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History of McDonald's

History:

Since its incorporation in 1955, McDonald's Corporation has not only become the world's largest quick-service restaurant organization, but has literally changed Americans' eating habits--and increasingly the habits of non-Americans as well. On an average day, more than 46 million people eat at one of the company's more than 31,000 restaurants, which are located in 119 countries on six continents. About 9,000 of the restaurants are company owned and operated; the remainder are run either by franchisees or through joint ventures with local businesspeople. Systemwide sales (which encompass total revenues from all three types of restaurants) totaled more than $46 billion in 2003. Nine major markets--Australia, Brazil, Canada, China, France, Germany, Japan, the United Kingdom, and the United States--account for 80 percent of the restaurants and 75 percent of overall sales. The vast majority of the company's restaurants are of the flagship McDonald's hamburger joint variety. Two other wholly owned chains, Boston Market (rotisserie chicken) and Chipotle Mexican Grill (Mexican fast casual), along with Pret A Manger (upscale prepared sandwiches), in which McDonald's owns a 33 percent stake, account for about 1,000 of the units. 

Early History

In 1954 Ray Kroc, a seller of Multimixer milkshake machines, learned that brothers Richard and Maurice (Dick and Mac) McDonald were using eight of his high-tech Multimixers in their San Bernardino, California, restaurant. His curiosity was piqued, and he went to San Bernardino to take a look at the McDonalds' restaurant.

The McDonalds had been in the restaurant business since the 1930s. In 1948 they closed down a successful carhop drive-in to establish the streamlined operation Ray Kroc saw in 1954. The menu was simple: hamburgers, cheeseburgers, french fries, shakes, soft drinks, and apple pie. The carhops were eliminated to make McDonald's a self-serve operation, and there were no tables to sit at, no jukebox, and no telephone. As a result, McDonald's attracted families rather than teenagers. Perhaps the most impressive aspect of the restaurant was the efficiency with which the McDonald's workers did their jobs. Mac and Dick McDonald had taken great care in setting up their kitchen. Each worker's steps had been carefully choreographed, like an assembly line, to ensure maximum efficiency. The savings in preparation time, and the resulting increase in volume, allowed the McDonalds to lower the price of a hamburger from 30 cents to 15 cents.

Believing that the McDonald formula was a ticket to success, Kroc suggested that they franchise their restaurants throughout the country. When they hesitated to take on this additional burden, Kroc volunteered to do it for them. He returned to his home outside of Chicago with rights to set up McDonald's restaurants throughout the country, except in a handful of territories in California and Arizona already licensed by the McDonald brothers.

Kroc's first McDonald's restaurant opened in Des Plaines, Illinois, near Chicago, on April 15, 1955--the same year that Kroc incorporated his company as McDonald's Corporation. As with any new venture, Kroc encountered a number of hurdles. The first was adapting the McDonald's building design to a northern climate. A basement had to be installed to house a furnace, and adequate ventilation was difficult, as exhaust fans sucked out warm air in the winter, and cool air in the summer.

Most frustrating of all, however, was Kroc's initial failure to reproduce the McDonalds' delicious french fries. When Kroc and his crew duplicated the brothers' method--leaving just a little peel for flavor, cutting the potatoes into shoestrings, and rinsing the strips in cold water--the fries turned into mush. After repeated telephone conversations with the McDonald brothers and several consultations with the Potato and Onion Association, Kroc pinpointed the cause of the soggy spuds. The McDonald brothers stored their potatoes outside in wire bins, and the warm California breeze dried them out and cured them, slowly turning the sugars into starch. In order to reproduce the superior taste of these potatoes, Kroc devised a system using an electric fan to dry the potatoes in a similar way. He also experimented with a blanching process. Within three months he had a french fry that was, in his opinion, slightly superior in taste to the McDonald brothers' fries.

Once the Des Plaines restaurant was operational, Kroc sought franchisees for his McDonald's chain. The first snag came quickly. In 1956 he discovered that the McDonald brothers had licensed the franchise rights for Cook County, Illinois (home of Chicago and many of its suburbs) to the Frejlack Ice Cream Company. Kroc was incensed that the McDonalds had not informed him of this arrangement. He purchased the rights back for $25,000--five times what the Frejlacks had originally paid--and pressed forward.

Kroc decided early on that it was best to first establish the restaurants and then to franchise them out, so that he could control the uniformity of the stores. Early McDonald's restaurants were situated in the suburbs. Corner lots were usually in greater demand because gas stations and shops competed for them, but Kroc preferred lots in the middle of blocks to accommodate his U-shaped parking lots. Since these lots were cheaper, Kroc could give franchisees a price break.

McDonald's grew slowly for its first three years; by 1958 there were 34 restaurants. In 1959, however, Kroc opened 67 new restaurants, bringing the total to more than 100.

Kroc had decided at the outset that McDonald's would not be a supplier to its franchisees--his background in sales warned him that such an arrangement could lead to lower quality for the sake of higher profits. He also had determined that the company should at no time own more than 30 percent of all McDonald's restaurants. He knew, however, that his success depended upon his franchisees' success, and he was determined to help them in any way that he could.

In 1960 the McDonald's advertising campaign "Look for the Golden Arches" gave sales a big boost. Kroc believed that advertising was an investment that would in the end come back many times over, and advertising has always played a key role in the development of the McDonald's Corporation--indeed, McDonald's ads have been some of the most identifiable over the years. In 1962 McDonald's replaced its "Speedee" the hamburger man symbol with its now world-famous Golden Arches logo. A year later, the company sold its billionth hamburger and introduced Ronald McDonald, a red-haired clown with particular appeal to children. 

Phenomenal Growth in the 1960s and 1970s

In the early 1960s, McDonald's really began to take off. The growth in U.S. automobile use that came with suburbanization contributed heavily to McDonald's success. In 1961 Kroc bought out the McDonald brothers for $2.7 million, aiming at making McDonald's the number one fast-food chain in the country.

In 1965 McDonald's Corporation went public. Common shares were offered at $22.50 per share; by the end of the first day's trading the price had shot up to $30. A block of 100 shares purchased for $2,250 in 1965 was worth, after 12 stock splits (increasing the number of shares to 74,360), about $1.8 million by the end of 2003. In 1985 McDonald's Corporation became one of the 30 companies that make up the Dow Jones Industrial Average.

