McDonald’s and Its Critics:
1973–2009
As the McDonald’s Corporation entered the 21st
century, its corporate practices had become more
vulnerable than ever before. A large variety of
public interest groups made McDonald’s the target of their attacks. McDonald’s critics contended
that the world’s largest fast-food company paid its
employees low wages, hired part-time workers—
often teenagers—to avoid paying overtime premiums, and enforced an aggressive antiunion policy
throughout its fast-food empire. More damaging
to McDonald’s reputation were charges made by
consumer advocates, health of cials, and educators
that McDonald’s exploited children, cultivating in
them a taste for fat at an early age and thereby contributing to child obesity. Similarly, public interest
groups accused McDonald’s of selling unhealthy,
fatty foods to grownups, hence being responsible,
at least in part, for the increasing rates of adult
obesity. Among McDonald’s critics, perhaps the
most in uential was Eric Schlosser, author of the
2001 Fast Food Nation: The Dark Side of the AllAmerican Meal, a longstanding best-seller read by
millions worldwide and turned into a major motion
picture. In 1999, at the meeting of the World Trade
Organization (WTO), anti-globalization protesters
attacked McDonald’s outlets in Seattle. In 2002,
French protesters lead by Jose Bove, a sheep farmer,
demolished a McDonald’s restaurant under construction in France, and subsequently, Bove gained
worldwide fame and, a jail sentence. Between 1997
and 2000, several fast-food outlets around the world
were damaged by bombs, among them McDonald’s
restaurants in St. Petersburg; Athens; Rio de Janeiro;
Antwerp; London; and Cali, Columbia.1
These attacks played a considerable role in the
company’s nancial results. In 1998, McDonald’s
announced its rst job cut since it had gone public
in 1965, and for the rst time, the company recorded
a decline in net income. Despite several initiatives
promoted by the company’s CEO, Jack Greenberg,
business failed to improve, and McDonald’s performance continued to deteriorate. In 2002, McDonald’s
closed nearly 200 underperforming units, and at the
end of the year, the fast-food giant posted the rst
quarterly loss in its history. McDonald’s nancial crisis,
in turn, forced Greenberg to resign, and the company
appointed a new CEO at the beginning of 2003.2
Would McDonald’s
Recover?
To assess the ways in which the company responded
to the crisis of 1998–2003, this case looks back historically at McDonald’s and its critics, exploring the
evolution of the company over time. The case begins
with the company’s foundations laid out by its
founder Ray Kroc and moves on to the food consolidation of the food service network under Fred
Turner’s direction (1973–1987). The case proceeds
with McDonald’s global expansion under Michael
Quinlan’s leadership (1987–1998), pays close attention to the growing public criticism of the company,
This was case was prepared by Isaac Cohen, San Jose State University.
This case was presented in the June 2009 Meeting of the World Association of Case Method Research and Application at Vancouver,
Canada. Copyright © Isaac Cohen. I am grateful for the San Jose State University College of Business for its support.
C53
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Section A: Business Level Cases: Domestic and Global
and examines Jack Greenberg’s (1998–2003) attempts
to address the issues raised by McDonald’s critics.
Following a brief account of Greenberg’s failed leadership, the case moves on to the present, showing
how, under Jim Skinner’s stewardship (2004–present),
McDonald’s managed to answer its critics, launch successful reforms, and come back strongly as a highly
pro table, globally-competitive growth company.
Foundations: R ay Kroc,
1955–1973
The McDonald brothers, Richard and Maurice (Dick
and Mac), had operated a carhop drive-in restaurant
in San Bernardino, California, since the 1930s. By
the early 1950s, the brothers had replaced the carhop service with self-service, simpli ed the menu to
offer just hamburgers, cheeseburgers, French fries,
milkshakes, soft drinks, and apple pie; and ran the
restaurant like an assembly-line operation.3 “[T]he
brothers’ concept of a limited menu allowed them
to break down food preparation into simple, repetitive tasks that could be learned quickly, even by
those stepping into the commercial kitchen for the
rst time,” McDonald’s historian John Love wrote
in 1986. “Typically, there were three ‘grill men,’ who
did nothing but grill hamburgers, two ‘shake men,’
who did nothing but make milkshakes, two ‘fries
men,’ who specialized in making French fries, two
‘dressers,’ who dressed and wrapped the hamburgers, and three ‘countermen’ who did nothing but ll
orders at the two customer windows.”4 The resulting
labor cost savings, combined with the increased volume of sales, allowed the McDonald brothers to cut
the price of a hamburger from 30 to 15 cents.
Such was the mode at operation of the San
Bernardino restaurant in 1954, when Ray Kroc, a
salesman who supplied the McDonald brothers with
multimixer milkshake machines, decided to travel to
California and observe the brothers at work.
Inspecting carefully the brothers’ operation, Kroc
realized that the McDonalds’ formula of self-service,
paper service, and quick service was something radically different from anything hitherto known in the
food service industry. He believed the formula was
a ticket to business success, and bought from the
brothers the rights to set up McDonald’s restaurant
franchises across the country. Kroc opened his rst
McDonald’s restaurant in Des Plaines, Illinois, near
Chicago in 1955, incorporating his company as
the McDonald’s Corporation. Under Kroc’s ownership, McDonald’s grew rapidly—growing from 14
to 38 restaurants in 1958 alone, to 100 in 1959, and
1,000 by 1968. In 1962, McDonald’s introduced
the world-famous Golden Arches logo (“now more
widely recognized than the Christian cross,” according to a 2001 study of McDonald’s), and in 1965,
the company went public. Twenty years later, in
1985, the McDonald’s Corporation joined the 30
companies that made up the Dow Jones Industrial
Average.5
Kroc’s sales background convinced him that the
key to successful franchising was uniformity. Uniformity was a revolutionary concept in the food service
industry in the 1950s; at the time, franchisers paid
little attention to training franchisees, setting quality standards, and supervising purchasing. In a stark
contrast to the prevailing practice, Kroc sought to
develop standards of operation, train licensees to
meet them, and monitor restaurants to make sure
franchisees followed the standards. From the outset,
the hallmark of Kroc’s franchise system was commitment to quality, service, and cleanliness (QSC).6
Although Kroc managed to obtain strict operating
uniformity among franchisees, his centralized system
did not sti e individual creativity. On the contrary,
franchisees were often innovators. The introduction
of the Big Mac menu item was a case in point.
