Click to Print

Solid Gold

America's number-one franchise proves bigger is better.
January 1, 1997
URL: http://www.entrepreneur.com/article/13782

Few people know it, but the idea for the Big Mac came from a McDonald's franchisee. Same with the Egg McMuffin. Ronald McDonald? The brainchild of an eager and innovative owner-operator of a McDonald's store. Perhaps the fact that McDonald's management listens so carefully to its franchisees has something to do with the burger empire being named Entrepreneur's number-one franchise for 1997. Maybe it's the structure of the McDonald's franchise system. Or could it be the special sauce?

Whatever the combination of ingredients that has made McDonald's a legend, the company has reason to be proud. "We have set the stage for modern franchising," says Jack M. Greenberg, chairman of McDonald's USA. And with nearly 20,000 stores worldwide, McDonald's is poised for continued growth.

Beyond Burgers

All franchise operations have a franchisor and franchisees. The differences between franchises become apparent, however, when you compare how those two groups get along with each other from system to system. McDonald's, for one, has a reputation for warm franchisor-franchisee relationships.

"Some of the philosophies Ray Kroc established when he started the business in 1955 have made an important difference in the quality of our relationships with our franchisees," says Greenberg. To wit:


*The McDonald's franchise system is built on the premise that the corporation should only make money from its franchisees' food sales. Unlike some franchise operations, McDonald's headquarters doesn't sell equipment, food or packaging to its franchisees. All of that is purchased from company-approved third-party suppliers.

"There's nothing our licensees are buying--in terms of seating, signs, equipment or food--that we're making a profit on," says Greenberg, "so we avoid a whole area of potential conflict of interest that exists in so many franchising operations."


*McDonald's is also different, Greenberg says, because its nearly 2,700 U.S. franchisees are all independent, full-time licensees rather than conglomerates or passive investors. That means owners are there, in the store, seeing firsthand--and affecting on-the-spot--what goes on. Greenberg sees this as a huge competitive advantage because owners can make sure the customer's experience is a good one. They're also friends and acquaintances of the people who frequent the restaurant. "[Our licensees] are small-business owners who work in their local communities," says Greenberg. "That's the hallmark of McDonald's."

McDonald's franchisees, though part of a system, are bona-fide entrepreneurs--and the more fiery their entrepreneurial spirit, the more successful they are. "Once you accept the fact that you're going to follow the rules, there's an enormous opportunity to be entrepreneurial," says Greenberg.

Such as? "How you build and manage your own organization so you can expand is very entrepreneurial," he says. "Training and developing [employees] so you can handle a second and third store is entrepreneurial. Although McDonald's has a lot of tools, a lot of help and a lot of training, at the end of the day the individual restaurant owners are in charge of building organizations and motivating their employees."

Creativity is encouraged as well. Bingo nights, breakfast buffets and family dinner nights for their customers are just a few ideas franchisees have cooked up; others include good-grades incentives for their student employees. (For more examples, see "Breaking The Mold," below.)

Bigger And Better

Although most of McDonald's growth comes from its rapid-fire international store openings, the Hamburglar's favorite hangout still managed to multiply to the tune of 2,500 new units worldwide last year. With such astonishing growth, does saturation--a serious worry for many fast-food franchisors--concern Greenberg?

Well, he's not exactly in denial. "We know, intellectually, there's some limit to this," he acknowledges. "Saturation will inevitably occur, but I don't know when."

And apparently, there's no reason to worry yet: Those 2,500 new units opened without causing any drop-off in sales at existing restaurants. Indeed, the more McDonald's restaurants there are, the more sales increase. Forbes and Crain's Chicago Business have dubbed the phenomenon "Greenberg's Law," but Greenberg expresses no surprise at the mounting numbers.

"Wherever we've measured this," says Greenberg, "we continue to see that if you pick the right site and the location is easy to use and convenient and has lots of traffic, you'll get more business out of the marketplace." More business, to be more specific, means 33 million customers a day and counting.

Roll Model

McDonald's isn't just a model for franchising; it's a model for businesses everywhere. Its logo, its standards, its methods, its service, its legendary consistency--all these things have changed the way American companies do business, as well as the way U.S. companies are perceived abroad.

"We've had a unique business success over the years for thousands of people," says Greenberg. "Because we're so rigorous in our selection process, in our training and in the help we give new licensees, success, while it isn't guaranteed, is far more likely than in most other business ventures."

Given such a track record, it's little wonder that when Greenberg gazes into his prophetic sesame-seed bun to predict McDonald's future, he sees more of the same.

"I see us [earning] more income next year than we did this year," Greenberg says. "I think we'll open 2,500 restaurants or more in 1997. More than two-thirds of them will be outside the United States."

After all, why mess with success? Greenberg puts it best, with characteristic understatement: "McDonald's has got a lot of momentum, and I expect that to continue for a long time."

Breaking The Mold

Contrary to what some people may think, being part of a huge franchise system doesn't mean giving up your entrepreneurial freedom. McDonald's is a case in point. Sure, no matter where you go, Big Macs taste like Big Macs; that you can count on. But not all McDonald's locations look alike--and plenty of them offer little extras. Some restaurants are styled to look like '50s diners; others have breakfast buffets and bingo nights. "It's enormous, the kind of innovation you see in running a local business under a national brand," says Jack M. Greenberg, chairman of McDonald's USA.

LeRoy Walker Jr.'s downtown Jackson, Mississippi, McDonald's restaurant is a perfect example. Walker owns and operates 10 restaurants in metropolitan Jackson, but one of them stands out: It's an unconventional franchise where patrons regularly play chess while sipping coffee or feasting on apple turnovers. On any given day, there may be as many as 10 chess buffs playing and more people watching.

Walker started the program in 1989 at the request of his customers. He bought five chessboards and pieces to match, and customers have been playing ever since.

Walker knew the chess idea would have the support of McDonald's corporate. "An operator has the autonomy to make decisions that are in the [best] interests of the community," he says. Other than making his chess-playing customers happy, how has the program helped him? "I'm a little bit sharper in my chess game," says Walker--which can do nothing but help a businessman.

On the other side of the country, one of Isabelle Villaseñor's seven McDonald's restaurants is decorated in a floral motif top to bottom. A love of flowers passed down to Villaseñor by her late father, a gardener, has manifested itself as a Cypress, California, McDonald's franchise peppered with paintings of irises and Calla lilies, and bouquets of silk flowers throughout. Villaseñor's decorating panache earned the restaurant the San Diego Region Decor Award--and the distinction of being a unique McDonald's franchise.

Contact Sources

McDonald's Corp., (630) 623-5401;

McDonald's, 2310 Hwy. 80 W., #3160, Jackson, MS 39204, (601) 352-1742;

McDonald's, 10564 Progress Wy., Cypress, CA 90630.