McDonald's success in the 1960s was in large part due to the company's skillful marketing and flexible response to customer demand. In 1965 the Filet-o-Fish sandwich, billed as "the fish that catches people," was introduced in McDonald's restaurants. The new item had originally met with disapproval from Kroc, but after its successful test marketing, he eventually agreed to add it. Another item that Kroc had backed a year previously, a burger with a slice of pineapple and a slice of cheese, known as a "hulaburger," had flopped. The market was not quite ready for Kroc's taste; the hulaburger's tenure on the McDonald's menu board was short. In 1968 the now legendary Big Mac made its debut, and in 1969 McDonald's sold its five billionth hamburger. A year later, as it launched the "You Deserve a Break Today" advertising campaign, McDonald's restaurants had reached all 50 states.

In 1968 McDonald's opened its 1,000th restaurant, and Fred Turner became the company's president and chief administrative officer. Kroc became chairman and remained CEO until 1973. Turner had originally intended to open a McDonald's franchise, but when he had problems with his backers over a location, he went to work as a grillman for Kroc in 1956. As operations vice-president, Turner helped new franchisees get their stores up and running. He was constantly looking for new ways to perfect the McDonald's system, experimenting, for example, to determine the maximum number of hamburger patties one could stack in a box without squashing them and pointing out that seconds could be saved if McDonald's used buns that were presliced all the way through and were not stuck together in the package. Such attention to detail was one reason for the company's extraordinary success.

McDonald's spectacular growth continued in the 1970s. Americans were more on-the-go than ever, and fast service was a priority. In 1972 the company passed $1 billion in annual sales; by 1976, McDonald's had served 20 billion hamburgers, and systemwide sales exceeded $3 billion.

McDonald's pioneered breakfast fast food with the introduction of the Egg McMuffin in 1973 when market research indicated that a quick breakfast would be welcomed by consumers. Five years later the company added a full breakfast line to the menu, and by 1987 one-fourth of all breakfasts eaten out in the United States came from McDonald's restaurants.

Kroc was a firm believer in giving "something back into the community where you do business." In 1974 McDonald's acted upon that philosophy in an original way by opening the first Ronald McDonald House, in Philadelphia, to provide a "home away from home" for the families of children in nearby hospitals. Twelve years after this first house opened, 100 similar Ronald McDonald Houses were in operation across the United States.

In 1975 McDonald's opened its first drive-thru window in Oklahoma City. This service gave Americans a fast, convenient way to procure a quick meal. The company's goal was to provide service in 50 seconds or less. Drive-thru sales eventually accounted for more than half of McDonald's systemwide sales. Meantime, the Happy Meal, a combo meal for children featuring a toy, was added to the menu in 1979. 

Surviving the 1980s "Burger Wars"

In the late 1970s competition from other hamburger chains such as Burger King and Wendy's began to intensify. Experts believed that the fast-food industry had gotten as big as it ever would, so the companies began to battle fiercely for market share. A period of aggressive advertising campaigns and price slashing in the early 1980s became known as the "burger wars." Burger King suggested that customers "have it their way"; Wendy's offered itself as the "fresh alternative" and asked of other restaurants, "where's the beef?" But McDonald's sales and market share continued to grow. Consumers seemed to like the taste and consistency of McDonald's best.

During the 1980s McDonald's further diversified its menu to suit changing consumer tastes. Chicken McNuggets were introduced in 1983, and by the end of the year McDonald's was the second largest retailer of chicken in the world. In 1987 ready-to-eat salads were introduced to lure more health-conscious consumers. The 1980s were the fastest-paced decade yet. Efficiency, combined with an expanded menu, continued to draw customers. McDonald's, already entrenched in the suburbs, began to focus on urban centers and introduced new architectural styles. Although McDonald's restaurants no longer looked identical, the company made sure food quality and service remained constant.

Despite experts' claims that the fast-food industry was saturated, McDonald's continued to expand. The first generation raised on restaurant food had grown up. Eating out had become a habit rather than a break in the routine, and McDonald's relentless marketing continued to improve sales. Innovative promotions, such as the "when the U.S. wins, you win" giveaways during the Olympic Games in 1988, were a huge success.

In 1982 Michael R. Quinlan became president of McDonald's Corporation and Fred Turner became chairman. Quinlan, who took over as CEO in 1987, had started at McDonald's in the mailroom in 1963, and gradually worked his way up. The first McDonald's CEO to hold an M.B.A. degree, Quinlan was regarded by his colleagues as a shrewd competitor. In his first year as CEO the company opened 600 new restaurants.

McDonald's growth in the United States was mirrored by its stunning growth abroad. By 1991, 37 percent of systemwide sales came from restaurants outside the United States. McDonald's opened its first foreign restaurant in British Columbia, Canada, in 1967. By the early 1990s the company had established itself in 58 foreign countries and operated more than 3,600 restaurants outside the United States, through wholly owned subsidiaries, joint ventures, and franchise agreements. Its strongest foreign markets were Japan, Canada, Germany, Great Britain, Australia, and France.

In the mid-1980s, McDonald's, like other traditional employers of teenagers, was faced with a shortage of labor in the United States. The company met this challenge by being the first to entice retirees back into the workforce. McDonald's placed great emphasis on effective training. It opened its Hamburger University in 1961 to train franchisees and corporate decision-makers. By 1990, more than 40,000 people had received "Bachelor of Hamburgerology" degrees from the 80-acre Oak Brook, Illinois, facility. The corporation opened a Hamburger University in Tokyo in 1971, in Munich in 1975, and in London in 1982.

Braille menus were first introduced in 1979, and picture menus in 1988. In March 1992 Braille and picture menus were reintroduced to acknowledge the 37 million Americans with vision, speech, or hearing impairments.

Quinlan continued to experiment with new technology and to research new markets to keep McDonald's in front of its competition. Clamshell fryers, which cooked both sides of a hamburger simultaneously, were tested. New locations such as hospitals and military bases were tapped as sites for new restaurants. In response to the increase in microwave oven usage, McDonald's, whose name is the single most advertised brand name in the world, stepped up advertising and promotional expenditures stressing that its taste was superior to quick-packaged foods.