The Big Mac was a double-decker hamburger that sold for more than twice the price of
a McDonald’s regular hamburger. It was developed, tested, and introduced by a franchisee from
the Pittsburgh, Pennsylvania area who ran about
12 local McDonald’s outlets. To compete successfully
with rival brands, the Pittsburgh franchisee asked
McDonald’s for permission to test a large sandwich he
called the “Big Mac.” Persuading the chain’s top management to broaden the menu was not easy; only after
several delays did the franchisee receive corporate permission to test the Big Mac hamburger. The permission
was restricted to a single restaurant. Once introduced,
the Big Mac increased the restaurant’s sales by 10%
to 12% in a few months. This success soon attracted
the attention of McDonald’s corporate management.
Following repeated visits to the Pittsburgh area restaurants, McDonald’s corporate managers tested the
Big Mac item in other markets, scoring a 10% gain
Case 4 McDonald’s and Its Critics, 1973–2009
in sales. McDonald’s Corporation nally put the new
item into nationwide distribution in 1968, and within
less than a year, the Big Mac accounted for nearly
20% of all McDonald’s sales. Over time, the Big Mac
became its most recognizable item.7
Consolidation:
Fred Turner, 1973–1987
A year after opening McDonald’s rst restaurant in
Illinois, Ray Kroc hired Fred Turner, a 23-year-old
college dropout, to manage one of his restaurants.
An ambitious fast learner who paid close attention
to details, Turner mastered the task of overseeing restaurant operations at a remarkable speed. In 1957,
Kroc asked Turner to train new franchisees and
develop standard operating procedures for all franchised restaurants. Leading McDonald’s operation
division during the late 1950s and 1960s, Turner laid
the foundation for a successful franchise system that
has lasted well into the 21st century.
Management Science
From the outset, Turner attempted to turn the task of
running a restaurant from an art to a science. Shortly
after joining McDonald’s, Turner drafted a 15-page
training manual that was expanded to 75 pages two
years later and 360 pages by 1974. Turner’s training manual converted the systematic knowledge the
McDonald’s corporation gained from operating its
franchises into a “management science.”8
In part, the manual was a time-and-motion
study that de ned operating techniques in minute
details. It instructed operators how to grill hamburgers, fry potatoes, and prepare milkshakes.
It speci ed cooking times for all food items, the
precise temperature setting for all cooking equipment, and the standard portions of all products.
It established quality control measures unknown
in the food service industry at the time (for example, meat and potatoes items held in a serving bin
for over 10 minutes needed to be discarded). And
describing food service as an assembly-line operation, the manual told franchisees how to staff each
“station,” and the optimal number of crew members needed for each shift of operation.
C55
Turner’s manual, in addition, showed operators
how to prepare work schedules, nancial reports,
and sales projections. To calculate operating costs,
franchisees were told to break down expenses for
labor, food, and nonfood supplies. To better plan
future purchasing, the manual instructed operators
to break down sales by food items. Such information helped franchisees track down inventories,
control costs, detect quality problems, and forecast
demand.9
Training
McDonald’s operations manual was the main text
used in classes taught at the “Hamburger University” (HU), a training center set up under Turner’s
supervision. Conferring a degree in “Hamburgerology,” the university expanded from a one-classroom
school in 1961 to a $500,000 facility in 1968 and
a $40 million campus in 1983. In 1973, the year
Turner succeeded Kroc as McDonald’s CEO, HU
turned out 150 graduates each month, offering
several classes simultaneously. Altogether, about
7,000 trainees graduated from the university between
1961 and 1973. Classes were taught in three areas:
food, equipment, and management techniques.
Course titles included “Buns,” “Shortening,” “Hot
Apple Pie,” “Basic Refrigeration,” “Frozen Products
Care,” “Management Decision Skills,” and “Competition.” By 1983, the university employed 30 faculty members and had an overall capacity to train
750 students in seven auditorium classrooms. It was
the only school in the fast-food industry accredited
by the American Council of Education.10
Supervising Franchisees
Beginning in 1957, Kroc asked Turner to visit franchisees and evaluate the performance of their restaurants. Early on, Turner drafted a seven-page “ eld
service report,” and soon thereafter, he developed a
more detailed report that evaluated franchisees’ performance in four areas—service, quality, cleanliness,
and overall performance—and assigned them a summary grade (A, B, C, D, or F). The McDonald’s Corporation, in turn, created a new position of “Field
Consultant,” and by the mid-1960s, it employed
several full-time consultants, whose specialty was
visiting stores and inspecting their compliance with
McDonald’s operating standards. The eld service
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Section A: Business Level Cases: Domestic and Global
report played a key role in the decision to grant
or deny existing franchisees permission to operate
additional restaurants. Under Turner’s leadership,
furthermore, the consultant position had become
a prerequisite for promotion; managers wishing to
climb up the corporate ladder were required to have
experience working as eld consultants.
Over time, the McDonald’s Corporation invested
heavily in expanding its eld service operation. By
1992, McDonald’s spent $27 million to employ more
than 300 full-time eld consultants. Each consultant
was expected to visit and grade 21 restaurants several times a year. The grade a restaurant received
determined its “expandability” as well as its future
prospects; a B grade was now necessary for getting a
license to operate additional stores.11
Management Style
When Turner became president in 1968, he began
decentralizing McDonald’s organizational structure.
He rst increased the number of regional of ces
from ve in 1967 to 12 in 1975 and then expanded
the authority of regional managers. Under Turner’s
revamped structure, decisions on both granting franchises and selecting new restaurants sites were made
by regional managers, not corporate of cers. In the
food service industry, Turner observed, “the closer
decision making is to the stores and the marketplace,
the better the decision that managers make,” and
accordingly, McDonald’s growth decisions in each
region were narrowly tailored to local conditions.
The result was rapid expansion. During Turner’s rst
ve years as president (1968–1973), annual sales per
restaurant almost doubled, and the total number of
McDonald’s outlets tripled.12
Advertising
One of McDonald’s most successful advertising
projects involved its corporate mascot “Ronald
McDonald.” The ad project was launched in the early
1960s when a team of company marketers created a
clown character named Ronald and featured it on local
TV. Soon becoming the national spokesperson for the
chain, Ronald McDonald had a magic touch with
children and gave the company an important advantage over its competitors in the children’s market.
