Term Paper on "Mcdonald's Corporation and Burger King"

Term Paper 10 pages (2648 words) Sources: 8 Style: MLA

[EXCERPT] . . . .

McDonald's and Burger King are both major chains and sell their hamburgers at an introductory price of 99 cents, a discount intended undercut consumer loyalty to the other chain's product. McDonald's introduces items such as the Big Mac in competition with Burger King's Whopper. McDonald's and Burger King are among the largest fast food franchises in the United States and possibly in the whole world. Although McDonald's and Burger King are very successful, McDonald's is ahead of Burger King for many reasons, some of which are variety of food, slicker and better strategy of advertising, monopoly, locations, and better atmosphere for children. A prime reason is the power of McDonald's effective marketing in various media. The management philosophies of the two companies differ somewhat, as do other aspects of their business strategies.

Historical Development

McDonald's has been a growing concern since at least 1955 when Ray Kroc took over the stores run by the McDonald brothers, At the time, Kroc was selling the Multimixer milkshake machines, and he found that brothers Richard and Maurice McDonald were using eight of his high-tech Multimixers in their San Bernardino, California, restaurant. He wanted to know why and looke at their operation. They had been in the restaurant business since the 1930s, and by 1954 they had the streamlined operation Ray Kroc saw in 1954. The restaurant had a simple menu of hamburgers, cheeseburgers, French fries, shakes, soft drinks, and apple pie. This was a self-serve operation, with no tables to sit at, no jukebox, and no telephone. The restaurant attracted families rather than teenagers. Kroc was impressed by the efficiency with which the McDonald's workers did their jobs, with each worker's steps carefully choreographed, like an assembly line, to ensure maximum efficiency. The savings allowed the McDonalds to lower the price of a hamburger from 30 cents to 15 cents ("McDonald's Corporation").

Kroc believes that the McDonald formula could be a major success, and he first suggested that they franchise their restaurants throughout the country. They hesitated to take on this additional burden, and Kroc volunteered to do it for them. Kroc's first McDonald's restaurant opened in Des Plaines, Illinois, near Chicago, on April 15, 1955, and that year Kroc incorporated his company as McDonald's Corporation. He adapted the McDonald's approach to match different parts of the country. He had trouble reproducing the McDonald's version of French fries, but he solved that problem ("McDonald's Corporation").

In the early period, Kroc established the restaurants and then sought to franchise them out, thus keeping control of the uniformity of the stores. The company grew slowly for its first three years, and by 1958 there were 34 restaurants. In 1959, though, Kroc opened 67 new restaurants, bringing the total to more than 100. he decided that McDonald's would not be a supplier to its franchisees because he believed this could lead to lower quality for the sake of higher profits. He also decided that the company should at no time own more than 30% of all McDonald's restaurants. He further realized that his success depended upon his franchisees' success, and he sought to help them in any way that he could ("McDonald's Corporation").

Burger King today is the second largest fast-food chain in the United States and franchises more than 10,400 restaurants while owning about 1,000 for a chainwide total exceeding 11,455, with locations in all 50 states and 56 countries. The company serves 15.7 million customers each day. The company was founded in 1954 by Miami entrepreneurs James McLamore and David Edgerton, and five years later, they expanded their five Florida Burger Kings into a nationwide chain. By the time they sold their company to Pillsbury in 1967, Burger King was the third largest fast-food chain in the country and was on its way to second place. The growth of Burger King matches the development of franchising and advertising for the fast-food industry. McLamore and Edgerton began with a simple concept, they wanted to attract the growing numbers of postwar baby boom families with reasonably-priced, broiled burgers served quickly.

They tried to give their Burger King restaurants a special edge by offering dining rooms (although uncomfortable plastic ones). They expanded their menu in 1957 with the Whopper, a burger with sauce, cheese, lettuce, pickles, and tomato. They managed to keep prices low so that a hamburger cost 18 cents and the Whopper 37 cents. In 1958, they turned to the increasingly popular medium of television, and the first Burger King television commercial appeared that year ("Burger King").

Theyw ere ready to expand beyond Florida in 1959 and saw franchising as the best way to take their concept to a broader market. They attracted investors by selling exclusive rights to large territories throughout the country, letting the buyers of these territorial rights do what they wanted to in their territory: buy land, build as many stores as they liked, sell part of the territory to other investors, or diversify. McLamore and Edgerton took their initial payments and their cut and left their franchisees pretty much on their own. This worked well and allowed Burger King to expand rapidly. When the partners decided to sell the company in 1967, the chain included 274 stores and was worth $18 million to its buyer, prepared-foods giant Pillsbury ("Burger King").

The Burger King franchising system also worked well for the franchisees, and some of the company's large investors expanded at a rate rivaling that of the parent company. However, this loosely knit franchising system failed in providing a consistent company image, leading to inconsistency in both food and service from franchise to franchise. This was a major flaw in a chain that aimed to attract customers by assuring them of what to expect in every Burger King they visited. The new owner, Pillsbury, set out to change this, which created tension with some franchisees and produced some competition from former franchisees ("Burger King").

Strategic and Financial Analysis

McDonald's gradually became a business empire by always trying to meet the needs of customers, and since recently the population has become more health-conscious, so has McDonald's as it seeks to find ways to promote its wares as healthy food. Health-conscious Americans have been trimming fat from their diets in recent years. McDonald's has recently been following this trend (Cook 9). McDonald's twice reduced the fat in its milk.

The marketing mix for McDonald's has long been effective, with television ads creating a certain image for the company, with menu items that fit with that campaign, and with an aura of service and quality that sustained the company. That mix has encountered problems in recent years because the company is sending different messages, trying to reach different audiences while not alienating its core audience. This has been very difficult to achieve. Other companies have managed to introduce new items and to fit them into their overall marketing strategy -- Burger King has managed to introduce six new products since 1988 (Branch and Gunn 122).

Still, no matter how hard Burger King tries, McDonald's has a more successful strategy in advertising than Burger King. Gary Roberts, chief executive and president of Arctic Circle, said that when McDonald's made the marketing change to attract more adult traffic, he saw it as an ideal opening for an appeal to younger families. McDonald's always try to create new environments to attract new customers, notably children and families. The playground areas at stores fit this description, and they are designed so that not only do children get to have fun but adults also stay comfortable. McDonald's in fact has another plan for the next few years, with a plan to roll out indoor play areas at as many stores as possible (Zuber 6).

The McDonald's chain is the industry giant, and in the last few years it saw an increase of 17% to total sales of $2.2 billion. Net profits increased by 15% to $281 million. However, most of this growth was abroad. The company has been experiencing a slowdown in the United States, which accounts for around 54% of sales, and where operating income is up only 4% on the previous year. More and more, McDonald's expansion plans within America are focused on small "satellite" outlets in such places as Wal-Mart shops and hospitals. McDonald's has been challenging the competition so that some McDonald's outlets have been selling a Big Mac hamburger for just 99 cents. Such prices can be profitable only if sales volumes are huge and costs are under tight control ("Vampire Bites" 62).

One of McDonald's strategies to attract the consumer is price reduction. By reducing the price of some item that does not make much profit, the company makes a profit from other items. Furthermore, by McDonald's having 29 cents for burgers on Wednesday and 39 cents for cheeseburgers on Sunday, all the consumers can have lower prices and the same quality of hamburgers. In facts, this promotion really attracts lots of consumers, all ages and gender.

Another strategy involves games like Monopoly,… READ MORE

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