McDonald's Corporation

F O U N D E D : The first M cDonald's opened in 1948, but the

OVERVIEW franchising operation that would become M cDonald's
From a hamburger stand operated by the Mac broth­ Corporation was founded in 1955.
ers in San Bernardino, California, McDonald’s Corpora­
tion has grown to become the best known and most pop­
ular fast-food restaurant chain in the world. At the end Contact Information:
of 1997, McDonald’s had 23,132 franchised and com­ H E A D Q U A R TE R S: 1 Kroc Dr.
pany-owned restaurants, or “stores,” with 12,380 in the O ak Brook, IL 60521
United States. In 1997, 2,110 new stores opened and the PH O N E: (630)575-3000
company planned to open between 2,400 and 2,800 ad­ FAX: (630)575-3392
ditional units worldwide, with over 70 percent of those T O L L FREE: (800)621-7825
units outside the United States. U RL: http://www.mcdonalds.com

COMPANY FINANCES
In 1997 worldwide sales were $33.6 billion. Total
revenues were $11.4 billion. Average sales per store were
$1.6 million. Net income per share was $2.35. In the 1997
annual report, Chairman Mike Quinlan forecasted, “We
expect net income per common share growth in the range
of 10 to 15 percent in each of the next five years, ex­
cluding foreign currency translation.”

ANALYSTS' OPINIONS
While acknowledging that the company remains the
leader in the fast-food business, a December 1996 report
by Natwest Securities stated that, in 1996, McDonald’s
stock price had been outperformed by the Standard &
Poor’s 500 (an index of 500 company stock prices). In­
deed, McDonald’s stock price has not been reflective of

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 M c D o n a l d ’s C o r p o r a t i o n

quoted Wheat First Union’s Jeffrey Omohundro, who

said, “His leadership in those areas is being recognized.
I think it’s Greenberg’s ship, and he is the captain.”

HISTORY
Dick and Mac McDonald opened their first Mc­
Donald’s restaurant in December 1948 in San
Bernardino, California. While the brothers did some fran­
chising of the McDonald’s name, it was Ray Kroc, a
milkshake machine salesman, who saw the potential for
franchising McDonald’s restaurants around the country.
Kroc’s prototype store, in Des Plaines, Illinois, is a mu­
seum today. In 1961 Kroc bought out the McDonald
brothers for $2.7 million in cash. That same year, he
opened Hamburger University in the basement of a Mac­
Donald’s restaurant in Elk Grove Village, Illinois, as a
training facility for new franchisees and store managers.
By 1963 McDonald’s restaurants were selling a mil­
lion hamburgers a day. In 1965 the company went pub­
lic. In 1967 McDonald’s opened its first international
store in Canada. The signature “Big Mac” was introduced
in 1968. In 1975 the first McDonald’s “drive-thru” op­
eration was established in Sierra Vista, Arizona. In the
late 1990s drive-thrus accounted for about half of Mc­
Donald’s domestic sales.

STRATEGY
McDonald’s winning formula has remained constant
over the years: It provides quality food and fast service,
in a clean environment, at an affordable price. McDon­
ald’s also markets extensively to children, correctly fig­
uring that, when parents bring their families to McDon­
ald’s, they will buy menu items themselves. The focus
on children has made the chain highly popular: the com­
pany’s Ronald McDonald “spokesclown” is recognized
by 96 percent of American children. In 1998 McDon­
ald’s signed a long-term deal with the Walt Disney Com­
pany to include Disney merchandise as giveaways in its
Happy Meals. The company offers extensive support to
its 4,500 franchisees and affiliates, who own and oper­
the mid- to late 1990s bull market. An October 1996 re­ ate about 85 percent of the McDonald’s restaurants
port by Bear, Stearns & Company discussed the com­ around the world. These services include technical, mar­
pany’s challenges: “McDonald’s shares have been under keting, and management assistance. Franchisees are ex­
pressure as it has become increasingly evident that the pected to meet strict standards on food quality, service,
company has problems in its U.S. operations; sales have and cleanliness, thus ensuring that customers have a con­
been soft recently despite heavy marketing for the new sistent, positive experience at all McDonald’s restaurants.
Deluxe sandwich line and the Summer Olympics spon­ In 1998 McDonald’s introduced a sweeping, new
sorship.” However, the report recommended that in­ plan to improve efficiency and returns. This plan, the
vestors purchase the stock, and it anticipated success for “Made for You” concept, will revamp kitchens and pro­
efforts to increase the amount of the average order in U.S. mote sandwiches to be made specially for the customer,
stores. In 1998 industry analysts praised the appointment while keeping the products fresher. A computer-based
of Jack Greenberg to the helm. A New York Times report production system, for which McDonald’s developed its