By the mid-1960s, most of McDonald’s advertising
budget was spent on promoting Ronald McDonald
on national TV, and spending on its ads rose
precipitously. In 1967, McDonald’s national advertising budget totaled $5 million, in 1969 $15 million,
and by 1974 it had climbed to $60 million, placing
McDonald’s among the nation’s top 30 advertisers.
Under Turner’s direction, Ronald McDonald’s role
expanded beyond TV ads. In the mid-1970s, some
50 Ronald McDonald “greeting” and “performing”
clowns were employed by the corporation, and real
Ronald McDonald clowns attended birthday parties
held for children in restaurants. A variety of Ronald
items that included Ronald dolls, wristwatches, and
wall clocks were sold in the stores.13
McDonald’s appeal to children had remained
powerful long after Turner stepped down. In 1992,
McDonald’s delivered 40% of the fast-food sold
to children under seven, a gure widely exceeding its 33% total share in the fast-food market. A
1996 survey of American schoolchildren found that
fully 96% of all children could identify Ronald
McDonald; the only ctional character more recognizable to American children was Santa Claus. A
Ronald McDonald Web site operating since the late
1990s encouraged children to send Ronald an e-mail
listing their favorite menu items at the chain.14
McDonald’s Under Attack:
Franchisees’ Rights
During Turner’s tenure as president and CEO,
McDonald’s faced two major problems: one pertaining to franchisee relations and, the other to employee
relations.
From the start, not all franchisees were willing
to accept McDonald’s tight control over their store
operations. In the mid-1970s, a group of about
50 franchisees staged an open rebellion against
McDonald’s, establishing their own organization, the
McDonald’s Operators Association (MOA). The dissident group had two major complaints. First, franchisees resented McDonald’s prerogative to revoke
their initial franchise at the end of a 20-year contract. Second, franchisees complained about the loss
of sales at existing McDonald’s restaurants caused
by the opening of new McDonald’s outlets nearby.
To diffuse this threat of dissention, Turner
promptly embarked on reform. He established the
National Operators Advisory Board (NOAB), a representative body composed of two elected franchisees form each region, which dealt with policy issues
Case 4 McDonald’s and Its Critics, 1973–2009
C57
pertaining to McDonald’s relationships with its franchisees. In addition, Turner appointed an ombudsman who heard franchisees’ complaints and issued
advisory judgments.
Turner’s reform measures eroded the foundations
of the MOA. Losing members and sympathizers, the
dissent group of franchisees survived for just two
years, 1975–1977.15
who combined street smarts with boardroom skills,
Quinlan’s reputation for informality combined with
his hands-off management style helped him gain
popularity among McDonald’s employees. Leading the company through the late 1980s and 1990s,
Quinlan transformed McDonald’s into a global
empire, extending the chain’s reach to more than
100 national markets.17
McDonald’s Under Attack:
Union Rights
Customer Service
Turner was the architect of McDonald’s longstanding labor policy of keeping unions out. In the
late 1960s, he commissioned a study of McDonald’s
labor relations from a management consulting rm
in Chicago, nding out that the chain’s outlets were
all vulnerable to union organizing. Turner then
hired John Cooke, a labor management consultant
who was a former union organizer. Overseeing
McDonald’s labor relations in the late 1960s and
1970s, Cooke trained store managers to detect union
threats; he organized “ ying squads” of experienced
managers who quickly arrived at any restaurant
suspected of becoming a target for union organizing
and held “rap sessions” with the employees to defeat
the organizing drive. Altogether, Turner and Cooke
managed to turn back more than 400 organizing
drives at McDonald’s outlets.
Using ying squads, closing down restaurants
threatened by union organizing, and hiring antiunion labor lawyers were among the successful tactics used by McDonald’s to remain union free for the
next three decades. In 2006, McDonald’s operated
nearly 14,000 restaurants in the United States, none
of which were unionized.16
Expansion: Michael
Quinlan, 1987–1998
Michael Quinlan succeeded Fred Turner as President in 1982 and CEO in 1987. Quinlan began his
career in the McDonald’s mailroom in 1963 and
steadily worked his way up. A low-pro le, reserved
manager who, unlike his two predecessors, did not
seek the limelight, Quinlan was the rst McDonald’s
CEO to hold an MBA degree. A shrewd competitor
Launched by Quinlan early on, McDonald’s Service Enhancement Program was a customer-care
initiative. Implemented in every McDonald’s restaurant, the program sought to empower employees
at all levels to do “whatever it takes” to satisfy customers’ requests. To improve customer service, the
company conducted face-to-face orientation with
each crew member employed at any of the chain’s
outlets. Using consumer focus groups, employee “rap
sessions,” complaint tracking systems, and other service enhancement techniques, the program differentiated customer service at McDonald’s from service
at competing chains. McDonald’s employees were
encouraged to solve problems on the spot empowered to settle disputes with customers without calling
the manager, and rewarded for exemplary customer
care. Store managers, similarly, were instructed to
spend more time with customers, listening to their
concerns.18
Cost Cutting
Another initiative introduced by Quinlan was cost
cutting. Under Quinlan’s direction, McDonald’s
lowered its restaurants’ construction costs by three
means: (1) by redesigning restaurant buildings,
(2) by using more ef cient construction methods,
and (3) by substituting pricy materials with cheaper
alternatives. As a result, the average restaurant’s construction cost fell by 27% between 1990 and 1993.
Next, McDonald’s reduced the insurance costs of
United States restaurants by giving franchisees the
opportunity to choose among eight competing insurance companies rather than offering them a single
company-approved insurance program. The exibility of selecting an insurer through competitive bidding resulted in cost savings of about $50 million
annually across 9,300 United States outlets in the
mid-1990s (or $4,000 per restaurant).
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Section A: Business Level Cases: Domestic and Global
In addition, the company introduced its newly
designed “mini McDonald’s” in the early 1990s:
an outlet that occupied half the oor space of the
standard restaurant but was capable of handling an
equal volume of sales. Building a mini McDonald’s
was 30% cheaper than the construction costs of
“full-sized” restaurants; consequently, the breakeven
point of the smaller units was considerably lower than
that of the larger ones. Low-cost mini McDonald’s
made up 60% of all restaurant openings in 1992 and
80% in 1993.