McRecycle USA began in 1990 and included a commitment to purchase at least $100 million worth of recycled products annually for use in construction, remodeling, and equipping restaurants. Chairs, table bases, table tops, eating counters, table columns, waste receptacles, corrugated cartons, packaging, and washroom tissue were all made from recycled products. McDonald's worked with the U.S. Environmental Defense Fund to develop a comprehensive solid waste reduction program. Wrapping burgers in paper rather than plastic led to a 90 percent reduction in the wrapping material waste stream. 

1990s Growing Pains

It took McDonald's 33 years to open its first 10,000 restaurants--the 10,000th unit opened in April 1988. Incredibly, the company reached the 20,000-restaurant mark in only eight more years, in mid-1996. By the end of 1997 the total had surpassed 23,000--by that time McDonald's was opening 2,000 new restaurants each year--an average of one every five hours.

Much of the growth of the 1990s came outside the United States, with international units increasing from about 3,600 in 1991 to more than 11,000 by 1998. The number of countries with McDonald's outlets nearly doubled from 59 in 1991 to 114 in late 1998. In 1993 a new region was added to the empire when the first McDonald's in the Middle East opened in Tel Aviv, Israel. As the company entered new markets, it showed increasing flexibility with respect to local food preferences and customs. In Israel, for example, the first kosher McDonald's opened in a Jerusalem suburb in 1995. In Arab countries the restaurant chain used "Halal" menus, which complied with Islamic laws for food preparation. In 1996 McDonald's entered India for the first time, where it offered a Big Mac made with lamb called the Maharaja Mac. That same year the first McSki-Thru opened in Lindvallen, Sweden.

Overall, the company derived increasing percentages of its revenue and income from outside the United States. In 1992 about two-thirds of systemwide sales came out of U.S. McDonald's, but by 1997 that figure was down to about 51 percent. Similarly, the operating income numbers showed a reduction from about 60 percent derived from the United States in 1992 to 42.5 percent in 1997.

In the United States, where the number of units grew from 9,000 in 1991 to 12,500 in 1997--an increase of about 40 percent--the growth was perhaps excessive. Although the additional units increased market share in some markets, a number of franchisees complained that new units were cannibalizing sales from existing ones. Same-store sales for outlets open for more than one year were flat in the mid-1990s, a reflection of both the greater number of units and the mature nature of the U.S. market.

It did not help that the company made several notable blunders in the United States in the 1990s. The McLean Deluxe sandwich, which featured a 91 percent fat-free beef patty, was introduced in 1991, never really caught on, and was dropped from the menu in 1996. Several other 1990s-debuted menu items--including fried chicken, pasta, fajitas, and pizza--failed as well. The "grown-up" (and pricey) Arch Deluxe sandwich and the Deluxe Line were launched in 1996 in a $200 million campaign to gain the business of more adults, but were bombs. The following spring brought a 55-cent Big Mac promotion, which many customers either rejected outright or were confused by because the burgers had to be purchased with full-priced fries and a drink. The promotion embittered still more franchisees, whose complaints led to its withdrawal. In July 1997 McDonald's fired its main ad agency--Leo Burnett, a 15-year McDonald's partner--after the nostalgic "My McDonald's" campaign proved a failure. A seemingly weakened McDonald's was the object of a Burger King offensive when the rival fast-food maker launched the Big King sandwich, a Big Mac clone. Meanwhile, internal taste tests revealed that customers preferred the fare at Wendy's and Burger King.

In response to these difficulties, McDonald's drastically cut back on its U.S. expansion--in contrast to the 1,130 units opened in 1995, only about 400 new McDonald's were built in 1997. Plans to open hundreds of smaller restaurants in Wal-Marts and gasoline stations were abandoned because test sites did not meet targeted goals. Reacting to complaints from franchisees about poor communication with the corporation and excess bureaucracy, the head of McDonald's U.S.A. (Jack Greenberg, who had assumed the position in October 1996) reorganized the unit into five autonomous geographic divisions. The aim was to bring management and decision-making closer to franchisees and customers.

On the marketing side, McDonald's scored big in 1997 with a Teenie Beanie Baby promotion in which about 80 million of the toys/collectibles were gobbled up virtually overnight. The chain received some bad publicity, however, when it was discovered that a number of customers purchased Happy Meals just to get the toys and threw the food away. For a similar spring 1998 Teenie Beanie giveaway, the company altered the promotion to allow patrons to buy menu items other than kids' meals. McDonald's also began to benefit from a ten-year global marketing alliance signed with Disney in 1996. Initial Disney movies promoted by McDonald's included 101 Dalmatians, Flubber, Mulan, Armageddon, and A Bug's Life. Perhaps the most important marketing move came in the later months of 1997 when McDonald's named BDD Needham as its new lead ad agency. Needham had been the company's agency in the 1970s and was responsible for the hugely successful "You Deserve a Break Today" campaign. Late in 1997 McDonald's launched the Needham-designed "Did Somebody Say McDonald's?" campaign, which appeared to be an improvement over its predecessors. 

A Failed Turnaround: Late 1990s and Early 2000s

Following the difficulties of the early and mid-1990s, several moves in 1998 seemed to indicate a reinvigorated McDonald's. In February the company for the first time took a stake in another fast-food chain when it purchased a minority interest in the 16-unit, Colorado-based Chipotle Mexican Grill chain. The following month came the announcement that McDonald's would improve the taste of several sandwiches and introduce several new menu items; McFlurry desserts--developed by a Canadian franchisee--proved popular when launched in the United States in the summer of 1998. McDonald's that same month said that it would overhaul its food preparation system in every U.S. restaurant. The new just-in-time system, dubbed "Made for You," was in development for a number of years and aimed to deliver to customers "fresher, hotter food"; enable patrons to receive special-order sandwiches (a perk long offered by rivals Burger King and Wendy's); and allow new menu items to be more easily introduced thanks to the system's enhanced flexibility. The expensive changeover was expected to cost about $25,000 per restaurant, with McDonald's offering to pay for about half of the cost; the company planned to provide about $190 million in financial assistance to its franchisees before implementation was completed by year-end 1999.

In May 1998 Greenberg was named president and CEO of McDonald's Corporation, with Quinlan remaining chairman; at the same time Alan D. Feldman, who had joined the company only four years earlier from Pizza Hut, replaced Greenberg as president of McDonald's U.S.A.--an unusual move for a company whose executives typically were long-timers. The following month brought another first--McDonald's first job cuts--as the company said it would eliminate 525 employees from its headquarters staff, a cut of about 23 percent. In the second quarter of 1998 McDonald's took a $160 million charge in relation to the cuts. As a result, the company, for the first time since it went public in 1965, recorded a decrease in net income, from $1.64 billion in 1997 to $1.55 billion in 1998.