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 M c D o n a l d ’ s C o r p o r a t i o n

own proprietary software, will replace the traditional

“batch” method, whereby food is prepared often before
the customer even enters the store. The new layout will
allow McDonald’s to expand its menu more easily, as
well. In Restaurant Business, Claire Babrowski, Mc­
Donald’s executive vice-president of restaurant systems,
called these changes “the most significant operating cost
improvement we’ve had in five or six years.” The com­
pany will contribute toward each franchise’s equipment-
conversion costs.

INFLUENCES
McDonald’s 1996 market share among burger-
specialty chains, a nearly $40 billion domestic business,
fell to 42.1 from 42.3 percent the previous year. At the
same time, McDonald’s strongest rival, Burger King, in­
creased its market share from 18.2 to 19.2 percent, while
Wendy’s accounted for 11 percent, up from 10.7 percent.
These developments prompted McDonald’s to launch
one of its biggest promotions ever in 1997: “Campaign
55,” special sale prices of $.55 on selected sandwiches,
with the purchase of any size drink and fries. (The name
was a reference to the year McDonald’s Corporation be­
gan operations.) However, according to a Wall Street
Journal report, “the most dramatic price cut in the his­
tory of the fast-food industry may not be quite as dra­
matic as it seems.” The report noted that, while the price
of the Big Mac dropped to $.55 from about $1.99 on
April 25, 1997, 25 percent of McDonald’s restaurants
surveyed by the Journal had raised their prices on French CURRENT TRENDS
fries and soft drinks, which customers had to purchase As the fast-food sandwich market has become in­
in order to get the hamburger discount. creasingly competitive, McDonald’s has modified its
The plan had been expected to set off a price war in menu in order to remain strong. In 1998 various regions
the industry, but results were disappointing. Two weeks tested a potential hit, the “McDonald’s Big Xtra,” or
into the campaign, sales at 3,000 U.S. McDonald’s units “MBX,” a 4.5 ounce burger launched to compete with
actually fell by as much as 6 percent. One reason the pro­ Burger King’s Whopper, and reminiscent of the 1980’s
motion may not have been more effective is that com­ “McDLT.” Also in 1998, in response to consumer feed­
back, McDonald’s brought back its “Filet-O-Fish” sand­
petitors had reacted with promotions of their own. Burger wich, which had been replaced in 1996 by the larger “Fish
King sold its Whopper for $.99 “with no strings at­ Filet Deluxe.” From time to time, the chain offers nov­
tached,” and Wendy’s introduced a popular line of pita elty sandwiches, such as the “Cheddar Melt” or the
sandwiches. However, McDonald’s claimed the press re­ “McRib,” on a promotional basis.
ports on the promotion were inaccurate, and that the pro­
motion was meeting expectations.
A McDonald’s promotion that included Teenie
Beanie Babies with the purchase of a Happy Meal was PRODUCTS
extremely successful. On the day that promotion was McDonald’s is known primarily as a hamburger
launched in early 1997, average store sales were up 15.4 chain, but offers a variety of other fast-food sandwiches,
percent from a year earlier. The promotion, which was as well as breakfast entrees and smaller “Happy Meals”
intended to last a month, ended after a week, as con­ for children. Since 1983, “Chicken McNuggets” have
sumers stormed McDonald’s stores to obtain the 100 mil­ been a popular feature. Restaurants serve four sizes of
lion Teenie Beanies that McDonald’s had purchased for soft drinks, including “Super Size,” as well as several
the promotion. flavors of milkshakes. In addition, some restaurants

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tiative to use more recycled materials in its restaurants.

