over the years.

Revenue for McDonald's consists of sales by restaurants being operated by the company and those by the franchisees. The company has had the operational mix help to optimize their overall performance. Worldwide, the franchised restaurants make up 93% of the restaurants (Wu, 2018). These also help to generate more stable, and predictable revenue as well as cash flow streams while they operate the intensive structure.

In the year 2018, McDonald's adopted the guidance given by the Accounting Standards Codification. The standard ensured a change in the way the initial fees from franchisees of new openings were recognize. In this new guidance, the fees were recognized over the term of the franchise rather than upon receipt. This way, the revenues in 2018 were a reflection of the negative effect of almost $42 million because of the new guidance (Wu, 2018).

Revenues for McDonald's decreased in 2018 by 8%, while in 2017, they had decreased by 7% (Wu, 2018). For all the periods, a decrease in the revenue was due to the strategic refranchising initiatives of the company that were offset by positive comparable sales. In both years, the revenue decrease was a reflection of the impact of refranchising, mainly in the United States. For international lead markets, the increase in revenue was because of positive comparable sales across the markets while the decrease in revenue for high growth markets was because of the refranchising impact in China and Hong Kong (Dixit, 2017).

The operating income for McDonald's in the United States increased as a result of the high franchised margin and lower costs of general and administrative expenses. These had been partly offset by the margin dollars operated by the company. The results also showed the restructuring charge of $85 million (Lock, 2019). If the charge had been excluded, the operating income would have increased by only 2 percent but it had increased by 7% (Wu, 2018).

For the international lead markets, there was a constant increase in the operating income because of sales-driven improvements in franchise margin dollars across markets. There were also higher gains on sales from restaurant businesses from United Kingdom, and Australia. Generally, the operating margin in the year 2018 was 42%, in 2017 it was 41.9% while in 2016 it was 31.5% (Wu, 2018). There was also the increase in interest expense where it was 7% in 2018 and 4% in 2017 (Wu, 2018). It reflected the higher average balances on debt being offset by lower average interest rates.

The total assets for McDonald's decreased by 3% in 2018, totaling to $1 billion because of the decrease in cash, and other equivalents (Wu, 2018). It was also because of the effect of foreign exchange rates offset by an increase in accounts and notes receivable as a result of the significant number of EOTF projects as well as other billings to franchises for their investment portion. There was an increase in the net property, and equipment by $394 million in the year 2018 (Wu, 2018). It was because of capital expenditures offset by the depreciation as well as the impact of foreign exchange rates.

Concerning the liquidity of McDonald's, the company has many significant operations outside the United States earning close to 65% of the operating income (Chai, 2019). Quite a large portion of the earnings go straight to reinvestment in foreign jurisdictions made by McDonald's. This way, the company continues to make substantial investments to support ongoing developments as well as their international operations.

Product positioning for McDonald's includes the use of segment insights or information about the behavior of consumers that they develop through market research. This way, they can achieve a competitive strategy that translates to strengthening their brand name. They thus position their products correctly for the target markets. McDonald's has also had its ethical promotion through collaboration with suppliers to reduce the impact on the environment by the supply chain (Harrington, Ottenbacher, & Fauser, 2017). The company is built on a foundation of personal and professional integrity. They earn the trust of people every day by serving safe food and their outstanding delivery.

McDonald's disseminates new information meant to persuade customers to purchase their products. Among their promotional strategies includes the most significant, which is advertising, public relations, sales promotions, and also direct marketing (Meyer, 2018). The most notable promotion tactics for McDonald's are the advertisements. They use TVs, print media, online media, and also radios to advertise.

The pricing strategy for McDonald's is a combination of bundle pricing and psychological pricing strategy. The bundle strategy is such that McDonald's offers its bundle products for discounted prices compared to purchasing the item separately (Meyer, 2018). The psychological pricing is where the company uses prices that appear more affordable like $__.99 instead of having it in the nearest dollar.

The management's view of the business includes the reviewing of results on a constant currency basis as well as considering a variety of performance and financial measures. The strength of the alignment of the company including the franchisees and the supplies has been the key to the long-term success of McDonald's. Through leveraging the system, they ae able to identify, implement and also scale better ideas to meet the changing needs of customers, and preferences.

Financial Performance of Burger King

The graph shows that the revenue of Burge King dropped between the year 2012 and 2013. However, it has seen growth over the last three years up to 1.65 billion U.S. Dollars in the year 2018 (Lock, 2019). However, the company has continued to keep the number of American customers steady.

They had a tumultuous and disappointing start of the 21st century. This way, the shareholders witnessed as other companies in the food industry such as McDonald's, Subway and Starbucks take turns in passing them in terms of sales revenue. It was then that the private equity firm known as the 3G capital purchased the struggling giant Burger King for $4 billion in the year 2010 (Lock, 2019). It helped in igniting a recovery effort that was quite successful. In the year 2014, Burger King merged with Canadian coffee staple to form RBI (Restaurants Brands International).

Burge king generates revenue from the main sources. The key stream is from the franchises inclusive of the fees and royalties. The royalties are from a percentage of revenue from every unit. Formerly, the company used to lease properties. However, the recent 3G capital has moved away from leasing (Miller, 2016). As of 2018, all the locations for Burger King had all been franchised.

By the start of the third quarter of the financial year of 2017, Burger King had started to outperform McDonald's by significant margins. Reports concluded that the 3G capital was making significant and strategic adjustments, which were to trim the business fat and simplify its public image. The plan worked and there was a growth of the margins from 24 percent in the second quarter of 2011 to 36 percent of the fourth quarter of 2018 (Lock, 2019).

Burger King has been repackaging and rebranding their old items to help customers out in a bid to surpass their competitors because of the high complication of McDonald's menu such as creating record drive-thru wait times. The revival strategies for Burger King have included a direct challenge to the products of McDonald's. In 2013, they introduced the Big King sandwich and other products that were a cheaper alternative for customers.

Reports show that McDonald's drew $2.6 million in terms of revenue while Burger King drew $1.2 million making it almost half of McDonald's. Revenues for Burger King include the retail sales at the restaurants. The other strategy to beat...