McDonald's followed up its investment in Chipotle with several more moves beyond the burger business. In March 1999 the company bought Aroma Café, a U.K. chain of 23 upscale coffee and sandwich shops. In July of that year McDonald's added Donatos Pizza Inc., a midwestern chain of 143 pizzerias based in Columbus, Ohio. Donatos had 1997 revenues of $120 million. Also in 1999, McDonald's 25,000th unit opened, Greenberg took on the additional post of chairman, and Jim Cantalupo was named company president. Cantalupo, who had joined the company as controller in 1974 and later became head of McDonald's International, had been vice-chairman, a position he retained. In May 2000 McDonald's completed its largest acquisition yet, buying the bankrupt Boston Market chain for $173.5 million in cash and debt. At the time, there were more than 850 Boston Market outlets, which specialized in home-style meals, with rotisserie chicken the lead menu item. Revenue at Boston Market during 1999 totaled $670 million. McDonald's rounded out its acquisition spree in early 2001 by buying a 33 percent stake in Pret A Manger, an upscale urban-based chain specializing in ready-to-eat sandwiches made on the premises. There were more than 110 Pret shops in the United Kingdom and several more in New York City. Also during 2001, McDonald's sold off Aroma Café and took its McDonald's Japan affiliate public, selling a minority stake through an initial public offering.

As it was exploring new avenues of growth, however, McDonald's core hamburger chain had become plagued by problems. Most prominently, the Made for You system backfired. Although many franchisees believed that it succeeded in improving the quality of the food, it also increased service times and proved labor-intensive. Some franchisees also complained that the actual cost of implementing the system ran much higher than the corporation had estimated, a charge that McDonald's contested. In any case, there was no question that Made for You failed to reverse the chain's sluggish sales. Growth in sales at stores open more than a year (known as same-store sales) fell in both 2000 and 2001. Late in 2001 the company launched a restructuring involving the elimination of about 850 positions, 700 of which were in the United States, and some store closings.

There were further black eyes as well. McDonald's was sued in 2001 after it was revealed that for flavoring purposes a small amount of beef extract was being added to the vegetable oil used to cook the french fries. The company had cooked its fries in beef tallow until 1990, when it began claiming in ads that it used 100 percent vegetable oil. McDonald's soon apologized for any "confusion" that had been caused by its use of the beef flavoring, and in mid-2002 it reached a settlement in the litigation, agreeing to donate $10 million to Hindu, vegetarian, and other affected groups. Also in 2001, further embarrassment came when 51 people were charged with conspiring to rig McDonald's game promotions over the course of several years. It was revealed that $24 million of winning McDonald's game tickets had been stolen as part of the scam. McDonald's was not implicated in the scheme, which centered on a worker at an outside company that had administered the promotions.

McDonald's also had to increasingly battle its public image as a purveyor of fatty, unhealthful food. Consumers began filing lawsuits contending that years of eating at McDonald's had made them overweight. McDonald's responded by introducing low-calorie menu items and switching to a more healthful cooking oil for its french fries. McDonald's franchises overseas became a favorite target of people and groups expressing anti-American and/or antiglobalization sentiments. In August 1999 a group of protesters led by farmer José Bové destroyed a half-built McDonald's restaurant in Millau, France. In 2002 Bové, who gained fame from the incident, served a three-month jail sentence for the act, which he said was in protest against U.S. trade protectionism. McDonald's was also one of three multinational corporations (along with Starbucks Corporation and Nike, Inc.) whose outlets in Seattle were attacked in late 1999 by some of the more aggressive protesters against a World Trade Organization (WTO) meeting taking place there. In the early 2000s McDonald's pulled out of several countries, including Bolivia and two Middle Eastern nations, at least in part because of the negative regard with which the brand was held in some areas.

Early in 2002 Cantalupo retired after 28 years of service. Sales remained lackluster that year, and in October the company attempted to revive U.S. sales through the introduction of a low-cost Dollar Menu. In December 2002, after this latest initiative to reignite sales growth failed--and also after profits fell in seven of the previous eight quarters--Greenberg announced that he would resign at the end of the year. Cantalupo came out of retirement to become chairman and CEO at the beginning of 2003. 

Launching of Revitalization Plan Under New Leadership in 2003

Cantalupo started his tenure by announcing a major restructuring that involved the closure of more than 700 restaurants (mostly in the United States and Japan), the elimination of 600 jobs, and charges of $853 million. The charges resulted in a fourth-quarter 2002 loss of $343.8 million--the first quarterly loss in McDonald's 38 years as a public company. The new CEO also shifted away from the company's traditional reliance on growth through the opening of new units to a focus on gaining more sales from existing units. To that end, several new menu items were successfully launched, including entree salads, McGriddles breakfast sandwiches (which used pancakes in place of bread), and white-meat Chicken McNuggets. Some outlets began test-marketing fruits and vegetables as Happy Meal options. Backing up the new products was the launch in September 2003 of an MTV-style advertising campaign featuring the new tag line, "I'm lovin' it." This was the first global campaign in McDonald's history, as the new slogan was to be used in advertising in more than 100 countries. It also proved to be the first truly successful ad campaign in years; sales began rebounding, helped also by improvements in service. In December 2003, for instance, same-store sales increased 7.3 percent. Same-store sales rose 2.4 percent for the entire year, after falling 2.1 percent in 2002.

In December 2003 McDonald's announced that it would further its focus on its core hamburger business by downsizing its other ventures. The company said that it would sell Donatos back to that chain's founder. In addition, it would discontinue development of non-McDonald's brands outside of the United States. This included Boston Market outlets in Canada and Australia and Donatos units in Germany. McDonald's kept its minority investment in Pret A Manger, but McDonald's Japan was slated to close its Pret units there. These moves would enable the company to concentrate its international efforts on the McDonald's chain, while reducing the non-hamburger brands in the United States to Chipotle and Boston Market, both of which were operating in the black.