Finally, in the early and mid-1990s, McDonald’s
expanded aggressively into small-size non-traditional
sites, thereby lowering its operating and construction costs in still another way. McDonald’s opened
restaurants in hospitals, military bases, gas stations,
shopping malls, recreation sites, sport stadiums, and
big box retail stores such as Walmart.19
International Expansion
McDonald’s international presence dates back to the
mid-1960s. Historically, McDonald’s entered most
foreign markets by means of joint ventures with local
partners. To ensure uniform standards, the
McDonald’s Corporation sought a greater degree
of control over foreign than domestic operations. In
most cases, McDonald’s formed partnerships with
local entrepreneurs acting as franchisees and owning 50% of the business. If successful, the foreign
entrepreneur might buy McDonald’s 50% share in
the business and become a full- edged franchisee.
During Quinlan’s rst ve years at the helm,
McDonald’s international sales nearly tripled from
$3 to $8.6 billion, and the share of its overseas
sales grew from 27% to nearly 40%. In 1992, one
in three McDonald’s outlets was located overseas,
McDonald’s operated in 65 countries, and its leading foreign markets were Japan (865 stores), Canada
(642 stores), and the UK (445 stores). By 1994, the
“Big Six” foreign markets—Japan, Canada, UK,
Australia, France, and Germany—accounted for
80% of McDonald’s foreign income.20
Two milestones in McDonald’s international
expansion were its entry into the Russian and
Chinese markets. Following some 20 years of negotiations with the Soviet authorities, McDonald’s
opened its rst restaurant in Moscow in 1990—its
largest single unit, employing a crew of 1,200 and
serving 50,000 customers a day. Two years later,
McDonald’s opened its rst restaurant in Beijing,
drawing some 40,000 customers a day. Working
closely with the Chinese government to establish a
web of suppliers who would deliver 95% of its products (beef, chicken, sh, potatoes, lettuce, and beverages), McDonald’s opened 100 additional outlets in
Beijing and other Chinese cities by 1996.21
During the late 1990s, the pace of international
expansion accelerated further. Between 1994 and
1998, McDonald’s opened 5,800 new restaurants
abroad, more than the total number added by its
ve largest competitors combined. In 1997,
85% of McDonald’s new restaurant openings took
place abroad, and McDonald’s replaced Coca Cola
as the world’s best-known brand. Altogether, during
Quinlan’s 10-year tenure, McDonald’s foreign sales
were growing at a rate of 18.2%; the corresponding gure for its domestic sales was 5.6%. “We are
light-years ahead of where we were ve years ago,”
Quinlan said in 1994, adding, “our international
potential is boundless.” With restaurants operating
in 109 countries in 1998, McDonald’s was serving
less than 1% of the world population, according to a
company spokesperson.22
McDonald’s in Crisis
While McDonald’s expanded rapidly into foreign
markets, domestic sales languished. First, a variety of
new products introduced by Quinlan in the 1990s—
vegetable burgers, pasta, fried chicken, fajitas, and
pizza—did not catch on and were later withdrawn
(McDonald’s last successful product launch was the
Chicken McNugget in 1983).23
Second, McDonald’s again faced a growing
revolt among some 300 embittered franchisees.
A San Diego-based group of franchisees called
“Consortium” claimed that many of the new restaurants opened recently by McDonald’s were cannibalizing the business of existing restaurants and
driving operators out of business. Under Quinlan’s
direction, McDonald’s embarked on a major United
States expansion just as domestic sales were slowing
down. “They built a whole bunch of new stores in
the wrong places,” the dissident group’s leader told
Business Week in 1998. During the 1990s, franchisees’ per store pro ts declined by 30%, and a 1997
survey among McDonald’s domestic operators
revealed that only 28% of the franchisees believed
McDonald’s was on the right track.24
Case 4 McDonald’s and Its Critics, 1973–2009
Third, McDonald’s was losing market share. A
1998 Harris poll showed that fast-food consumers preferred Wendy’s and Burger King’s offerings
over McDonald’s. Altogether, McDonald’s share in
the domestic fast-food market dropped from
18% to 16% between 1987 and 1998, and its pershare pro ts in the United States fell by 20% (or
40% after in ation) in the decade ending March
1998. During Quinlan’s last two years at the top
(March 1996 to March 1998), the company’s share
price inched up 3% while the Standard and Poor’s
stock index climbed 63%.25
Crisis: Jack Greenberg,
1998–2003
When Quinlan stepped down in May 1998,
McDonald’s board of directors selected Jack
Greenberg to lead the company. On the day the
board announced the new CEO, Greenberg called
each of McDonald’s 20 largest shareholders, including Warren Buffet, telling them “I’m a different person, I’ll have a different style.” Wall Street responded
enthusiastically; McDonald’s stock gained 4% on
the day of the announcement.26
Unlike Quinlan and Turner, Greenberg was the
rst senior manager at McDonald’s recruited from
outside the rm. A former partner in the accounting
rm of Arthur Young, he joined McDonald’s in 1982
as the company’s chief nancial of cer (CFO). Ambitious, he undertook training in operations and later
became a regional manager of hundreds of stores,
while still serving as CFO. After running McDonald’s
United States unit between 1996 and 1998, he was
named CEO.27
Widely described as an “agent of change,”
Greenberg launched a strategy aimed at “recasting
the image of McDonald’s from a stodgy consumer
products company to a dynamic global brand [in
the words of one industry analyst].” Impressed by
his initial efforts to reinvent McDonald’s, editors of
Restaurants and Institutions named Greenberg the
magazine’s 1999 Executive of the Year.28
Greenberg broke with tradition in three different
ways. First, he departed from Kroc’s decades-long
practice of relying almost exclusively on home-grown
talent and instead hired outside executives from
C59
other rms.29 Second, Greenberg did not conform
to Kroc’s model of offering a uniform, unchanging
menu of a few standardized items but rather changed
McDonald’s menu to an extent previously unknown.
And third, Greenberg sought growth through mergers, a policy violating Kroc’s unbroken rule of focusing on the McDonald’s brand—and the McDonald’s
brand only.
New Menu
The idea of expanding McDonald’s limited menu
dated back to the mid-1990s. When McDonald’s
marketers found out that customers preferred
Wendy’s and Burger King’s products, Quinlan sought
to improve the chain’s competitive position by offering a new menu. The new expanded menu was developed under Greenberg’s supervision at the time he
ran McDonald’s domestic operation. Once promoted
to CEO in 1998, Greenberg moved aggressively to
implement the new project.
