ANDREA CLAIRE M.

RAYMUNDO
INTERNATIONAL BUSINESS TRADE
ACTIVITY 6

Franchise business is all about giving a right to use the name of a company, its style of serving products
and services to an individual or an organization to run a business over that name and earn profits that
will be at a sharing basis.

The following is the list of top 10 companies that pursue franchising as a mode of international
expansion:
1. Hampton Hotels
2. McDonald’s
3. Anytime Fitness
4. Subway
5. Jack in the Box
6. Supercuts
7. Jimmy John’s Gourmet Sandwiches
8. Servpro
9. Denny’s
10. Pizza Hut

MCDONALD’S

The enterprise has grown to about 40,000 restaurants globally that serve close to 68 million customers
in over 100 countries per day—roughly 1% of the world’s population—all wanting a burger, fries, and/or
chicken nuggets as quickly as possible.23 It has, effectively, morphed into the most popular family
restaurant that appeals to children and adults alike and emerged as the dominant force in the “Quick
Service Restaurant (QSR)” end of the market.On the way to serving hundreds of billions of people,
McDonald’s has blazed multiple corporate trails since its 1955 incorporation, such as franchising and
institutionalized training. McDonald’s even had a mission statement long before mission statements
were a thing. “Quality, Service, Cleanliness and Value” is self-explanatory, and McDonald’s has set
standards for at least the first and fourth of those qualities.7 As legendary Michelin chef, Ferran Adria,
once said of the Big Mac: “Ferran Adria and the 100 best chefs in the world cannot do better for the
price.”

BUSINESS MODEL
Essentially, McDonald’s makes money by leveraging its product, fast food, to franchisees who have to
lease properties, often at large markups, that are owned by McDonald’s. As reported in their 2021 10-K,
of the 40,031 restaurants McDonald’s locations as of year-end 2021, 37,295 (93%) were franchised.48

The advantage of this model is that the revenue stream (rent and royalty income received from
franchisees) is far more stable and, most importantly, predictable, while the operating costs are
measurably lower, allowing for an easier path to profitability. McDonald’s, because it has control over
the land and long-term leases, can leverage its market position to negotiate deals. As has been noted by
analysts, this is akin to a subscription, where the subscriber (the franchisee) pays a fixed amount each
month.

According to industry analysts, McDonald’s keeps about 82% of the revenue generated by franchisees,
compared with only about 16% of the revenue from its company-operated locations, which is further
trimmed by the costs incurred in operating these units.

WHY MCDONALD’S FRANCHISES ARE IN DEMAND

Essentially, McDonald’s makes money by leveraging its product, fast food, to franchisees who have to
lease properties, often at large markups, that are owned by McDonald’s. As reported in their 2021 10-K,
of the 40,031 restaurants McDonald’s locations as of year-end 2021, 37,295 (93%) were franchised.48

The advantage of this model is that the revenue stream (rent and royalty income received from
franchisees) is far more stable and, most importantly, predictable, while the operating costs are
measurably lower, allowing for an easier path to profitability. McDonald’s, because it has control over
the land and long-term leases, can leverage its market position to negotiate deals. As has been noted by
analysts, this is akin to a subscription, where the subscriber (the franchisee) pays a fixed amount each
month.

According to industry analysts, McDonald’s keeps about 82% of the revenue generated by franchisees,
compared with only about 16% of the revenue from its company-operated locations, which is further
trimmed by the costs incurred in operating these units.

GROWTH STRATEGY
McDonald’s has a long-term goal of franchising approximately 95% of its locations. The Company will
continue to make progress toward this long-term goal primarily by re-franchising restaurants to
conventional licensees. As a result of the continued evolution of the Company’s business model, several
organizational changes to its global business structure have been implemented that are designed to
continue the Company’s efforts toward efficiently driving growth as a better McDonald’s through the
Velocity Growth Plan.”

The Velocity Growth Plan, first introduced in 2017, is McDonald’s customer-centric strategy that focuses
on the key drivers of the business, namely food, value, and customer experience.

Retaining Existing Customers: Focusing on areas where it already has a strong foothold in the Informal
Eating Out (IEO) category, including family occasions and food-led breakfast.
Regaining Customers Who Visit Less Often: Recommitting to areas of historic strength, namely quality,
taste, quality, and convenience of its product: food.
Converting Casual to Committed Customers: Building stronger relationships with customers so they visit
more often, by elevating and leveraging the McCafé coffee brand and enhancing snack and treat
offerings.
McDonald’s remains committed to continuing its aggressive deployment of the three growth
accelerators. The growth accelerators are:

Experience of the Future (“EOTF”): Restaurant modernization and technological upgrades to transform
the restaurant service experience and enhance customer’s perception of the brand.
Digital: By evolving the technology platform, McDonald’s is expanding choices for how customers order,
pay, and are served through additional functionality on its global mobile app, self-order kiosks, and
technologies that enable conveniences such as table service and curbside pick-up.
Delivery: McDonald’s has expanded the number of restaurants offering delivery and it is now available in
over half of the global system. McDonald’s has been, and intends to be, quite proactive in keeping up
with the current trends when it comes to expanding its brand and business. In recent years, McDonald’s
announced it would partner with Uber Eats for home delivery for the first time in the U.S and followed
that up by adding Doordash and GrubHub. These partnerships are part of a strategy to keep up with the
newer generations who prefer home delivery over pickup.

WHAT’S INCLUDED IN MCDONALD’S FRANCHISE AGREEMENT?