McDonald's continued to curtail store openings in 2004 and to concentrate on building business at existing restaurants. Much of the more than $1.5 billion budgeted for capital expenditures in 2004 was slated to be used to remodel existing restaurants. McDonald's also aimed to pay down debt by $400 million to $700 million and to return approximately $1 billion to shareholders through dividends and share repurchases. Cantalupo also set several long-term goals, such as sustaining annual systemwide sales and revenue growth rates of 3 to 5 percent. In a move to both simplify the menu and make its offerings less fattening, McDonald's announced in March 2004 that it would phase out Super Size french fries and soft drinks by the end of the year. 

Principal Subsidiaries: McDonald's Deutschland, Inc.; McDonald's Restaurant Operations Inc.; McG Development Co.; Chipotle Mexican Grill, Inc.; Boston Market Corporation; McDonald's Franchise GmbH (Austria); McDonald's Australia Limited; McDonald's France, S.A.; MDC Inmobiliaria de Mexico S.A. de C.V.; McDonald's Restaurants Pte., Ltd. (Singapore); Restaurantes McDonald's S.A. (Spain); McKim Company Ltd. (South Korea); Shin Mac Company Ltd. (South Korea); McDonald's Nederland B.V. (Netherlands); Moscow-McDonald's (Canada); McDonald's Restaurants Limited (U.K.). 

Principal Competitors: Burger King Corporation; Wendy's International, Inc.; CKE Restaurants, Inc.; Jack in the Box Inc.; Sonic Corporation; Checkers Drive-In Restaurants, Inc.; White Castle System, Inc.; Whataburger, Inc.; YUM! Brands, Inc.; Doctor's Associates Inc.

History of KFC : Kentucky Fried Chicken

History:

KFC Corporation is the largest fast-food chicken operator, developer, and franchiser in the world. KFC, a wholly owned subsidiary of PepsiCo, Inc. until late 1997, operates over 5,000 units in the United States, approximately 60 percent of which are franchises. Internationally, KFC has more than 3,700 units, of which two-thirds are also franchised. In addition to direct franchising and wholly owned operations, the company participates in joint ventures, and continues investigating alternative venues to gain market share in the increasingly competitive fast-food market. In late 1997 the company expected to become a wholly owned subsidiary of Tricon Global Restaurants, Inc., to be formed from the spin off of PepsiCo's restaurant holdings.

The Early Life of Colonel Sanders

Kentucky Fried Chicken was founded by Harland Sanders in Corbin, Kentucky. Sanders was born on a small farm in Henryville, Indiana, in 1890. Following the death of Sanders's father in 1896, Sanders's mother worked two jobs to support the family. The young Sanders learned to cook for his younger brother and sister by age six. When Mrs. Sanders remarried, her new husband didn't tolerate Harland. Sanders left home and school when he was 12 years old to work as a farm hand for four dollars a month. At age 15 he left that job to work at a variety of jobs, including painter, railroad fireman, plowman, streetcar conductor, ferryboat operator, insurance salesman, justice of the peace, and service-station operator.

Sanders

In 1929 Sanders opened a gas station in Corbin, Kentucky, and cooked for his family and an occasional customer in the back room. Sanders enjoyed cooking the food his mother had taught him to make: pan-fried chicken, country ham, fresh vegetables, and homemade biscuits. Demand for Sanders's cooking rose; eventually he moved across the street to a facility with a 142-seat restaurant, a motel, and a gas station.

During the 1930s an image that would become known throughout the world began to develop. First, Sanders was named an honorary Kentucky Colonel by the state's governor; second, he developed a unique, quick method of spicing and pressure-frying chicken. Due to his regional popularity, the Harland Sanders Court and Cafe received an endorsement by Duncan Hines's Adventures in Good Eating in 1939.

Sanders Court and Cafe was Kentucky's first motel, but the Colonel was forced to close it when gas rationing during World War II cut tourism. Reopening the motel after the war, Sanders's hand was once again forced: in the early 1950s, planned Interstate 75 would bypass Corbin entirely. Though Sanders Cafe was valued at $165,000, the owner could only get $75,000 for it at auction, just enough to pay his debts. 

Sanders' First Franchise in 1952

However, in 1952 the Colonel signed on his first franchise to Pete Harman, who owned a hamburger restaurant in Salt Lake City, Utah. Throughout the next four years, he convinced several other restaurant owners to add his Kentucky Fried Chicken to their menus.

Therefore, rather than struggle to live on his savings and Social Security, in 1955 Sanders incorporated and the following year took his chicken recipe to the road, doing demonstrations on-site to sell his method. Clad in a white suit, white shirt, and black string tie, sporting a white mustache and goatee, and carrying a cane, Sanders dressed in a way that expressed his energy and enthusiasm. In 1956 Sanders moved the business to Shelbyville, Kentucky, 30 miles east of Louisville, to more easily ship his spices, pressure cookers, carryout cartons, and advertising material. And by 1963 Sanders's recipe was franchised to more than 600 outlets in the United States and Canada. Sanders had 17 employees and travelled more than 200,000 miles in one year promoting Kentucky Fried Chicken. He was clearing $300,000 before taxes, and the business was getting too large for Sanders to handle. 

New Management for Kentucky Fried Chicken

In 1964 Sanders sold Kentucky Fried Chicken for $2 million and a per-year salary of $40,000 for public appearances; that salary later rose to $200,000. The offer came from an investor group headed by John Y. Brown, Jr. a 29-year-old graduate of the University of Kentucky law school, and Nashville financier John (Jack) Massey. A notable member of the investor group was Pete Harman, who had been the first to purchase Sanders's recipe 12 years earlier.

Under the agreement, Brown and Massey owned national and international franchise rights, excluding England, Florida, Utah, and Montana, which Sanders had already apportioned. Sanders would also maintain ownership of the Canadian franchises. The company subsequently acquired the rights to operations in England, Canada, and Florida. As chairman and CEO, Massey trained Brown for the job; meanwhile, Harland Sanders enjoyed his less hectic role as roving ambassador. In Business Week, Massey remarked: "He's the greatest PR man I have ever known."

Within three years, Brown and Massey had transformed the "loosely knit, one-man show ... into a smoothly run corporation with all the trappings of modern management," according to Business Week. Retail outlets reached all 50 states, plus Puerto Rico, Mexico, Japan, Jamaica, and the Bahamas. With 1,500 take-out stores and restaurants, Kentucky Fried Chicken ranked sixth in volume among food-service companies; it trailed such giants as Howard Johnson, but was ahead of McDonald's Corporation and International Dairy Queen.