The expanded menu required a new food preparation system based on the “just in time” principle of
product customization. To accommodate customers’
preferences, McDonald’s offered customers a variety
of new items—for example, chicken sandwiches—
made to order, a choice readily available in menus
offered by Burger King and Wendy’s. Dubbed “Made
for You,” the new food preparation system was
intended to improve the quality of the food served as
well as facilitate the development of additional food
innovations.
Greenberg implemented the “Made for You”
project at a remarkable speed. By the spring of 2000,
the new system was fully installed in the company’s
12,500 domestic restaurants. Yet the changeover
was not cheap. Installing the new kitchen cost about
$25,000 per restaurant, and many franchisees were
reluctant to cover the installation cost. To provide
franchisees with an incentive, McDonald’s paid up
to 50% of the unit’s installation cost.30
Acquisitions
Greenberg moved quickly toward the acquisition of
additional brands. He sought to broaden “the view of
the brand,” transforming McDonald’s single-line brand
into a multiple line of different brands. “[We are] selling hamburgers and chicken under the McDonald’s
brand, Pizza under the Donatos brand . . . and
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Section A: Business Level Cases: Domestic and Global
burritos under the Chipotle brand,” he told the
Foreign Policy journal in 2001, listing two of his recent
acquisitions.31
McDonald’s had never before taken control of
another food chain. In early 1998, as Quinlan was
getting ready to step down, McDonald’s made its
rst acquisition, purchasing a minority interest in
the Colorado-based Chipotle Mexican Grill chain.
Greenberg followed up with other acquisitions. In
1999, he bought Aroma Café, a London chain of
23 coffee and sandwich shops, and then purchased
the 150-unit Midwestern chain Donatos Pizza. A
year later, in 2000, Greenberg completed his largest
acquisition, buying Boston Market, a network of
some 850 restaurants specializing in serving homestyle meals (with rotisserie chicken as the chain’s
best selling item). Greenberg, in addition, bought a
33% stake in Pret A Manger, an upscale chain of
110 stores selling fresh sandwiches in the United
Kingdom. And, nally, he increased McDonald’s
controlling interest at Chipotle to more than 50%.32
The Attacks on McDonald’s
While Greenberg was busy purchasing regional
chains, a worldwide campaign against the fast-food
industry—launched by public interest groups, environmentalists, and consumer advocates—was in full
swing. A major event that galvanized the campaign
was the publication on 2001 of Eric Schlosser’s Fast
Food Nation. Translated into many languages, the
best-selling book focused, among other things, on
the recent increase in child obesity and placed the
responsibility for such a development on strategies
undertaken by global fast-food chains. It singled
out McDonald’s as the principal culprit, generating
unfavorable publicity and damaging McDonald’s
reputation. “Schlosser has done for the fast-food
industry what Upton Sinclair did nearly a century
ago [for] . . . the meatpacking industry in The
Jungle,” one writer reviewing the book commented.33
Another event generating negative publicity
directed at McDonald’s was the 2000 trial of Jose
Bove, a farmer and social activist. Leading a group of
protesters, Bove destroyed a half-built McDonald’s
outlet in Millau, France, published a French bestseller targeting McDonald’s “lousy food” (The World
Is Not for Sale—and Nor Am I!) and was brie y
imprisoned. Blaming McDonald’s for undermining traditional farming methods with agribusiness
practices, Bove became a hero in France and was
invited to meet France’s president as well as its prime
minister. French President Jacques Chirac expressed
his sympathy with Bove when he declared: “I am
in complete solidarity with France’s farm workers,
and I detest McDonald’s,” and French Prime Minister Lionel Jospin agreed: “I am personally not very
pro McDonald’s.” Similarly, in Britain, the Duke of
Edinburgh, Prince Philip commented: “[McDonald’s
is] destroying the rainforests of the world . . . cutting down trees to graze [its] cheap cattle to sell [its]
hamburgers.”34
Even more damaging to McDonald’s reputation was the so called “McLibel Trial.” The famous
libel trial was the focus of a long-standing and tenacious campaign launched by Greenpeace activists in
London against McDonald’s.
In 1986, several members of Greenpeace in London
distributed a six-page lea et accusing McDonald’s of
selling unhealthy food, exploiting children, mistreating
workers, destroying rain forests, and torturing animals. A series of slogans—“McDollars,” “McGreedy,”
“McCancer,” “McMurder,” “McPro ts,” and
“McGarbage”—sprinkled with the golden arches was
printed along the top edge of the lea et. The activist
group distributed the lea et for four years until the
McDonald’s Corporation decided to sue ve group
members for libel in 1990, claiming the entire content
of the lea et was false. Soon thereafter, three of the
accused settled, apologizing to McDonald’s. The two
remaining activists were determined to ght back in
court—and ght to the end.
The libel trial turned into a public spectacle. It produced 18,000 pages of transcript and
40,000 pages of documents and witness statements. It began in 1994 and ended in 1997 with an
800-page judgment. The judge found the two Greenpeace defendants guilty of libeling McDonald’s,
imposed a combined ne of 60,000 Sterling on both,
but ruled nonetheless that some allegations were true:
McDonald’s did indeed “exploit children” through
advertising, paid workers lower wages, and served
an unhealthy diet (increasing “the risk of cancer of
the bowel and of the breast to some extent”). These
allegations were widely publicized.35
Next, the two Greenpeace defendants appealed
the verdict to the UK’s Court of Appeal. In 1999,
one year into the Greenberg tenure, a three-justice
Court of Appeal heard the case, overturned parts
of the original verdict (supporting, for example, the
Case 4 McDonald’s and Its Critics, 1973–2009
allegation that eating food served by McDonald’s
may increase the risk of heart disease), and reduced
the ne to 40,000 Sterling. In the meantime, the activists’ campaign against McDonald’s intensi ed. The
McDonald’s corporation wanted the case to go away
and announced that it would no longer try to stop
Greenpeace members from distributing the lea et.
Still, the two Greenpeace defendants were not
done. They appealed the Court of Appeal’s ruling to
the British House of Lords. When the Lords refused
to hear the case, the defendants led an appeal with
the European Court of Human Rights. As of 2002—
Greenberg’s last year at McDonald’s—the appeal to
the European Court was still pending.36
Financial Results
Under Greenberg’s leadership, McDonald’s nancial
performance had remained lackluster. The introduction of the expanded menu failed to increase sales,
the new acquisitions produced disappointing results,
and the global attack on McDonald’s public image
turned customers away.
