Read the case McDonald's Expands Globally While Adjusting Its Local Recipe

Answer the following questions:

1. Identify the key points of the global strategy developed by the McDonald's company. How does McDonald's approach the issue of standardization?

2. Do you think McDonald's thinks globally, but acts local?

3. Do you think government officials in developing countries like Russia, China and India welcome McDonald's?

4. Why do anti-globalization protesters around the world frequently attack McDonald's?

Mcdonald's Expands Globally While Adjusting Its Local Recipe Mcdonald's Corporation is a fast-food legend whose famous Igolden arches can be found in 118 different countries. The openings. McDonald's International is organized into three company is the undisputed leader in the quick-service restaurant geographic regions: (1) Europe; (2) Asia/Pacific, Middle East, and Africa (APMEA); and (3) Other Countries. In 2005, the offices of the (QSR) segment of the hospitality industry, with more than twice the country heads for Europe and Asia were moved from headquarters to system-wide revenues of Burger King. Mcdonald's built its reputation their respective regions; now, for example, the head of APMEA by promising and delivering three things to customers: inexpensive food with consistent taste regardless of location; quick service; and a manages his business from Hong Kong. Commenting on the change, Ken Koziol, vice president of worldwide restaurant innovation, clean, familiar environment. explained, "Mcdonald's was built on a strong foundation of a core The company was also a pioneer in the development of conven- ience-oriented features such as drive-through windows and indoor menu that we took around the world but we need to make sure we playgrounds for children. Today, thanks to memorable advertising and are more locally relevant. Taste profiles and desires are changing." intensive promotion efforts, Mcdonald's is one of the world's most valuable brands. The golden arches are said to be the second most Asia-Pacific recognized symbol in the world, behind the Olympic rings. In the The Indian market appears to hold huge potential for Mcdonald's, In United States alone, Mcdonald's typically spends about twice as much fall 1996, the company opened its first restaurants in New Delhi and on advertising as Burger King and Wendy's. Bombay. In Delhi, McDonald's competes with Nirula's, a quick-service Today, however, the company faces competitive attacks from restaurant chain with several dozen outlets; in addition, there are several directions. During the 1990s, a wide range of upscale food hundreds of smaller regional chains throughout India. The U.S.-based and beverage purveyors arrived on the scene. For example, consumers Subway chain opened its first Indian location in 2001; Pizza Hut, KFC, began flocking to Starbucks coffee bars where they spent freely on and Domino's Pizza have also entered the market. The Pizza Hut on lattes and other coffee-based specialty drinks. The "fast-casual" Juhu Road in Bombay is housed in a three-story-tall building with large segment of the industry that includes companies such as Panera plate glass windows and central air conditioning. On most nights a Bread, Cosi, and Baja Fresh is attracting customers seeking higher- long line of customers forms outside. quality menu items in more comfortable surroundings. Meanwhile, Indian demand for meals from the major food chains is growing Subway overtook Mcdonald's as the restaurant chain with the most at a double-digit rate; annual total sales exceed $1 billion. With those outlets in the United States. Some industry observers suggested that, trends in mind, Mcdonald's identifies strategic locations in areas with in terms of both food offerings and marketing, McDonald's was losing heavy pedestrian traffic, such as the shopping street in Bandra in the touch with modern American lifestyles. Bombay suburbs. Other restaurant locations include a site near a Until recently, the picture appeared brighter outside the United college in Vile Parle and another opposite the Andheri train station; in States. Thanks to changing lifestyles around the globe, more people all, Mcdonald's India operated 208 locations at the end of 2010. Plans are embracing the Western-style fast-food culture. Mcdonald's call for opening another 40 outlets in 2011. Prices are lower than in responded to the opportunities by stepping up its rate of new unit other countries; most sandwiches cost about 40 rupees (less than $1). Drinks cost 15 rupees, and a packet of French fries is 25 rupees. B lights le A complete