When people think about franchising as a concept McDonald's usually comes up first as a prime example, despite the fact McDonald's was not the first franchise business. Isaac Singer, the inventor of the sewing machine, is most often credited for originating the modern franchise idea. However, there is little question that the burger chain exemplifies franchising success.
Today, the McDonald's franchise network is the world’s leading food service retailer by revenue, with more than 35,000 franchise restaurants serving approximately 70 million people in more than 100 countries each day. Of the total number of stores, more than 80% are owned by franchisees.
The fast food franchise has certainly traveled a long way from its humble beginnings. The first McDonald's restaurant was opened by brothers Dick and Mac McDonald in 1940 on Route 66 in San Bernadino, California. The menu had about 25 offerings, and carhops brought the food out to patrons (usually teenagers) waiting in their cars.
How did the chain grow from a single store to the most popular fast food restaurant in the world?
The McDonald brothers were in the midst of a relatively high level of success, and already had four franchise locations going by 1954. That's when the restaurant caught salesman Raymond Kroc’s attention. He was working as an equipment supplier to restaurants after mortgaging his home and investing all his savings in an exclusive distributorship for a milk shake maker called the “Multimixer.” The McDonald's brothers operation piqued his attention because it was using eight Multimixers -- more than any of his other customers.
Kroc went to visit the restaurant and was amazed at the speedy business operation that served so many people at once. He recognized the opportunity to sell lots of Multimixers and made a proposal to the brothers to let him franchise restaurants outside of their home base in California, which the brothers accepted. (Kroc was not the only one impressed by the McDonalds restaurant, which was also scouted by James McLamore, founder of Burger King, and Glen Bell, founder of Taco Bell.)
In 1955, Kroc launched McDonald's Systems, Inc. as a legal structure to run his franchises, and by 1958 McDonald's had sold 100 million hamburgers. In 1961, the McDonald brothers agreed to sell all the business rights to Kroc for $2.7 million. The company went public in 1965. (100 shares purchased then for about $2,250 would have grown to 74,360 shares worth over $3 million in 2008.)
One essential factor that contributes to the burger franchise's success is a consistent commitment to a certain set of standards. McDonald's franchise restaurants became well-known for the vision created by Kroc for his restaurant business. No matter where customers travel, they know they what they are going to get when they visit a McDonald's.
Kroc’s brilliant marketing insights produced many winning strategies. He launched “Hamburger University” in 1961 in Elk Grove, Illinois, to train all franchisees in every aspect of McDonald’s management. Kroc also honed in on a primary target market -- families, especially those with young children -- and pursued it relentlessly. This resulted in the debut of the “Ronald McDonald” clown character in 1963, first played by famed weatherman Willard Scott.
Adapting to consumer demands is key to McDonald’s success…
The franchise chain’s also relies on continual innovation and adaptation to market conditions to maintain profitability.
First started as a restaurant with a simple menu: hamburgers, french fries and milkshakes, McDonald's has experimented and expanded its menu throughout its existence to cater to changing tastes and consumer demand. Interestingly, many of McDonald's most popular items were suggestions of franchisees, for example:
- In 1963, an Ohio franchisee noticed burger sales were declining on Friday. In response, McDonalds introduced the Filet-o-Fish sandwich in the Cincinnati area for Catholics who did not eat meat on Friday. This was the first new offering added to the standard menu and went national the following year.
- The Big Mac introduced in 1968 was the brainchild of Jim Delligatti, one of the earliest McDonalds Systems franchisees.
- The Egg McMuffin was developed in 1973 by McDonald’s franchisee Herb Peterson.
- A Guatemalan franchisee, Yolanda Fernandez de Cafino, came up with the idea for the "Happy Meal."
- A Canadian franchisee invented The McFlurry in 1997.
McDonald's has used a focus on consistent processes, marketing savvy, and making changes to cater to consumer trends within its organization framework to not only survive but thrive through multiple market fluctuations. And for investors, it is still an in demand franchise, garnering several Google searches on "how to own a McDonald's franchise" daily.
Plus, even if you think McDonald's isn't your thing for a franchise opportunity, there are plenty of other well-known and also some up-and-coming fast food franchises you can discover. All, in one way or another, have benefited from the path McDonald's has paved.