To begin with, the “Made for You” system was
too labor intensive and, as such, increased both
implementation costs and service times. A company
internal document obtained by Fortune magazine
in 2002 cited “alarming research” showing serious
problems with customer service. “Mystery shoppers”
hired by the company to visit restaurants found that
operators met their “speed-to-service” standards
only 46% of the time. It also cited complaints about
“rude service, slow service, unprofessional service,
and inaccurate service.” The Strategy Direction journal, similarly, reported in 2003 that in recent years
waiting time at McDonald’s restaurants doubled,
commenting: “[t]aking some of the ‘fast’ away from
fast food has not proven especially popular with
customers.” Additionally, surveys published in the
American Customer Survey Index showed that customer satisfaction at McDonald’s fell well below the
levels at Wendy’s and Burger Kings, its two direct
competitors.37
Nor did the regional chains bought by Greenberg
perform as expected. Underperforming, the newly
acquired chains were sold one after another during
the six-year period 2001–2006. In 2001, McDonald’s
sold off the Aroma Café chain, and in 2003, shortly
after Greenberg had stepped down, McDonald’s
announced that it would henceforth focus on its
C61
core hamburger business and sell off other ventures.
In 2003, McDonald’s sold Donatos Pizza back to
its founder and disposed of all Boston Market outlets outside the United States. In 2006, McDonald’s
sold off the Chipotle chain, and in 2007, it divested
itself completely of Boston Market, selling the chain
to a private equity for $250 million.38
The global criticism of McDonald’s hurt the
company’s nancial performance as well. In the
United States, the image of McDonald’s as a seller of
unhealthy, fatty food triggered an increasing number
of lawsuits led against the company by consumers
alleging that eating regularly at McDonald’s made
them overweight. Overseas, the “McLibel Trial”
turned into a public relations disaster as it gained
worldwide publicity—the Greenpeace lea et alone
was translated to 27 languages. One likely result
of the global attack on McDonald’s public image
was the company’s decision to pull out of several
countries, including Bolivia and two Middle Eastern
nations.39
The decline in McDonald’s performance under
Greenberg’s direction was evident across several key
nancial indices. During both 2000 and 2001, same
stores sales—sales at restaurants opened more than
a year—fell, and McDonald’s United States market
share was growing at a slower rate (2.2%) than that
of Burger King (2.7%) and Wendy’s (2.5%). In 2002,
McDonald’s stock price was trading at a seven-year
low, and during seven of the eight quarters ending summer 2002, McDonald’s earnings declined.
When McDonald’s disclosed its third-quarter results
in December 2002—showing no improvement—
Greenberg announced his resignation.40
Comeback: Jim Skinner,
2004 to Present
McDonald’s board elected James Cantalupo, a former
head of the company’s international operations, to
succeed Greenberg and added two other senior executives to a newly formed turnaround team: Charles
Bell and Jim Skinner. A year later, Cantalupo died of
a heart attack, and Bell, in turn, assumed the company’s leadership. Stepping down a few months later
to ght a battle against terminal cancer, Bell himself
was succeeded by Skinner in November 2004.41
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Section A: Business Level Cases: Domestic and Global
Unlike Greenberg, Skinner was a McDonald’s
insider, as were both Quinlan and Turner. The son
of a bricklayer, Skinner started his career at
McDonald’s ipping hamburgers at an Iowa restaurant in 1962. Never graduating from college, he
steadily made his way up the corporate ladder and
eventually took charge of McDonald’s European
operation. In 2003, McDonald’s board promoted
Skinner to vice chairman and a year later to CEO.42
Skinner was a congenial, low-pro le chief executive who ate daily at McDonald’s, stopping regularly at restaurants to mingle with employees, often
jumping in to help the kitchen crew at the back end
of the restaurant (“I don’t touch the cash register. I
don’t know anything about [it]”). “He’s very
down-to-earth, rooted and very approachable,” a
McDonald’s supplier described Skinner. “He’s
extremely witty and has a great way of putting
people at ease.” Popular with both subordinates and
peers, Skinner was a good listener and a skilled consensus builder; he routinely brought managers with
different viewpoints together, soliciting their advice
before undertaking important decisions.43
Working together with Cantalupo and Bell to
turn McDonald’s performance around, Skinner
helped forge a new strategic initiative called “Plan to
Win.” Implemented company-wide during Skinner’s
rst ve years at the helm (2004–2009), the plan
prescribed two principal goals: (1) the upgrading
of customer service to improve the nancial performance of existing restaurants (rather than open new
ones); and (2) the introduction of nutritional, healthful, and higher quality food choices coupled with the
promotion of a “balanced lifestyle.”
Improving Stores’ Operations
Under the leadership of both Quinlan and Greenberg,
McDonald’s expanded aggressively, building an
excessive number of new restaurants, many of
which were cutting into the pro ts of existing ones.
In addition, customer service at McDonald’s had
steadily deteriorated, reaching its lowest level during
Greenberg’s last two years in of ce.
Skinner’s “Plan to Win” was designed to address
both problems. First, McDonald’s expanded internally, investing in existing stores instead of adding
new locations. Most existing stores were redecorated, and thousands were completely remodeled. Aided by the company, franchisees replaced
crumbling plastic booths with large comfortable
chairs, installed soft lights in place of bright ones,
repainted the walls, and added Internet access.
Selected McDonald’s outlets went further, displaying wide-screen televisions, installing video games,
and placing stationary bicycles with video screens in
new play areas within the restaurants.44
To bring in new customers as well as attract old
ones, store hours were extended. Opening earlier
and closing late, restaurants could now serve both
early risers and late night diners. By 2009, fully
34% of McDonald’s stores in the United States were
open 24 hours.45
Another initiative undertaken by Skinner
was diversi cation into premium coffee drinks.