meal costs the equivalent of about $2. Because the Hindu religion 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 Victoria 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 the 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-are produced locally. In addition, to accommodate vegetarians, each restaurant has two separate foodprotests from several Hindu nationalist groups, the first Mcdonald's attracted huge crowds to its site near the Victoria 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 the 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-are 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 Source: Hasan Jamali/AP Wide World Photos. openings. The first Chinese location opened in mid-1992 in central CHAPTER 1 . INTRODUCTION TO GLOBAL MARKETING 31 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 yellow, and the golden arches are displayed more subtly. Overall, the dispute between the central government and Beijing's city govern- restaurants don't look like Mcdonald's elsewhere. The first redesigned store is located on the Champs Elysees on a site previously occupied ment. City officials decided to build a new $1.2 billion commercial complex in the city center and demanded that Mcdonald's vacate the by a Burger King; called "Music," the restaurant provides diners with site. McDonald's was forced to abandon the location. Despite the the opportunity to listen to music on ipods and watch music videos on turbulent start, Mcdonald's now has more than 1,000 restaurants in TV monitors, In some locations, lime green Danish designer armchairs China. Plans call for opening 600 new locations by 2013. The restau- have replaced plastic seats. As Mcdonald's locations in France undergo style makeovers, some franchisees report sales increases of rants purchase 95 percent of their supplies, including lettuce, from local sources. 10 to 20 percent. Encouraged by these results, Mcdonald's has embarked on an ambitious program to refurbish several thousand outlets in various countries. "The tastes of the urban, upwardly mobile Indian are evolving, and more Indians are looking to eat out and experiment. The Central and Eastern Europe potential Indian customer base for a Mcdonald's or a Subway is larger than the size of entire developed countries." January 31, 2010, marked the 20th anniversary of McDonald's arrival in the Soviet Union. The first Moscow Mcdonald's was built on Sapna Nayak, food analyst at Raobank India Pushkin Square, near a major metro station just a few blocks from the Kremlin. It has 700 indoor seats and another 200 outside. It boasts In Asia and elsewhere, Mcdonald's protects itself from currency 800 employees and features a 70-foot counter with 27 cash registers,and more Indians are looking to eat out and experiment. The Central and Eastern Europe potential Indian customer base for a Mcdonald's or a Subway is larger than the size of entire developed countries." January 31, 2010, marked the 20th anniversary of McDonald's arrival in the Soviet Union. The first Moscow McDonald's was built on Sapna Nayak, food analyst at Raobank India Pushkin Square, near a major metro station just a few blocks from the Kremlin. It has 700 indoor seats and another 200 outside. It boasts In Asia and elsewhere, McDonald's protects itself from currency 800 employees and features a 70-foot counter with 27 cash registers, fluctuations by purchasing as much as possible from local suppliers. equivalent to 20 ordinary Mcdonald's rolled into one. For its 20th For example, the company's Singapore locations now buy chicken birthday celebration, the Pushkin Square location offered customers a patties from Thailand rather than from the United States. However, "buy one, get one free" hamburger promotion; accordion-wielding French fries must still be imported from Australia or the United States. musicians provided background music. To help offset higher costs, McDonald's offers customers the choice of Khamzat Khazbulatov was selected to manage the first store; rice as a side dish at a lower price. today, he is director of Mcdonald's operations for all of Russia. At present, there are 235 Mcdonald's restaurants in Russia, and the Western Europe company employs more than 25,000 people. To ensure a steady sup- The golden arches are a familiar sight in Europe, particularly in ply of high-quality raw materials, the company built McComplex, a France, Germany, and the United Kingdom. There is even a four-star huge $50 million processing facility on the outskirts of Moscow. Mcdonald's also worked closely with local farmers to boost yields and Golden