In 1967, franchising remained the foundation of the business. For an initial $3,000 fee, a franchisee went to "KFC University" to learn all the basics. While typical costs for a complete Kentucky Fried Chicken start-up ran close to $65,000, some franchisees had already become millionaires. Tying together a national image, the company began developing pre-fabricated red-and-white striped buildings to appeal to tourists and residents in the United States.

The revolutionary choice Massey and Brown made was to change the Colonel's concept of a sit-down Kentucky Fried Chicken dinner to a stand-up, take-out store emphasizing fast service and low labor costs. This idea created, by 1970, 130 millionaires, all from selling the Colonel's famous pressure-cooked chicken. But such unprecedented growth came with its cost, as Brown remarked in Business Week: "At one time, I had 21 millionaires reporting to me at eight o'clock every morning. It could drive you crazy." Despite the number of vocal franchisees, the corporation lacked management depth. Brown tried to use successful franchisees as managers, but their commitment rarely lasted more than a year or two. There was too much money to be made as entrepreneurs. 

Stock Plummets in 1970

Several observations about franchise arrangements noted by stock market analysts and accountants in the late 1960s became widespread news by 1970. First, Wall Street noticed that profits for many successful franchisers came from company-owned stores, not from the independent shops--though this was not the case with Kentucky Fried Chicken. This fact tied in with a memorandum circulated at Peat, Marwick, Mitchell & Company, and an article published by Archibald MacKay in the Journal of Accountancy stating that income labeled "initial franchise fees" was added when a franchise agreement was signed, regardless of whether the store ever opened or fees were collected. Such loose accounting practices caused a Wall Street reaction: franchisers, enjoying the reputation as "glamour stocks" through the 1960s, were no longer so highly regarded. Kentucky Fried Chicken stock hit a high of $55.50 in 1969, then fell to as low as $10 per share within a year.

In early 1970, following a number of disagreements with Brown, Massey resigned. When several other key leaders departed the company, Brown found the housecleaning he planned already in progress. A number of food and finance specialists joined Kentucky Fried Chicken, including R. C. Beeson as chief operational officer and Joseph Kesselman as chief financial officer. Kesselman brought in new marketing, controlling, and computer experts; he also obtained the company's first large-scale loan package ($30 million plus a $20 million credit line). By August 1970 the shake-up was clear: Colonel Harland Sanders, his grandson Harland Adams, and George Baker, who had run company operations, resigned from the board of directors. Colonel Sanders, at 80, knew his limits. In a 1970 New York Times article, Sanders stated, "[I] realized that I was someplace I had no place being.... Everything that a board of a big corporation does is over my head and I'm confused by the talk and high finance discussed at these meetings."

CEO Brown spent the rough year of 1970 shoring up his company's base of operations. By September, Kentucky Fried Chicken operated a total of 3,400 fast-food outlets; the company owned 823 of these units. The company, once too large for the Colonel to handle, grew too mammoth for John Y. Brown as well. In July 1971 Kentucky Fried Chicken merged with Connecticut-based Heublein Inc., a specialty food and alcoholic beverage corporation. Sales for Kentucky Fried Chicken had reached $700 million, and Brown, at age 37, left the company with a personal net worth of $35 million. Interviewed for the Wall Street Journal regarding the company's 1970 financial overhaul, Brown commented, "You never saw a more negative bunch.... If I'd have listened to them in the first place, we'd never have started Kentucky Fried Chicken." Article author Frederick C. Klein included closing parenthetical remarks in which observers close to the company noted that "in engineering Kentucky Fried Chicken's explosive growth, Mr. Brown neglected to install needed financial controls and food-research facilities, and had let relations with some franchise holders go sour."

Heublein Makes Changes in 1970s

Heublein planned to increase Kentucky Fried Chicken's volume with its marketing know-how. Through the 1970s the company introduced some new products to compete with other fast-food markets. The popularity of barbecued spare ribs, introduced in 1975, kept the numbers for Kentucky Fried Chicken looking better than they really were. As management concentrated on overall store sales, they failed to notice that the basic chicken business was slacking off. Competitors' sales increased as Kentucky Fried Chicken's dropped.

For Heublein, acquisitions were doing more harm than good: Kentucky Fried Chicken was stumbling just when the parent company had managed to get United Vintners, bought in 1969, on its feet. In 1977 the company appointed Michael Miles, who was formerly responsible for the Kentucky Fried Chicken ad campaign at Leo Burnett and had joined Heublein's marketing team in 1971, to chair the ailing Kentucky Fried Chicken. Richard Mayer, vice-president of marketing and strategic planning for Heublein's grocery products, took charge of the Kentucky Fried Chicken U.S. division.

Mayer found that the product mainstay, fried chicken, wasn't up to the high quality Colonel Harland Sanders would expect. Miles and Mayer also faced the same problem John Y. Brown had not managed to surmount: relations with franchisees were sour. In the mid-1970s, the franchisees sold more per store than company-owned stores. Faring better without Heublein's help, they resented paying royalty fees to the ineffective corporate parent. To top that off, the stores were looking out of date.

Having unloaded well over 300 company-owned stores in the early 1970s, by the end of the decade Heublein began to buy some back from the franchisees. Renovation of the original red-and-white striped buildings began in earnest, with Heublein putting $35 million into the project. On the outside, Kentucky Fried Chicken facades were updated, while on the inside, cooking methods veered back to the Colonel's basics. Sticking to a limited menu kept Kentucky Fried Chicken's costs down, allowing the company time to recoup. Timing was fortunate on Kentucky Fried Chicken's turn-around; it happened just in time for Colonel Sanders to witness. After fighting leukemia for seven months, Harland Sanders died on December 16, 1980. 

The 1980s: Profits and Expansion

Miles and Mayer's work culminated with the highly successful 1981 ad campaign, "We Do Chicken Right." A year later, in step with the fast-paced 1980s, R.J. Reynolds Industries Inc. acquired Heublein, giving Kentucky Fried Chicken another lift; the company had expansionary vision, capital, and the international presence to tie it all together. Kentucky Fried Chicken sales that year reached $2.4 billion. By 1983 the company had made impressive progress. With 4,500 stores in the United States and 1,400 units in 54 foreign countries, no other fast-food chain except McDonald's could compete. But while many industry insiders were crediting the team with victory, Mayer wasn't so quick to join in. As he noted in Nation's Restaurant News, "People keep talking about the turn-around at KFC. I'd really rather not talk about it. The turn-around is only halfway over."