Competing head to head with the Starbucks Corporation, McDonald’s began installing coffee bars
(“McCafes”) with “baristas” preparing espressos,
cappuccinos, and lattes in its McDonald’s United
States restaurants. To begin with, McDonald’s marketing department conducted a large-scale study of
Starbucks’ customers. Interviewing and videotaping respondents talking about their coffee-drinking
experiences and offering them espresso drinks at
McDonald’s, the study found that a large number
of Starbucks’ customers were sitting “on the fence”
ready to experiment with McDonald’s choices of
espresso drinks—all of which were sold at a price
lower than Starbucks’. Encouraged by its ndings,
the McDonald’s Corporation implemented the
program promptly, and by 2007, 800 McDonald’s
United States restaurants were serving espresso
drinks. McDonald’s installed 5,700 additional
“McCafes” in its United States restaurants in 2008,
bringing the total to 6,500 out of some 14,000 outlets operating nationwide at the end of the year. In
the meantime, the Starbucks Corporation was struggling, closing down stores and laying off employees
for the rst time in its history.46
Answering Its Critics
Fast-food nutritional critics continued to target
McDonald’s long after Greenberg stepped down.
In 2004, as Skinner assumed the company’s leadership, a documentary lm entitled Super Size Me was
released and played in movie theaters around the
world. The lm depicted a man getting increasingly
sick as he consumed an all-McDonald’s diet and
nothing else for a whole month.47
Case 4 McDonald’s and Its Critics, 1973–2009
The renewed attack on McDonald’s required a
speedy response. Skinner, accordingly, discontinued
the chain’s Super Size menu and substituted healthier
food choices; in 2004, McDonald’s promoted fruit
and milk as substitutes for French fries and soda
drinks in kids’ meals and, for a limited period, added
a bottle of water and a pedometer to adults’ Happy
Meals. In addition, McDonald’s, offered customers
deli sandwiches, served on either a French or a rye
roll, a new line of premium salads, and apple slices.
Milk was no longer sold in large size cartons but in
small bottles.48
In 2005–2006, McDonald’s launched a Balanced Lifestyle (smart eating) and Fitness program
and refocused its marketing strategy on exercising.
In a typical ad released in 2006, Ronald McDonald
is featured as an “ambassador of balanced lifestyle”
and is depicted in a running position.49
McDonald’s promotion of healthier food
choices was not con ned to the United States but
extended to Europe. In Britain, in the mid-2000s,
McDonald’s reduced the salt added to French fries
and chicken nuggets by 25%–30% and in Ireland
by 50%. McDonald’s also provided consumers with
nutritional information, labeling all its products and
listing the products’ fat and salt contents on signposts placed in stores. In both the United States
and Europe, McDonald’s completely phased out
trans fats in 2008, using a newly developed blend of
canola, corn, and soybean oils to cook French fries,
hash browns, chicken, and sh lets.50
Still, the most far-reaching change in McDonald’s
food offerings under Skinner was the shift from beef
to chicken products. In 2009, McDonald’s menu
included four chicken choices: grilled chicken sandwich, Southern-style chicken sandwich, wrap chicken
sandwich, and chicken for breakfast. Between 2002
and 2009, chicken sales at McDonald’s doubled
while beef sales remained at, and by 2009, the
McDonald’s Corporation was purchasing annually
more chicken than beef worldwide.51
McDonald’s nutritional efforts did not go unnoticed by its critics. Kelly Brownell, director of the
Rudd Center of Food Policy and Obesity at Yale
C63
University, pointed out that McDonald’s was more
responsive to critics than its competitors. “As fastfood restaurants go, McDonald’s has been pretty
progressive,” Brownell told the New York Times in
2009. “If you look at the last ve years, McDonald’s
has introduced some better foods and resisted the
urge to offer bigger burgers.”52
Financial Results
Skinner’s turnaround efforts resulted in a resounding
success: during Skinner’s rst ve years at the helm,
McDonald’s posted its best nancial results ever.
When Skinner completed his rst year as
CEO, same-store sales in the United States rose by
nearly 10%, the largest increase in 30 years. During Skinner’s rst two years, McDonald’s market
value doubled, and during the deepening recession
of 2008, McDonald’s surprised analysts—month
after month—with stronger than expected results.
Throughout 2008—a year in which the stock market
lost more than a third of its value in the worst performance since the Great Depression—McDonald’s
stock gained 6%, and the McDonald’s Corporation
emerged as one of the only two companies (the other
being Walmart) listed in the Dow Jones Industrial
Average to post a stock price increase. In 2008,
McDonald’s global revenues rose by 5%, and its net
income tripled, producing a rate of return on sales of
18%. McDonald’s served 58 million customers a day
globally in January 2009, 8 million more than two
years earlier.53
Finally, under Skinner’s leadership, McDonald’s
planned further expansion in 2009. At that time
when an increasing number of restaurants, both
in the United States and Europe, were struggling
to remain in business, McDonald’s announced its
plan to open 650 additional outlets within a year
(2009), 240 of them in Europe, and to spent more
than $2 billion on this effort.54 Asked whether
McDonald’s was “recession proof,” Skinner replied:
“No, we are recession- resistant. I don’t know if we
are depression-resistant though.”55
Endnotes
1. Eric Schlosser, Fast Food Nation (New York: Harper,
2005), 244–246; “McDonald’s Corporation,” International Directory of Company Histories (New York:
St. James, 204), vol. 63, 285.
2. “McDonald’s,” International Directory of Company
Histories, 284–285, “McDonald’s,” Hoover’s Handbook
of American Business, 2008, 557.
C64
Section A: Business Level Cases: Domestic and Global
3. “McDonald’s,” International Directory of Company
Histories, 280.
4. John Love, McDonald’s: Behind the Arches, (New York:
Bantam books, 1986, 1995), 17–18.
5. “McDonald’s,” International Directory of Company
Histories, 280–281. The quotation is from Schlosser,
Fast Food Nation, 5.
6. Love, McDonald’s: Behind the Arches, 114–116.
7. Love, McDonald’s: Behind the Arches, 293–295.
8. Max Boas and Steve Chain, Big Mac: The Unauthorized
Story of McDonald’s (New York: New American Library,
1976), 72, Love, McDonald’s: Behind the Arches, 140.
9. Love, McDonald’s: Behind the Arches, 140–141.
10. Boas and Chain, Big Mac, Chapter 5; Love, McDonald’s:
Behind the Arches, 147–149.
11. Love, McDonald’s: Behind the Arches, 144–146.
12. Love, McDonald’s: Behind the Arches, 280–281, but see
also 385.
13. Boas and Chain, Big Mac, Chapter 7, but see also Love,
McDonald’s: Behind the Arches, 220–221.