Arch hotel in Zurich. Overall, Europe contributes about 40 percent of both revenue and operating income, making it a key quality. Now the facility has been turned over to private companies that today provide 80 percent of the ingredients used in Russia. For world region. example, Wimm-Bill-Dann supplies dairy products to Mcdonald's; in France's tradition 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 range from legendary three-star Michelin York Stock Exchange. Overall, 100,000 people are employed by com- restaurants to humble neighborhood bistros. From the time Mcdonald's opened its first French outlet in 1972, policymakers and panies in Mcdonald's supply chain. Ukraine and Belarus are among the other members of the media commentators have voiced concerns about the impact of fast Commonwealth of Independent States with newly opened restau- food on French culture. Even so, with nearly 1,000 outlets, France rants. The first Ukrainian Mcdonald's opened in Kiev in 1997; by today represents Mcdonald's third-largest market in Europe. 2007, the chain 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 official food of the World Cup finals that were held in France in 1998. McDonald's has also set its sights on Central Europe, where plans call for hundreds of new restaurants to be opened in Croatia, In August 1999, a sheep farmer named Jose Bove led a protest against Slovakia, Romania, and other countries. In 2010, Mcdonald's Czech construction of the 851st French Mcdonald's near the village of Republic restaurants featured a special lineup of New York-themed Millau. The group used construction tools to dismantle the partially finished structure. Bove told the press that the group had singled out sandwiches that were promoted with the iconic "I Heart NY" logo. Mcdonald's because, in his words, it is a symbol of America, "the Advertisements promised "Another burger each week"; the offerings Included Wall Street Beef ("grilled beef, cheese, crispy bacon, fresh place where they not only promote globalization and industrially lettuce and onion with BBQ sauce on an oval bun topped with sesame produced food but also unfairly penalize our peasants." In 2002, seeds"); Broadway Chicken; SoHo Grande; Manhattan Grilled executives at Mcdonald's France even ran an ad in Femme Actuelle Chicken; and Brooklyn Classic. magazine suggesting that children should eat only one meal at Mcdonald's per week. "Mcdonald's comes off as uncool. If you want to be chic, you Mcdonald's French franchisees experience some of the same eat sushi. Indian food is even more cutting edge. McDonald's is competitive pressures facing the U.S. units; there are also key differ- like white bread." ences. For example, local bistro operators have enjoyed great success selling fresh-baked baguettes filled with ham and brie, effectively Daniel, a 26-year-old architectural draftsman in San Francisco neutralizing Mcdonald's advantage of fast service and low prices. In response, executives hired an architecture firm to develop new Refocusing on the U.S. Market restaurant designs and reimage the French operations. Disappointing financial results led to a management shakeup in A total of eight different themes were developed; many of the 2002, and Jim Cantalupo became CEO. Cantalupo was a retired vice redesigned stores have hardwood floors and exposed brick walls. chairman whose 28-year career at McDonald's included considerable Signs are in muted colors rather than the chain's signature red and international experience. He vowed to get the company back on32 PART 1 . INTRODUCTION track by focusing on the basics, namely customer service, clean restaurants, and reliable food. Unhappy with the company's recent Average. The company's strong financial results have given it the "Smile" advertising theme, Cantalupo took the extraordinary step of resources to move forward with a remodeling initiative for stores in calling a summit meeting of senior creative personnel from 14 adver- the United States, The price tag: A whopping $1 billion. The upgrades are partly a response to the positive results from revamped European tising agencies representing Mcdonald's 10 largest international markets. Foremost among them was New York-based DDB operations; the makeover also reflects an appreciation for retail design Worldwide, the lead agency on the Mcdonald's account that handles principles used by Apple, Starbucks, and other trendsetters. By 2015, advertising in 34 countries, including Australia, the United States, most of Mcdonald's 14,000 U.S. stores will be updated. and Germany. In addition, Leo Burnett is