The average recycled content in McDonald’s packaging
increased from 17 percent in 1990 to 42 percent in 1995,
when its U.S. restaurants used nearly 120,000 tons of re­
cycled packaging. McDonald’s is also a member of the
Paper Task Force, a group of U.S. companies organized
by the Environmental Defense Fund to study and pro­
FAST FACTS: mote the use of recycled materials by American business.
About McDonald’s Corporation In 1998 McDonald’s received the Environmental Pro­
tection Agency’s “Green Lights Retail Partner of the
Ownership: McDonald’s Corporation is a publicly Year” award for its use of energy-efficient lighting fix­
owned company traded on the New York Stock Ex­ tures.
change as well as trading floors in Basel, Chicago,
Frankfurt, Geneva, Munich, Paris, Tokyo, and
Zurich.
Ticker symbol: MCD
Officers: Jack M. Greenberg, Pres. & CEO, 55, GLOBAL PRESENCE
$1,340,987; Michael R. Quinlan, Chmn., 53, McDonald’s extensive international operations were
$2,176,500; Alan Feldman, Pres.; James R. Can- its main growth area in the early to mid-1990s. In its
talupo, VChmn. & CEO of McDonald’s Interna­ 1996 Annual Report, McDonald’s stated that its interna­
tional, 54, $1,340,987
tional operations were playing an increasingly important
Employees: Over 267,000 (1997) role toward building its bottom line. In 1995, for exam­
Chief Competitors: Major competitors include: Burger ple, 7,030 McDonald’s restaurants in 89 countries out­
King; Wendy’s; Subway; Taco Bell; and Arby’s. side the United States produced sales of $14.0 billion,
compared to the $15.9 billion produced by McDonald’s
U.S. restaurants. While the McDonald’s menu is virtu­
ally standard in every location in the United States, in­
ternational restaurants offer standard menu items as well
bring out a mint “Shamrock Shake” for St. Patrick’s as other items that appeal to the host country’s “cultural
Day. French fries are a staple of lunches and dinners at preferences.” For example, some serve rice dishes in
McDonald’s, and the breakfast menu includes hash- Japan; beer in Germany; Kiwi burgers in New Zealand;
browns. spaghetti in the Philippines; and salmon sandwiches
(called “McLaks”) in Norway. In Islamic countries, such
as Saudi Arabia, McDonald’s restaurants offers a “Ha-
lal” menu.
CORPORATE CITIZENSHIP
In 1997 there were 4,500 McDonald’s restaurants in
In 1984, after Ray Kroc died, Ronald McDonald 17 Asia/Pacific countries. That year, it opened 37 in the
Children’s Charities was founded in his memory. It pro­ Philippines and 44 of its 100 stores in Indonesia; but in
vides funds worldwide to organizations that promote ed­ March 1998, the company closed 13 locations in the lat­
ucation, the arts, and civic and social services, and for ter due to the continuing economic crisis. As of 1998 the
medical research. Its most visible manifestations are the company planned to invest $1.5 billion more in Asia and
Ronald McDonald House Charities, which provide the Pacific Rim to open an additional 2,000 stores by the
“homes away from home” for families of seriously ill year 2000.
children who are being treated at nearby hospitals. In
1996 Ray Kroc’s widow, Joan Kroc, donated $50 mil­
lion to the cause. Since its inception, the foundation has
granted over $100 million to various non-profit chil­
dren’s organizations. EMPLOYMENT
McDonald’s established a major partnership with the
American Red Cross to provide relief to thousands of McDonald’s is committed to diversity in the work­
families who have been affected by natural disasters. The place. Executives, company staff, and store managers are
company participated in many other charitable and edu­ eligible to participate in a profit-sharing plan, based on
cational programs in the 1990s, and its franchisees were level of compensation. In 1997, no officers received merit
involved in programs in their local communities. Addi­ raises, owing to an underwhelming company perfor­
tionally, in the 1990s, McDonald’s launched a major ini­ mance for 1996.

