Business Case Study: Macdonald's

A franchise is a legal agreement between franchisers and franchisees that consents use of the franchise’s trademark and trade name or marketing plan

Small and mid-cap restaurants that were heavily franchised (less than 25% of stores owned by the

McDonald's has successfully created a brand/name for itself as the leading fast food retailer in the world. It is somewhat of impossibility for one to not come across a McDonald's with over 30,000 local restaurants in over 100 countries (McDonald's, 2011). Those restaurants are owned either by a franchise owner or a corporation; a percentage of all the earnings from a franchise owner, including a percentage from their annual revenue go to McDonald's.

The first choice of business is the franchise. In a franchise, legal binding agreement is entered into between two firms, the franchisor (the product or service owner) and the franchisee (the firm to market the product or service in a particular location). The franchisee pays a certain sum of money for the right to market this product” (Rubin, 1978, p.224). The franchising is more prevalent in the restaurant industry (Hoffman & Preble, 2003). The two distinct features of this business type include; first, in order to notable service components should

To date all restaurants are company-owned and not franchised. Restaurants cover forty-three states in the U.S., Canada, England, and France. The only variation to the original model has been an increased environmental awareness and a “Test Restaurant” in Washington D.C. that serves Asian-Style fast casual food.

Franchising is a business model that allows companies to rapidly expand their market share. According to Franchise.com (2015), there are three types of franchises: distributorships, trademark licensing, and business format franchises. When two organizations enter into a distributorship, the originating company provides the rights another company to sell their products. An example of a distributorship is when an auto manufacturing company grants rights to a dealership to sell their vehicles (Franchise.com, 2015). Trademark licensing is when one company allows another company to use their trademark (Franchise.com, 2015). The business format franchise authorizes franchisees to sell the parent company’s products and/or services as well as utilize their business model. This type of franchising is the most common and is the type needed to obtain to open a new Cold Stone Creamery.

| franchise organizations are consistently more profitable than non- franchise organizations in the same industry

Introduction Opening up a business such as a franchise can carry many risks, both financially and personally but can also be very rewarding and challenging. Some people make a decent living, some end up rich, then again, plenty of people fail. (MSNMoney, 2014) There are many advantages of owning a franchise. Some advantages are that you have association with a well-established brand, reputation and product or service, access to established standard procedures, operating manuals and stock control systems.

* Not enough corporately owned stores means it relies heavily on franchisees to execute its brand promise

It is common to say that franchisees are in franchised business for themselves but not by themselves. It means that they are heavily affected by each franchisors’ decision. The autocratic franchisor who fails to communicate his/her decisions to franchisees or to consult them on making a decision may suddenly find himself, either in court sued by franchisees, or abandoned by them.

Franchisors are increasingly having to be more and more selective in the adoption of franchisees with factors such as economic climate and the potential difficulty with growth playing key factors in the decision making process. It is not simply an ability to grow which creates a successful Franchise and nor is it the desire of any franchisor to adopt every potential franchisee. Franchisors are becoming more and more scrutinising as the global economy declines. There is a general understanding within any franchised

McDonald’s intends to sell about company-operated restaurants to franchisees. The operating margin of franchisee-operated restaurants is higher than that of company-operated restaurants. The sale of company-operated restaurants to franchisees is likely to increase the overall profitability of McDonald’s business.

Franchising is a type of business or a relationship (Chatfield et al., 2009), where a party (franchisee) acquires the right to use a company's (franchisor) property knowledge processes and trademarks (Investopedia, n.d.). In other words, by paying a start-up and annual licensing fees, the franchisee can use the franchisor's name, distribution channels, software, operations manual, and others, to sell a product or offer a service (Collins & Perret, 2015). Moreover, franchising has positive and negative factors for both sides. On the franchisee's side, the positive factors are: full operational control, franchisor's support, and higher profits after fees. The negative components are: bound to franchisor's global initiatives and no control of brand reputation. On the franchisor's side, the advantages are: company's growth, no operating risk, and more business fees with minimal effort. On the other hand, the limitations are: lack of operational quality, satisfaction of guests and employees, and company's image (Collins & Perret, 2015). Today, franchises account for a big part of the world's businesses, such as stores and restaurants. In the hotel industry we can see this type of business happening with Hampton by Hilton and Day's Inn (Investopedia, n.d.).

More than a third of all retail revenue in the United States comes from franchising, which is quite impressive. On the other hand, the statistics for independently owned startups is not so optimistic.

By joining a national network of franchisees, franchisees are becoming part of a large group of buyers with the ability to negotiate preferential prices from suppliers and generate other economies of scale, such as in delivery charges. Franchisees may even be able to secure exclusive access to a product or service.