responsible for ads targeting Mcdonald's executives intend to create a modern, streamlined environment that will encourage customers to stay longer and spend children. McDonald's marketing and advertising managers from key more. Some of the changes are dramatic: Gone are the red roofs and countries were also summoned to the meeting at company headquarters in Oakbrook, Illinois. splashes of neon yellow that many associate with iconic spokes-clown Ronald Mcdonald. The new color palette includes subtle shades of As Larry Light, then-global chief marketing officer for Mcdonald's, orange, yellow, and green. Also on tap: softer lighting and comfort- noted: able, stylish new furniture. As Jim Carras, a senior U.S. executive, Creative talent is a rare talent, and creative people don't belong noted, "Mcdonald's has to change with the times. And we have to do to geographies, to Brazil or France or Australia. We're going to so faster than we ever have before." challenge our agencies to be more open-minded about sharing between geographies. Discussion Questions Charlie Bell, a former executive at McDonald's Europe who was 1. Identify the key elements in Mcdonald's global marketing strat- promoted to chief operating officer, didn't mince words about the egy. In particular, how does McDonald's approach the issue of company's advertising. "For one of the world's best brands, we have standardization? Does Mcdonald's think global and act local? missed the mark," he said before the summit meeting. In June 2002, Does it also think local and act global? the company announced that it had picked the phrase "i'm lovin' it" 2. Do you think government officials in developing countries such as its new global marketing theme; the copy was proposed by Heye as Russia, China, and India welcome Mcdonald's? Do consumers & Partner, a DDB Worldwide unit located in Germany. Tragically, in these countries welcome Mcdonald's? Why or why not? within a few months, both Cantalupo and Bell died unexpectedly. 3. The Plan to Win initiative is built around five factors that drive Jim Skinner, the company's current chief executive officer, insti- Mcdonald's business: people, products, place, price, and promo- tuted a "Plan to Win" initiative to increase Mcdonald's momentum. tion. As a student of marketing, what can you say about these The core idea was to make Mcdonald's "better, not just bigger." factors? Skinner identified five main drivers of McDonald's: people, products, 4. Is it realistic to expect that McDonald's-or any well-known com- place, price, and promotion. pany-can expand globally without occasionally making mistakes Even as McDonald's executives attempted to come to grips with or generating controversy? Why do antiglobalization protesters the problems facing their company, various business experts were around the world frequently target Mcdonald's? offering advice of their own. In the mid-1990s, one market analyst said, "McDonald's is similar to Coca-cola 10 years ago. It's on the Visit the Web Site verge of becoming an international giant, with the United States as a See www.mcdonalds.com major market, but overseas as the driving force." Adrian J. Slywotzky, for a directory to country-specific sites. author 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 Sources: Bruce Horovitz, "McDonald's Revamps Stores to Look More Upscale," USA Today (May 8, 2011), pp. 18, 28; Andrew E. Kramer, "Russia's Evolution, as DiMassimo, chief executive of a New York-based company that Seen Through the Golden Arches," The New York Times (February 2, 2010), p. 83; specializes in brand advertising, called Mcdonald's "a large lost Janet Adamy, "As Burgers Boom in Russia, Mcdonald's Touts Discipline," The Wall organization that is searching for a strategy." In his view. "The Street Journal (October 16, 2007), pp. Al. A17; Jenny Wiggins, "Burger, Fries, and company must focus, focus, focus, and stand for one thing." a Shake-Up," Financial Times (January 27, 2007), p. 7; Steven Gray, "Beyond Burgers: Mcdonald's Menu Upgrade Boosts Meal Prices and Results," The Wall There is ample evidence that, 10 years after its implementation, Street Journal (February 18-19, 2006), pp. A1, A7; Jeremy Grant, "Golden the Plan to Win strategy has been a success. Consumer Reports Arches Bridge Local Tastes," Financial Times (February 9, 2006), p. 10; Saritha Rai, "Tastes of India in U.S. Wrappers," The New York Times (April 29, 2003), pp. W1. Consumers h lauded the company's efforts to upgrade its coffee program. ced "better-for-you" m W7: Bruce Horovitz, "It's Back to Basics for Mcdonald's, " USA Today (May 21