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What’s in a Name? Franchising of McDonald’s

For the world’s largest food franchise, their name means just about everything

By Sheila F. Camingue

Franchising is a business model that brings many benefits to both the franchise giver and the franchise holder.

For global brands, franchising makes it easier to penetrate and adapt to local markets. While it would take time for an “outsider” to figure out local conditions, a local franchise holder would already be familiar with the local setup, facilitating the establishment of local operations.

For the franchise holder, the right to bear the established name and carry the products and services of the global—or local—brand brings instant popularity in the local market, depending on the reputation of the brand.

Among foreign brands, McDonald’s, the American fast-food giant, has been one of the most successful in using franchising to penetrate the Philippine market.

25 Years and Counting

McDonald’s Philippines roots can be traced back to 1981, when McDonald’s International named McGeorge Food Industries, owned by George T. Yang, as McDonald’s main franchise holder in the Philippines.

That same year, Yang opened the first McDonald’s store in Morayta, Manila, to cater to students in the university belt. Soon after, a second one went up in the prime commercial district of Cubao, beside the then-highly popular New Frontier Theater. Today, there are 250 stores nationwide and the figure is still rising.

Initially, McGeorge Food Industries handled the operation and franchising of McDonald’s restaurants, while Golden Arches Development Corporation, also owned by Yang, bought, leased, and managed the properties that housed the restaurants. Then in November 2002, McGeorge and Golden Arches were merged, with the latter as the surviving entity and Yang staying on as chairman and president. The merger was undertaken to pave the way for the entry of a subsidiary of the American mother company McDonald’s Corp. that bought into Golden Arches.

In 2005, however, McDonald’s Philippines again became 100% Filipino-owned after another company of George Yang, Alliance Global Group Inc., acquired the 49% stake of the McDonald’s Corp. subsidiary in Golden Arches.

With this latest development, Yang said they have been able to better respond to local consumers’ changing tastes and wants. His son, Kenneth, now president and managing director of Golden Arches, is also very optimistic about McDonald’s Philippines’ prospects now that it is again a wholly owned local company. “We feel there are lots of opportunities in the local market. We now have more freedom to chart our own expansion and local business strategies,” says Kenneth.

Now on their 25th year, Kenneth reveals that they have been aggressively inviting more entrepreneurs to buy a McDonald’s franchise. “We are inviting entrepreneurs to join us because the benefits are there. Franchising is a proven business model,” he points out. “McDonald’s has been through the test of time.” Instead of starting a new business from scratch, a McDonald’s franchise comes with a set of systems and processes, all laid out and ready for implementation. And above all, your business will be carrying the McDonald’s name.

Formula for Success

McDonald’s is the world’s largest fast-food chain. From the opening of the first restaurant in 1955, there are now 31,000 McDonald’s branches in more than 119 countries.

In the Philippines, Kenneth says the strong showing of McDonald’s has been aided a lot by the mother company’s comprehensive support, from operations and training to marketing, design, building restaurants, and use of technology and equipment. However, Kenneth believes that the Philippine franchise’s success also became possible because the head office has allowed them the flexibility to adapt to and address certain local market conditions and needs.

Suppliers play an important role in McDonald’s operations. Rigid inspection procedures are always imposed on the suppliers upon the delivery of products to ascertain the food’s freshness and quality. For the suppliers, striving to meet McDonald’s high standards is well worth it. Kenneth proudly points out that their suppliers have grown along with them. “They were small companies once, then we helped them develop to become big companies,” he says.

The distribution center, the “DC,” as insiders call it also plays a crucial role in ensuring that McDonald’s is supplied only the best products for delivery to branches. The DC is responsible for storing supplies in state-of-the-art storage equipment. Through technology enhancements, the company’s operations have greatly improved.

More than technology and stringent quality control, however, Kenneth is proud of their local management team. “The company is run by a team of dedicated Filipinos. I have a very competent and committed local team and I’m proud of them,” he states. McDonald’s Philippines employs an estimated 15,000 people, and counting suppliers and peripheral business people, the number goes up to 20,000.

A Word of Advice

In choosing what brand to franchise, Kenneth cautions entrepreneurs and investors to first do a thorough background check on the franchise. Its commitment to support its franchise holders will play a crucial role in making or breaking the outcome of its franchisees’ investments. After all, after attracting consumers on the strength of a franchise’s name, a franchisee’s real challenge is to sustain the patronage of consumers by making sure that their expectations and the standards they associate with the brand are met. This promise can only be delivered by striking a partnership with and getting the support of legitimate and established entities that will go the extra mile to protect their brand.

Surely, if there is one franchise that will go that extra mile, that would be McDonald’s.