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CHRONOLOGY:
Key Dates for McDonald’s Corporation
1948: Dick and Mac McDonald open their first 1974: Ronald McDonald House, for parents of
McDonald’s in San Bernardino, California critically ill children, is created
1955: Ray Kroc opens the prototype McDonald’s 1975: The drive-thru operation is established in Sierra
franchise in Des Plaines, Illinois Vista, Arizona
1961: Kroc buys out the McDonald brothers; opens 1984: Ray Kroc dies and Ronald McDonald
Hamburger University Children’s Charities is founded in his memory
1963: Ronald McDonald debuts on television, played 1994: McDonald’s opens in Kuwait to 15,000 people
by Willard Scott and a seven-mile long drive-thru line
1965: McDonald’s goes public 1998: Disney signs a long term deal with McDonald’s
to include Disney merchandise as Happy Meal
1967: The Big Mac debuts giveaways

TEENIE BEANIES TAKE

OVER MCDONALD'S
How long would you wait in line at McDonald’s? tion ordered about 150 million of the tiny toys, up from
If you are looking to get a Teenie Beanie Baby, you could 84 million in 1997. Also changed from their previous
be waiting for hours. year’s experience, McDonald’s made arrangements in
In 1997 McDonald’s launched a campaign to include their contract with Ty Inc. that a food purchase was re­
a Teenie Beanie Baby, made by Ty Inc., in every Happy quired to obtain the toys. McDonald’s franchise owners
Meal sold. Unfortunately, the corporation underestimated wanted to make sure the headaches from the crowds and
the popularity of the toys, and the restaurants were bom­ crazed collectors was worth the owners’ time and effort.
barded with Beanie-crazed customers looking to collect One Teenie Beanie fan admitted that she purchased
all of the toys as they were released. ten toys each trip saying, “I don’t smoke, I don’t drink,
In 1998 McDonald’s announced that it would once I gotta have some vice.” Watch out in 1999 for fans like
again include the Teenie Beanie Babies in its Happy this, because McDonald’s already has plans for Teenie
Meals. In an effort to control the demand, the corpora- Beanie Baby III.

--------- . “McDonald’s Says Price Cuts Are Approved.” Wall

SOURCES OF INFORMATION Street Journal, 3 March 1997.
Bibliography --------- . “Prices Tumble on Big Macs, but Fries Rise.” Wall Street
Journal, 25 April 1997.
“Calif. McDonald’s $.29-$.39 Burger Promo Poised to Spread
Nationally.” Nation’s Restaurant News, 2 February 1998. Gibson, Richard, and Calmetta Y. Coleman. “How Burger King
Canedy, Dana. “McDonald’s Executive Promoted to Chief.” New Finally Became a Contender.” Wall Street Journal, 27 February
York Times,1 May 1998. 1997.
“EPA to Present National Energy-Saving Award to McDonald’s.” Leonhardt, David. “McDonald’s: Can it Regain Its Golden
PR Newswire, 23 March 1998. Touch?” Business Week, 9 March 1998.
Gibson, Richard. “Big Price Cut at McDonald’s Seems a Lubow, Arthur. “Steal this Burger.” New York Times, 19 April
McFlop.” Wall Street Journal, 9 May 1997. 1998.
--------- . “Burger Flip-Flop: Worried McDonald’s Plans Dramatic “McDonald’s Announces Quarterly Cash Dividends.” PR News­
Shifts and Big Price Cuts.” Wall Street Journal, 26 February 1997. wire, 20 January 1998.