With the entrance of R. J. Reynolds came the exit of Michael Miles, who resigned to become CEO of Kraft Foods; Mayer took over as chairman and CEO. Mayer continued on a cautious line for the next several years, refusing to introduce new products as obsessively as its competitors. "In the past two years," Mayer said in a KFC company profile in Nation's Restaurant News, "people have gone absolutely schizoid.... A lot of chains have blurred their image by adding so many new menu items." In further commentary, he added, "We don't roll out a flavor-of-the-month." 

PepsiCo Buys Company in 1986

Mayer's conservatism gained him the respect of Wall Street and his peers in the fast-food industry. In 1986 soft-drink giant PepsiCo, Inc., bought Kentucky Fried Chicken for $840 million. Reasons cited were KFC's superior performance and its 1980--85 increase in worldwide revenue and earnings. The successful operator of the Pizza Hut and Taco Bell chains, PepsiCo did quite well introducing new products through those restaurants. It was just a matter of time before Kentucky Fried Chicken would be expected to create new products.

To foster new product introduction, in 1986 Kentucky Fried Chicken opened the $23 million, 2,000,000-square-foot Colonel Sanders Technical Center. In addition, the company began testing oven-roasted chicken through multiple-franchisee Collins Foods; further test-marketing of home delivery was undertaken using PepsiCo's successful Pizza Hut delivery system as an example. By late 1986 Donald E. Doyle, succeeding Mayer in the post of Kentucky Fried Chicken's U.S. president, inherited the task of developing new menu items.

The overall market for fast food seemed glutted by the late 1980s. PepsiCo CEO D. Wayne Calloway saw Kentucky Fried Chicken's national niche as secure for two reasons: first, with competition spurred by the large number of fast-food suppliers, weaker chains would inevitably leave the market; second, Kentucky Fried Chicken still had room to grow in the Northeast and Mid-Atlantic regions. Internationally, the company planned 150 overseas openings in 1987. Japan, a major market, had 520 stores, Great Britain had 300, and South Africa had 160. KFC International, headed by Steven V. Fellingham, planned to concentrate on opening units in a handful of countries where its presence was limited. The People's Republic of China was the most notable new market secured in 1987; KFC was the first American fast-food chain to open there. 

Franchisee Problems with New Parent Company

Imperative to the success of Kentucky Fried Chicken was the establishment of successful relations with the numerous franchisees. Most of them lauded parent PepsiCo's international strength and food-service experience; KFC had its own inherent strength, however, according to franchisees, which the parent company would do well to handle with care. That strength was the sharing of decision-making.

In 1966, for instance, the Kentucky Fried Chicken Advertising Co-Op was established, giving franchisees ten votes and the company three when determining advertising budgets and campaigns. As a result of an antitrust suit with franchisees, in 1972 the corporation organized a National Franchisee Advisory Council. By 1976, the company worked with franchisees to improve upon contracts made when Brown and Massey took over. Some contracts even dated back to when Colonel Sanders had sealed them with a handshake. The National Purchasing Co-Op, formed in 1979, ensured franchisees a cut of intercompany equipment and supply sales. All of these councils had created a democratic organization that not only served the franchisees well, but helped keep operations running smoothly as Kentucky Fried Chicken was shifted from one corporate parent to another. As time passed, however, PepsiCo's corporate hand seemed to come down too heavily for franchisee comfort.

In July 1989, CEO and Chairman Richard Mayer resigned to return as president to General Foods USA. Mayer, who together with Mike Miles was credited for bringing Kentucky Fried Chicken out of the 1970s slump, departed as the company battled over contract rights with franchisees. John M. Cranor, an executive who had joined PepsiCo 12 years earlier, took over as CEO. Kyle Craig, formerly with Burger King, Steak & Ale, and Bennigan's, began in an advisory role, later stepping up to become president of KFC-USA.

Within months Cranor was meeting with franchisee leaders in Louisville to defend parent PepsiCo's contract renewal. Among the issues debated was PepsiCo's plan to revise the franchisee-renewal policy, which guaranteed operators the right to sell the business, and an automatic ten-year extension on existing contracts with reasonable upgrading required. It was in KFC's long-term interest to settle the dispute without litigation, Cranor believed--and with good reason. In August of 1989 franchisees had established a $3.6 million legal fund, averaging $1,000 per unit, to fight the battle in court if necessary. Cranor remained optimistic, relying on the history of positive relations with franchisees.

Despite contract battles and communication troubles, in the fall of 1990 Kentucky Fried Chicken called a one-day truce to celebrate in honor of Colonel Sanders's 100th birthday. Meanwhile, fast-food competitors with stricter organization were keeping up with changes in consumer demand and introducing new products at a dizzying rate. KFC, in contrast, had difficulty in creating new products linked to the cornerstone fried chicken concept, as well as in getting them out quickly through franchisee stores. Hot Wings, brought out in 1990, were KFC's only hit in a number of attempts, including broiled, oven-roasted, skinless, and sandwich-style chicken.

In late September 1990, Kentucky Fried Chicken increased its holding of company-owned stores by buying 209 U.S. units from Collins Foods International Inc.; Collins retained its interest in the Australian KFC market. The acquisition boosted Kentucky Fried Chicken's control of total operating units to 32 percent. The corporation also added Canada's Scott's Hospitality franchises to its fold, an increase of 182 units.

To update its down-home image and respond to growing concerns about the health risks associated with fried foods, in February 1991 Kentucky Fried Chicken changed its name to KFC. New packaging still sported the classic red-and-white stripes, but this time wider and on an angle, implying movement and rapid service. While the Colonel's image was retained, packaging was in modern graphics and bolder colors. New menu introductions were postponed, as KFC once again went back to the basics to tighten up store operations and modernize units. A new $20 million computer system not only controlled fryer cooking times, it linked front counters with the kitchen, drive-thru window, manager's office, and company headquarters. 

International Success in 1990s

Though KFC may have had problems competing in the domestic fast-food market, those same problems did not seem to trouble them in their international markets. In 1992 pretax profits were $92 million from international operations, as opposed to $86 million from the U.S. units. Also, in the five-year span from 1988 through 1992, sales and profits for the international business nearly doubled. In addition, franchise relations, always troublesome in the domestic business, ran smoothly in KFC's international markets. To continue capitalizing on their success abroad, KFC undertook an aggressive construction plan that called for an average of one non-U.S. unit to be built per day, with the expectation that by 1995 the number of international units would exceed those in the United States.

