Why McDonald’s Remains One of The Most Profitable Franchises (2024)

Morning trips with my family to McDonald's are one of the most vivid memories I have of my childhood. From gazing at the seemingly endless menu to persuading my parents to buy me a Happy Meal just for that free toy, McDonald’s became, in many ways, my happy place. Considering that they generate over $10 million in Happy Meal sales a day, it's safe to say that most millennials' childhoods were shaped by the iconic golden arches too.

Beyond just Happy Meals, over 65 million people eat at McDonald's every day and they serve over 100 million burgers daily. From a humble restaurant with US$366.12 on its first day of business, McDonald’s now makes over US$20 billion in annual worldwide sales.

But how exactly did they get to where they are today?

History of McDonald’s

How it All Started

In 1954, Ray Kroc discovered a successful restaurant run by two brothers, Maurice "Dick" and Maurice "Mac" McDonald, while he was on a sales call in San Bernardino, California. Although it seemed like any other restaurant of that time, their effective operation caught his eye.

By specializing in a limited menu, they were able to focus on quality and quick service. They focused on burgers, fries, and shakes that sold at half the price and time of their competitors, with a self-service counter to avoid relying on waiters and waitresses. Each meal was prepared in advance and kept warm. All of these gave them a competitive edge against their competitors.

Ray Kroc saw an opportunity to bring McDonald's across the United States, and this was where their collaboration began. Kroc was able to turn their business to the mass market with overwhelming success after buying the rights to franchise McDonald's restaurants across the country.

Establishing a Business Model

Kroc wanted to prioritize consistent high quality and uniform methods of preparation, where the food would taste the same no matter the outlet. He established a systematic approach where the operating system required franchisees to follow McDonald's core principles of quality, service, and value. This was when he founded McDonald's System, Inc in 1955.

Evolution and Growth

In 1955, Kroc opened his first franchised restaurant, then developed a financial model with Harry Sonneborn, that allowed McDonald's to own the land on which its franchisees built their restaurants. They sold their 100 millionth burger three years after that and rapidly grew to 67 restaurants in the fourth. Sonnenborn was named the first CEO of the company in 1959, before Kroc buying out the McDonald brothers for $2.6 million in 1961.

McDonald's iconic golden arches and their mascot, Ronald McDonald, was introduced a year later. Kroc took the position of CEO, and McDonald's took its first step towards internationalization by opening a store in Canada. Another symbolic moment in their history was the opening of their store in Pushkin Square, Moscow, at the end of the Cold War.

They opened their first McCafe from their attempt to go into coffee in Australia. The years that followed were of rapid growth, as they doubled their number of restaurants in 1996. They also opened more than 11,000 restaurants outside of the United States.

McDonald’s Strategy

By focusing on advertising, franchising, and constant innovations, McDonald's was able to develop a strategy with an effective business model.

They targeted their advertisem*nts by branding it as a fun place to go for families. Their mascot, Ronald McDonald, was also created to appeal to the younger demographics.

Their franchising model has also helped them in achieving breakthroughs, as it allows their community to discover new business opportunities. The iconic Ronald McDonald and many of their popular menu items (such as Filet-O-Fish) were all first introduced through their franchisees! McDonald's was also able to stay ahead of the trends - such as the globalization trend in the 1970s, by franchising to local entrepreneurs and bringing McDonald's beyond America.

Finally, McDonald's was able to adapt to emerging trends, including "fast" and "convenient" food as people had increasingly less time to spare, as well as the prioritization of health, where they came up with healthier options including salads, fruits, and carrot sticks.

Similar to McDonald's who were able to establish a well-balanced business strategy, it is crucial that you are able to pinpoint which strategy works best for your business. For example, franchising is a good strategy if you're looking for growth and expansion, while innovation helps in helping your brand stay relevant, especially with rapidly changing consumer behaviors.

Key to McDonald’s Success Today

McDonald's did become one of the world's most profitable franchises overnight. They were able to incorporate several key success elements, which propelled the growth of the brand to what it is today.

Consistency

The development of a consistent menu and retail concept became one of McDonald's unique selling points, which invokes a sense of familiarity whenever one steps into their restaurants, no matter where they are in the world. Customers are aware of what to expect when considering places to dine at, be it in terms of food options or service, and McDonald's becomes a place where people are able to seek solace and comfort in, especially when they are in a foreign place.

Ray Kroc also created the Hamburger University to serve this purpose - by training all franchises in the same way for uniformity, and also to ensure that they will run the restaurants as he envisioned.

As a QSR business owner, think of how you can make your business consistent, be it in terms of products or experience. These will act as the unique selling point of your brand, which makes it recognizable and memorable in the eyes of the consumers, which will help in top of mind recall.

Innovation

While maintaining consistency, McDonald's is able to keep customers on their toes with constant product innovations. Franchisees were largely behind these innovations, through observations of customer trends and behaviors, and this is what led to the birth of many of McDonald's now-iconic menu items. From the Happy Meal to Big Mac and even McFlurry, these were all developed through franchisees to increase McDonald's range of product offerings.

Localization is another key element in their pursuit of innovation. By producing limited-time or seasonal menu items catered to the tastes of the locals, they can motivate customers to return to their stores. Furthermore, this promises a unique experience which you can only get in a specific country, thus captivating the interests of tourists too.

