Creating effective stakeholder relationships

McDonald's is one of the most well-known brands in the highly competitive quick service restaurant market and its franchising business model is a key factor in the company's success.

This Case Study looks at McDonald's NZ and its relationship with its stakeholders and looks at the impact the company has on its suppliers, customers, franchise holders and the economy as a whole.

As a result of reading this Case Study students should be able to:

• Understand the relationship between a business and its stakeholders
• Describe the business structure of franchising
• Discuss the benefits to a business of investing in training and career development for its employees

Introduction

McDonald's® is one of a handful of brands that people instantly recognise in almost every country of the world.

Stakeholders

Every business has stakeholders - individuals, organisations or groups that have an interest in the organisation and how it operates.

'Quality, Service & Cleanliness' (QSC)

Every business has stakeholders - individuals, organisations or groups that have an interest in the organisation and how it operates.

Investing in employees

Well-trained crew and managers are the first step to delivering great QSC for its customers.

Franchisees - 'A business partnership based on excellence'

Franchisees are crucial to McDonald's success; they deliver its brand promise straight to the customer.

Suppliers - 'Supporting New Zealand's products and services'

The McDonald's supply chain brings great benefits to the New Zealand economy.

Conclusion

McDonald's NZ is a successful player in the highly competitive quick-service restaurant market.

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Introduction

The company started in New Zealand in 1976 with the opening of the first restaurant in Porirua, which employed 50 staff. There are now over 150 McDonald's restaurants nationwide, employing over 6,000 New Zealanders.

Approximately 80 percent of McDonald's restaurants are owned by individual franchise holders (franchisees). These restaurants operate in a very competitive market that is seeing significant growth every year.

McDonald's Restaurants (NZ) Ltd is a New Zealand company and is not listed on the New Zealand Stock Exchange (NZX).

Stakeholders

Stakeholders for McDonald's NZ include:

• Customers
• Franchise holders (franchisees)
• Employees
• Suppliers
• Regulatory bodies (e.g. national and local regulatory bodies including health and safety groups)
• Community groups
• Shareholders.

In the rest of this Case Study, we will examine how McDonald's initiates and implements business practices based around its business plan while taking into account stakeholder needs and requirements.

'Quality, Service & Cleanliness' (QSC)

Successful businesses respond to the changing needs of their customers in order to maintain customer loyalty and sustain market growth. The way people eat and what they eat is changing - people are becoming more aware than ever of the importance of health and nutrition, the popularity of products such as coffee has soared and people's working hours are increasing. In order to keep up with these market drivers, McDonald's has evolved its menus and restaurants with offerings such as salads, fruit, deli-style rolls, the McCafe® concept and breakfasts. Responding to customer needs is part of McDonald's service principle.

Customers are also becoming more interested in having information about their food, its production methods, and the companies who supply it. McDonald's has responded to customer demand by making nutrition and other information easily available, ensuring customers can access information whenever they want. Direct communication with customers is extremely important to McDonald's - not only to launch new products or promotions, promote a balanced lifestyle or Ronald McDonald House Charities, but also to counter misinformation or urban myths surrounding the business. It is vital that McDonald's is able to counter these claims about the company and its products in ways that are accessible to every customer. Some of the methods McDonald's uses are:

• Television commercials
• Brochures, traymats and leaflets (available in-store or as a download from the McDonald's website - www.mcdonalds.co.nz)
• Magazine and newspaper advertisements
• Radio commercials
• Public relations
• Speaking opportunities
• Internal newsletters
• Country-specific websites.

Using a wide range of communication channels ensures the company is able to reach every demographic with the most appropriate medium.

Investing in employees

Employees work towards a number of qualifications following a clear training and development programme. This makes it easy to see exactly where they are and where they can go within McDonald's NZ.

The employees learn everything from food preparation to logistics and leadership skills - all of which can be credited towards New Zealand Qualifications Authority (NZQA) recognised professional qualifications.

Employees work through McDonald's Qualink programme, developed in partnership with the Hospitality Standards Institute. The programme is recognised with a NZQA-approved National Certificate.

In 2005, McDonald's won the Supreme Award at the Hospitality Standards Institute Excellence in Training awards.

Investing in employees leads to greater employee retention, which reduces recruitment costs, keeps cumulative knowledge in the company and ensures that there are always enough fully-trained employees to deliver McDonald's high level of service. The investment in training and development allows McDonald's staff to offer customers optimum service, increasing customer loyalty, and, ultimately, company profitability. The creation of clear career paths ensures that employees are less likely to look elsewhere for the next stage in their career as they can progress within McDonald's, often to management or franchisee level. This allows McDonald's to retain dedicated and talented staff members.