International sales, particularly in Asia, continued to bolster company profits. In 1993, sales and profits of KFC outlets in Asia were growing at 30 percent a year. Average per store sales in Asia were $1.2 million, significantly higher than in the United States, where per store sales stood at $750,000. In addition, profit margins in Asia were double those in the United States. KFC enjoyed many advantages in Asia: fast food's association with the West made it a status symbol; the restaurants were generally more hygienic than vendor stalls; and chicken was a familiar taste to Asian palates. The company saw great potential in the region and stepped up construction of new outlets there. It planned to open 1,000 restaurants between 1993 and 1998.

Non-traditional service, often stemming from successful innovations instituted in the company's international operations, was seen as a way for KFC to enter new markets. Delivery, drive-thru, carry-out, and supermarket kiosks were up and running. Other outlets in testing were mall and office-building snack shops, mobile trailer units, satellite units, and self-contained kiosks designed for universities, stadiums, airports, and amusement parks. To move toward the twenty-first century, executives believed KFC had to change its image. "We want to be the chicken store," Cranor stressed in a 1991 Nation's Restaurant News. Cranor's goal was total concept transformation, moving KFC to a more contemporary role.

New product introductions were part of the company's plan to keep up with competitors. Having allowed Boston Market to grab a significant portion of the chicken market, KFC tried to catch up with the introduction of Rotisserie Gold Chicken. The company's new CEO, David Novak, also decided to test Colonel's Kitchen, a clear imitation of the Boston Market format. To counter McDonald's and Burger King's "value meals," KFC brought out the "Mega-Meal dinner": an entire rotisserie chicken, chicken nuggets, mashed potatoes, macaroni, cole slaw, biscuits, and a chocolate chip cake for $14.99. In 1995, KFC expanded the idea to "Mega-Meal-For-One," and decided to test chicken pot pie and chicken salad.

These moves gave a small boost to KFC's image, which had grown somewhat out-of-date, and to its bottom line. However, problems with the franchisees continued, and PepsiCo was not seeing the return on its assets that it saw with its beverage and snack food divisions. PepsiCo was having similar problems with its other restaurant subsidiaries, Taco Bell and Pizza Hut, and decided the drain of capital expenditure was not worth it.

In 1996 the company prepared to rid itself of its restaurant division by drawing together Pizza Hut, Taco Bell, and KFC. All operations were now overseen by a single senior manager, and most back office operations, including payroll, data processing, and accounts payable, were combined. In January 1997 the company announced plans to spin off this restaurant division, creating an independent publicly traded company called Tricon Global Restaurants, Inc. The formal plan, approved by the PepsiCo board of directors in August 1997, stipulated that each PepsiCo shareholder would receive one share of Tricon stock for every ten shares of PepsiCo stock owned. The plan also required Tricon to pay a one-time distribution of $4.5 billion at the time of the spinoff. If approved by the Securities and Exchange Commission, the spinoff would take place on October 6, 1997.

PepsiCo CEO Roger Enrico explained the move: "Our goal in taking these steps is to dramatically sharpen PepsiCo's focus. Our restaurant business has tremendous financial strength and a very bright future. However, given the distinctly different dynamics of restaurants and packaged goods, we believe all our businesses can better flourish with two separate and distinct managements and corporate structures." KFC and its franchisees did settle their contract disputes; according to a press release, "the crux of the agreement revolves around KFC franchisees receiving permanent territorial protection. In turn, KFC Corporation will have more direct influence over certain national advertising and public relations activities." Still KFC faced the need to rennovate its restaurant buildings, and also faced stiff competition from Boston Market, Burger King, and McDonald's, so it remained to be seen if the new parent company would refresh KFC's image and profits.

7 Fastest Cars in World History

7. The Jaguar XJ220

This car was produced between 1992 and 1994 and achieved the fastest speed for a production car in 1993 when it managed to reach a speed of 213 mph (343 km/h). The car was officially produced by Jaguar Sport, which was a partnership of Jaguar and Tom Walkinshaw Racing.


6. McLaren F1 production car

Driven by Jonathan Palmer the McLaren F1 production car achieved the crown of fastest production car in 1994. There were only 107 McLaren F1’s produced and it remains till this day the fastest naturally aspirated, depending only on atmospheric pressure, production car available. The McLaren F1 set a speed of 231 mph (371.8 km/h) in 1994 to become the world’s fastest production car but surpassed this record in 1998 with a speed of 240 mph (391 km/h).
 

5. The Koenigsegg CCR


This automobile was the fastest production car around for less than 2 month’s when it achieved a speed of 240.7 mph (387.37 km/h) in late February of 2005. Appearing at the Geneva Auto Show in 2004 the Swedish designed car was soon knocked off the top spot by our next car the Bugatti Veyron.

4. Bugatti Veyron



With 1,001 hp and a 16 cylinder 8 litre quad-turbocharged engine the Bugatti Veyron became the world’s fastest production car in April 2005, less than two months after the Koenigsegg CCR had achieved the title. Setting a speed of 253.8 mph (408.5 km/h) the Bugatti Beyron, developed by Volkswagen, was produced in a small production run of just 200 cars.


3. SSC Ultimate Aero

 


2. The Bugatti Veyron Super Sport


This car has more horse power than the original Veyron, 1,200 hp compared to 1,001 hp for the Veyron. The car has been officially recorded at a speed of 267.81 mph (431.1 km/h) in June 2010 and 30 cars are scheduled for production. Customers who purchase the Bugatti Veyron Super Sport however will be limited to a measly 257.9 mph (415.05 km/h)!


1. Dagger GT



Set to become the world’s fastest ever production car, the new Dagger GT from TranStar is soon to be built. And when it is, it will make people squeal in delight. The car, which will be in production in the early part of 2011, is said to be able to reach speeds in excess of 300 mph (482.8 km/h) and will cost in the region of £300,000 ($454,000), which is about $350,000 more than the most expensive Tesla, just to present you with a comparison. So, if you plan on buying the Dagger, make sure you bring your fat wallet. Oh, and if you if ever want to see the Dagger in person, go travel to a trade show where it is often displayed. Chances are, there’s a fancy banner stand accompanying the car as well.