C o m p a n y P r o f i l e s f o r S t u d e n t s 8 6 7
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“McDonald’s Announces Strategic Initiatives.” PR Newswire, 26 “No McDonald’s Officers Got ‘97 Salary Hikes.” Reuters, 7 April
March 1998. 1998.
“McDonald’s Announces Supplemental 1997 Financial Informa­ Raffio, Ralph. “Did Somebody Say McDonald’s Was Hurting?”
tion.” PR Newswire, 19 February 1998. Restaurant Business, 15 February 1998.
“McDonald’s Brings Back Filet-O-Fish Sandwich after Two-Year Ruggless, Ron. “Rensi: Women, Minorities Crucial to Success at
Hiatus.” Knight-Ridder/Tribune Business News, 12 March 1998. McD.” Nation’s Restaurant News, 28 April 1997.
“McDonald’s—Can It Regain Its Golden Touch?” Business Week, “Steve’s Big McBreak.” Restaurant Business, 1 April 1998.
9 March 1998. Tannenbaum, Jeffrey A., and Michael Selz. “McDonald’s Price
“McDonald’s Corporation.” Hoover’s Online, May 1998. Avail­ Cut: Entree of Woe for Weak Chains.” Wall Street Journal, 27
able at http://www.hoover’s.com. February 1997.
McDonald’s Corporation 1995 Annual Report. Oak Brook, IL: “Welcome to McDonald’s.” Oak Brook, IL: McDonald’s Corpo­
McDonald’s Corporation, 1996. ration, 1996.
McDonald’s Corporation 1997 Annual Report. Oak Brook, IL:
McDonald’s Corporation, 1998.
“McDonald’s Kroc Donates $50M to Children’s Charities.” Na­
For an annual report:
telephone: (800)621-7825
tion’s Restaurant News, 22 January 1996.
“McDonald’s Launches 14th Annual GospelFest: A Celebration
of Gospel Music.” PR Newswire, 14 April 1998. For additional industry research:
“McDonald’s Plans Over $1 Billion Expansion in Asia/Pacific.” Investigate companies by their Standard Industrial Classification
PR Newswire, 9 April 1998. Codes, also known as SICs. McDonald’s primary SICs are:
Millman, Nancy. “55-Cent Burger Is McBait.” Chicago Tribune, 5812 Eating Places
27 February 1997. 6794 Patent Owners & Lessors
Nadeau, Susan. “Interview—McDonald’s Closes 13 Indonesia
Stores.” Reuters, 9 April 1998.

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 MCI Communications
Corporation
F O U N D E D : 1968
OVERVIEW
MCI is the second-largest long-distance provider in
the United States after AT&T. It is a leader and innova­ Contact Information:
tor in the telecommunications industry. MCI was instru­ H E A D Q U A R TE R S: 1801 Pennsylvania Ave.
mental in forging an opening in that industry for com­ Washington, D C 20006
panies to compete with AT&T. It continued in the late PH O N E: (202)872-1600
1990s to lead all others except for AT&T, which had held FAX: (202)887-3140
an industrywide monopoly until the 1980s. The company, U RL: http://www.mci.com
located just a few blocks from the White House, has of­
fices in 300 locations around the world, and competes in
a wide variety of communication service markets.
In 1997, the global long-distance company World­
Com Inc. made a $30-billion bid to buy MCI. GTE made
a $28 billion offer. After some negotiation, MCI agreed
to a $37-billion purchase by WorldCom. The merger was
announced November 10, 1997 and the new company
will be named MCI WorldCom.

COMPANY FINANCES
Upon announcing the merger of MCI and World-
Com Inc., the combined firms projected over $30 billion
in revenues for 1998. In 1997 MCI had net income of
$209 million on revenue of $19.65 billion, as compared
to 1996 when net income was $1.20 billion on revenue
of $18.49 billion. This was a considerable increase over
1995 income of $548 million on $15.26 billion in rev­
enues. Earnings per share of stock rose from $.80 in 1995
to $1.73 in 1996, and fell to $.29 in 1997. MCI’s long
distance services represent more than 90 percent of its
revenues.

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