14. Love, McDonald’s: Behind the Arches, 222; Schlosser,
Fast Food Nation, 4, 45, 294.
15. Boas and Chain, Big Mac, Chapter 9; Love, McDonald’s:
Behind the Arches, Chapter 16.
16. Love, McDonald’s: Behind the Arches, 394–395; Boas
and Chain, Big Mac, Chapter 10; Schlosser, Fast Food
Nation, 76–78.
17. “McDonald’s Names Quinlan as Chief, Succeeding Turner,” Wall Street Journal, October 21, 1986;
“McDonald’s,” International Directory of Company
Histories, 280–281.
18. Michel Quinlan, “How Does Service Drive the Service
Company?” Harvard Business Review, November–
December 1991, 146; Love, McDonald’s: Behind the
Arches, 459–460.
19. Love, McDonald’s: Behind the Arches, 461–462.
20. Love, McDonald’s: Behind the Arches, 416, 462–463.
21. Tony Royle, Working in McDonald’s in Europe, (London:
Routledge, 2000), 24–25; Love, McDonald’s: Behind the
Arches, 464–466.
22. J. P. Donlon, “Quinlan Fries Harder,” Chief Executive,
Jan/Feb. 1998, online ABI data base, 4. The quotation is
from Love, McDonald’s: Behind the Arches, 463.
23. “McDonald’s,” International Directory of Company
Histories, 280–281; David Leonhardt, “McDonald’s:
Can It Regain its Golden Touch?” Business Week,
March 9, 1998, online ABI data base, 70.
24. Business Week, March 9, 1998.
25. Business Week, March 9, 1998.
26. Patricia Sellers, “McDonald’s Starts Over,” Fortune,
June 22, 1998, online, ABI data base, 122.
27. Fortune, June 22, 1998.
28. The quotations, in order, are from Fortune June 22, 1998,
and Scott Hume, “Jack Greenberg’s New Populism,”
Restaurants and Institutions, July 1, 1999, online, ABI
data base, 109.
29. Dayan Machan, “Polishing the Golden Arches,” Forbes,
June 15, 1998, online, ABI data base, 42.
30. Amy Zuber, “Jack Greenberg: Bringing New Luster to
the Golden Arches,” Nation’s Restaurants News, January
2000, online, ABI data base, 90; Fortune June 2, 1998;
Restaurants and Institutions, July 1, 1999.
31. Moises Haim, “McAtlas Shrugged,” Foreign Policy May/
June 2001, online ABI data base, 124.
32. McDonald’s,” International Directory of Company Histories, 284; Nation’s Restaurants News, January 2000.
33. Reprinted in Eric Schlosser, Fast Food Nation under
“Praise for Fast Food Nation.”
34. Eric Schlosser, Fast Food Nation, 244. The quotation is
from Foreign Policy May/June 2001.
35. The quotations, in order, are from Eric Schlosser, Fast
Food Nation, 245–247, and John Vidal, McLibel: Burger
Culture on Trial (New York: New Press, 1997), 306.
36. Eric Schlosser, Fast Food Nation, 249.
37. David Stired, “Fast Food, Slow Service,” Fortune,
September 30, 2002, online ABI data base, 38; “Has
McDonald’s Lost Its Plot?” Strategic Direction, April
2003, online ABI data base, 14.
38. McDonald’s,” International Directory of Company
Histories, 284–285; McDonald’s Corporation, “History,” Hoovers.Com, retrieved May 27, 2008.
39. Eric Schlosser, Fast Food Nation, 249; McDonald’s,”
International Directory of Company Histories, 284–285.
40. McDonald’s,” International Directory of Company Histories, 284–285; Kate MacArthur, “McD’s Boss Blasts
Chain ‘Naysayers,’” Advertising Age, March 18, 2002,
online ABI data base, 11; Shirley Leung, “McDonald’s
Chief Plans to Leave,” Wall Street Journal, December 6,
2002.
41. Dale Buss, “McDonald’s Salad Days,” Chief Executive,
November 2005, online ABI data base, 16.
42. Carolyn Walkup, “2006 Golden Chain: Jim Skinner,”
Nation’s Restaurant News, October 16, 2006, online,
ABI data base, 88; Andrew Martin, “The Happiest
Meal,” New York Times, January 11, 2009; Lauren Foster and Jeremy Grant, “McDonald’s Woos Its ‘Burger
Flippers,’” Financial Times, April 15, 2005.
43. The quotations, in order, are from New York Times,
January 11, 2009, and Nation’s Restaurant News,
October 16, 2006.
44. Janet Adamy, “Boss Talk: How Jim Skinner Flipped
McDonald’s,” Wall Street Journal, January 5, 2007;
“McDonald’s Takes on a Weakened Starbucks,” Wall
Street Journal, January 7, 2008; New York Times,
January 11, 2009.
45. New York Times, January 11, 2009.
46. Wall Street Journal, January 7, 2008; New York Times,
January 11, 2009; Janet Adamy, “McDonald’s to
Expand, Posting Strong Results,” Wall Street Journal,
January 27, 2009.
47. Steven Gray and Janet Adamy, “McDonald’s Gets
Healthier,” Wall Street Journal, February 23, 2005.
Case 4 McDonald’s and Its Critics, 1973–2009
48. Amy Garber, “New McD Chief,” Nation’s Restaurant
News, December 13, 2004, online, ABI data base, 50;
Chief Executive, November 2005.
49. Janet Adamy and Richard Gibson, “McDonald’s Readies Strategy to De ect Critics’ Next Barrage,” Wall Street
Journal, April 12, 2006.
50. Joanne Bowery, “McDonald’s Gets Back to Basics,”
Marketing, October 25, 2006, online, ABI data base, 16;
Janet Adamy, “McDonald’s Loses Its Trans Fats,” Wall
Street Journal, May 23, 2008.
C65
51. New York Times, January 11, 2009.
52. Cited in the New York Times, January 11, 2009.
53. Chief Executive, November 2005; New York Times,
January 11, 2009; “McDonald’s Press Release October
22, 2008,” online, McDonalds.com; Wall Street Journal,
January 5, 2007 and January 27, 2009.
54. Wall Street Journal, January 27, 2009; Jonathan Brichall
and Jenny Wiggins, “McDonald’s Bucks Trend by Creating Jobs,” Financial Times, January 24, 2009.
55. Quoted in the New York Times, January 11, 2009.