How exactly do they go about doing this? Did you know that the Steak & Egg burritos and BBQ Ranch Burgers are only available in America? In Japan, McDonald's serves Cheesecake McFlurries and Choco pies as permanent menu items! These are exclusive only to Japan and are made available in certain countries for a limited time only, increasing the demand for such products. When the Choco pies were introduced to Singapore as a seasonal menu item, they were sold out within three days, islandwide, highlighting their popularity.

If you're looking into how to venture into innovation, observing trends and consumer behaviors can be an easy first step! Consider food trends that are increasingly popular, and find ways to assimilate them into your products, and they are bound to attract curious consumers!

Embrace Technology

McDonald's was one of the first quick-service chains to tap on technology to increase efficiency and convenience. From the development of self-service kiosks and digital menu boards to their current on a tech buying spree, McDonald’s has demonstrated a consistent commitment to staying ahead of the innovation curve.

Many innovative McDonald’s franchisees have embraced the need for a new HR technology, especially in the current global pandemic of 2020. People are the lifeblood of the franchise and it is imperative that McDonald’s uses technology to only employ the right people. McDonald’s owner-operator Alyssa Moten chose to reinvent her hiring process with Workstream. Through the power of text messaging, hiring automation, and teleconferencing, she is now able to source, screen, and onboard new hires in an entirely contactless fashion. This is especially paramount for franchisees looking to expand quickly - you’ll reap significant cost savings from having to rehire and retrain employees. Schedule your free personalized consultation with a hiring specialist today!

Apart from hiring, McDonald’s largest acquisition is that of tech personalization company Dynamic Yield to create a customized drive-thru menu that can be tailored to things like the current weather, restaurant traffic, and trending items. Upon the start of the ordering process, the display also has the ability to recommend additional items based on your current selection. On a global scale, McDonald’s has also begun incorporating their first voice-initiated application process (Apply thru) in certain countries.

By tapping on technological advancements, you too will be able to improve your business operations, reduce cost and automate processes, which makes it more convenient for both your staff and customers.

Adapting in a Pandemic

As a result of the recent global pandemic, McDonald's has to re-look into their current policies and make changes to adhere to governmental and safety guidelines. During the peak of the pandemic, they went the extra mile by donating 400,000 face masks to emergency operation centers as supplies were depleting in the U.S. Cash bonuses were also given out to every corporate-owned restaurant employee, equivalent to 10% of their pay.

In light of the new store re-openings, they are implementing new cleaning regulations, using social distancing stickers, and mandating the use of personal protective equipment. Self-serve beverage bars will also be closed and protective panels have been installed at drive-thrus. All of their staff are required to don face masks, and gloves, if they are preparing food. To simplify operations, they have also reduced their menu offerings to their most popular items.

At the same time, they will also be focusing their promotions on the affordability aspect in their new campaigns, due to customers' negative outlook on the economy.

Through these new implementations, they have been able to maintain a positive brand perception among their customers, proving that they are taking the necessary precautions to make their McDonald's experience a safe one.

The Future of McDonald’s

Digital transformation is an ongoing trend across all industries, and it is no surprise that McDonald's is also embarking on this journey. A few years back, McDonald's invested $6 billion in their 'Experience of the Future' redesign, in hopes of modernizing most of their U.S. stores by 2020. Some of these improvements include the revamping of self-order kiosks, improving the readability of menu boards, and creating more parking spots for curbside pickups.

In London, they have also launched a to-go location and unlike their usual outlets, it does not have in-store seats. Furthermore, the menu options have also been streamlined with only classic items, and all orders are made through kiosks. This allows the staff to focus on preparing the orders, maximizing the speed in which food is being delivered to each customer. The success of this store will then determine if more of such locations are rolled out in the future.

They are also striving towards sustainability, by announcing plans to reduce greenhouse gas emissions by 35% by 2030, alongside a 31% reduction in emissions intensity. The McCafe Sustainable Coffee journey is also another initiative created to increase awareness of sustainable sourcing.

The upcoming months are crucial for McDonald's, depending on how they will be able to adapt their strategies as the world heads towards a new normal. The QSR industry has been hit hard as a result of COVID-19, and McDonald's has also inevitably taken a blow. However, the impact on their profits has been somewhat mitigated by the presence of drive-throughs.

Should McDonald's be able to develop an omnichannel strategy, they might just be able to offset the reduced footfalls in their physical stores. Especially as consumer behavior shifts towards take-outs as opposed to dining in, their strategy towards revolutionizing their stores is all the more relevant now and will be worth keeping an eye on.

Ultimately, McDonald's was started because Ray Kroc saw an opportunity. Similarly, if they can find an opportunity in the unfortunate event that is COVID-19, they will once again be able to outshine their competitors and emerge stronger than before.

McDonald's success today is largely attributed to its franchising model, consistency, and innovation. Through their franchising model, they were able to enjoy rapid growth. This was then sustained by familiarity as their unique selling point, as the customer experience remains largely similar across their outlets worldwide. The innovation allowed them to continuously reach new targeted segments and keep customers coming back for more.

As a QSR owner, franchising is an attractive option, especially if you have the goal of expanding your business exponentially. However, there is a need to conduct comprehensive research on consumer behaviors, segment the target markets, and determine positioning strategies. This will help in deciding whether or not these markets are profitable.

Keep in mind that while franchising opens doors to many opportunities, it is also not going to be smooth-sailing all the time. That being said, consider how you can apply McDonald's key strategies to your own business but most importantly, find your unique selling point and maximize it!

For more updates on McDonald's business strategies, subscribe to our blog!