Franchisees - 'A business partnership based on excellence'

What does franchising mean? Franchising is a method of doing business. The franchisor (in this case McDonald's) allows the franchisee to trade under its licensed trademarks (e.g. using its logos and brand names) and to follow its proven methods of doing business in exchange for ongoing fees and/or a percentage of sales. There are benefits for both franchisor and franchisee, including:

• The franchisor can expand their business without using their own capital
• The franchisee owns their own business with the ongoing support of the franchisor
• The franchisor usually provides ongoing and in-depth training on how to run and develop the business
• The franchisee can operate with lower overheads than many new businesses as they are able to leverage the bulk purchasing opportunities available to them through the franchise network
• The franchisee has access to an established brand and comprehensive business system without the risk of starting up a business from scratch
• The franchisee will be more motivated to grow the business as they have their equity at risk
• Franchisees become local experts operating in their community.

How does a McDonald's franchise work? In New Zealand, the franchisee has a close relationship with McDonald's NZ and they operate their business in accordance with the agreed systems and conditions. McDonald's NZ selects the sites for the restaurants and either owns or leases the land and buildings. The franchisee then, in turn, leases the building from McDonald's by paying a percentage of sales. The franchisee also purchases the cooking equipment, furniture, Playland and signage to complete the fit out of the restaurant.

This shared investment and therefore shared risk ensures both the franchisor and franchisee continue to work together to achieve sustainable profitable growth.

With approximately 80 percent of New Zealand restaurants owned and operated by franchisees, McDonald's NZ takes great care in the recruitment, training and retention of its franchisees. The key to success for McDonald's is a consistent quality of product and service, and the only way this can happen is if each and every franchisee has a clear understanding of that business model.

The franchisee selection process is very thorough. Potential franchisees may be required to participate in a three-day restaurant review where McDonald's can clearly see the skills and strengths that the applicant possesses and the applicant can get a good understanding of the restaurant environment. If the applicant is successful, then they go on to participate in a nine to twelve month full-time training programme at their own cost. Ninety-five percent of this training is completed in a McDonald's restaurant. The franchisees are the face of the McDonald's brand and the company sets very high standards to ensure applicants will be able to deliver the consistency of product and service essential to the business model and expected by McDonald's customers.

Support for franchisees

Franchisees receive ongoing support and training from McDonald's NZ, including the appointment of a Business Consultant who is available to assist with all aspects of running a small business. Operations are audited on a regular basis to ensure standards are maintained, and management levels within McDonald's NZ are also on hand to help, including the Country Management Team - a group of senior managers of each business function.

McDonald's NZ promotes the brand at a national level, giving franchisees the benefit of marketing campaigns and materials. Franchisee interests are upheld by nominated representatives on a national executive board.

One a broader basis McDonald's Restaurants (NZ) Ltd is responsible for setting business strategy and leveraging initiatives and innovations from McDonald's worldwide. This includes menu development, IT, restaurant design and best practice.

Suppliers - 'Supporting New Zealand's products and services'

The economic benefits of McDonald's NZ stretch further than just the employment of 6,000 Kiwis. With over 85 per cent of its products purchased from New Zealand suppliers in 2006, McDonald's NZ contributes vast amounts of money to the New Zealand economy, thus supporting companies who themselves employ even more New Zealanders. These suppliers are often found in small town New Zealand and often form the backbone of the local economy.

The following table shows examples of New Zealand producers.

In addition to supporting the local economy, New Zealand producers also supply McDonald's in other countries, improving New Zealand's export market. In addition to the companies featured above, New Zealand beef is exported to the United States for use in its McDonald's patties. Not only does this mean more business for New Zealand beef farmers and processors but it also is a great opportunity to showcase New Zealand's beef to the United States. Suppliers to McDonald's NZ also export cheese processed in Eltham, fries from Timaru and fish from Nelson.

McDonald's NZ is also a large purchaser of services from different New Zealand businesses - from transport companies to their distribution centre. The Distribution Centre in Auckland is responsible for ordering, receiving, compiling and delivering the restaurants' needs throughout the country from Kaitaia to Invercargill.

These food, packaging and other service suppliers are required on an ongoing basis by McDonald's NZ and, as McDonald's continues to grow in New Zealand, the demand for these goods and services increases. There is also the demand for workers when a new McDonald's restaurant is first built. It is the carpenters; electricians; plumbers, etc., that are hired to carry out the work and, where possible, it is local timber and appliances that are purchased.

Conclusion