Case C: Sustaining Mcdonald’senvironmental Success

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Case C: Sustaining McDonald’sEnvironmental Success
Susan Svoboda, Manager of the Corporate Environmental Management Program, University of Michigan, prepared this case under the guidance of Stuart Hart, Director of the Corporate Environmental Management Program and Assistant Professor of Corporate Strategy and Organizational Behavior atthe Michigan Business School, as the basis for class discussion rather than toillustrate either effective or ineffective handling of an administrative situation. By the spring of 1993, Michael Quinlan, McDonald’s CEO, felt quite confident about his company’s environmental performance. A partnership with the Environmental Defense Fund (EDF) had won McDonald’s praise from its customers, and its efforts at waste reduction, combined with its well-publicized switch from polystyrene “clamshells” to paper-based sandwich wraps, had repositioned it as a leader in protecting the environment. However, in April 1993 another nonprofit environmental group, The Beyond Beef Coalition, targeted McDonald’s in a campaign to reduce beef consumption. This time the environmental complaints launched against McDonald’s did not criticize ancillary aspects of their business but, rather, focused on their primary products and growth markets. Quinlan did not want this campaign to diminish the reputation the company had solidified through the EDF partnership. McDonald’s Operating Strategy

Ray Kroc, the founder of McDonald’s Corporation, based his empire on the fundamental principles of Quality, Service, Cleanliness, and Value (Q.S.C.& V.). The company, which started in 1948 as a single drivein restaurant in San Bernardino, California, grew to become the largest food-service organization in the world. By June 1993, McDonald’s ran 2,576 company owned stores, 9,451 franchises and 1,362 joint ventures in 65 countries.1 In the U.S. alone, more than 18 million people visited a McDonald’s each day.2 See Exhibit 1 for a summary of McDonald’s financials. McDonald’s was the second-best-known global brand, maintaining this level of consumer awareness with a $1 billion marketing budget.3 McDonald’s launched a major new ad campaign in 1991, “Great Food at a Great Value,” which was successful in promoting profitable value-meal combinations. This was followed in 1992 with the largest outdoor advertising campaign ever undertaken by a single brand. Messages focused on value and customer satisfaction. High brand recognition was particularly important to McDonald’s as many customers are impulse purchasers, often selecting McDonald’s by the convenience of the location. Approximately 28% of company revenues were derived from franchisee fees, based on a percentage of sales collected to cover the costs of corporate services such as centralized marketing research and R&D. Approximately 70% of McDonald’s restaurants were franchises. McDonald’s generally entered new countries with company-owned restaurants located in the center of major cities, franchising them after they were well established. Under the conventional franchise agreement, the franchisees supply capital, equipment, signs, seating, and decor with the company buying or leasing the land and building. The initial investment ranges from $430,000 to $560,000, 60% of which may be financed. Twenty-year franchises are awarded to applicants after extensive screening, and additional restaurants are allocated to franchisees with proven records of success. New restaurant development was important to McDonald’s growth strategy. In 1991 it introduced the “Series 2000”-design restaurants, which were about half the size of traditional restaurants but designed to accommodate nearly the same level of sales at a lower real-estate investment. This has resulted in an approximately $400,000 reduction in development costs, which lowers the facility’s breakeven point. Additional locations have been opened in small towns and “satellite sites,” such as outlets inside Wal-Mart stores. A typical...
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