Why 'There's Nothing Like McDonald's'

People are still confused about this concept of innovation (TDK dictionary definition of innovation).

Many people confuse innovation with R&D and think it is the work of engineers.

However, innovation does not come from engineering and science, but from social sciences.

Because innovation is about understanding people as customers and their needs.

Don't believe me? 

Then let me tell you about a food innovation that completely changed people's eating habits.

The hamburger came to America in the 1800s via German immigrants (whatscookingamerica.net).

Therefore, hamburgers were being consumed in America even before brothers Richard and Maurice McDonald opened their own restaurant in 1938. Moreover, the McDonald brothers defined themselves as barbecue (grill or barbecue) restaurants between 1940 and 1948.

But at that time, grill restaurants in America were generally located in city centers. They have music and cigarette boxes. In fact, because of the game consoles, young people hang out in these restaurants and fights over waitresses break out all the time. That's why families with children usually stay away from these places.

On the other hand, the service is very slow. Since the number of customers served is not enough, the prices are very expensive because of the costs.

Especially hamburger cooks, who are known for the taste of their hands, work for high wages.

But for some reason, an apple falls on the head of one of the McDonald brothers.

Inspired by Henry Ford's automobile assembly line, they developed a system for their restaurant that had not existed until then and called it "Speedee Service" (https://www.history.com).

They serve hamburgers on paper plates and drinks in paper cups to save time from washing plates and cups first.

They reorganize the cooking and serving of the hamburger. Any person can make hamburgers even when they first start working.

They are narrowing their product range. Instead of waitresses, they have introduced the practice of selal (TDK dictionary definition of self-service), which is based on the logic that everyone buys for themselves. 

As the number of customers served rises, each customer's share of overhead costs, and therefore prices, fall relative to those of competitors. This gives our heroes a huge competitive advantage.

In the early 1950s, for example, the McDonald brothers doubled their profits as the restaurant's annual revenue rose to $350,000 (https://www.history.com).

Between 1953 and 1960, they further develop the system and turn it into a drive-in restaurant service.

During this period, in 1954, we meet Roy Croc, who transformed McDonald's restaurants into what they are today. He was selling milkshake machines at the time. 

When he saw the system, he was shot in the heart. He buys the nationwide rights from the McDonalds brothers, who until then had granted a handful of companies (franchises) in California and Arizona the privilege of using their business system and name. 

He opens his first McDonald's restaurant in Des Plaines, Illinois, in 1955, begging and selling franchises to friends and acquaintances. Then, as the McDonald's system grows, he gets into big trouble when his close friends don't follow the rules.

At that time, the system of giving the privilege of using one's own business system and name to another company (franchising) already existed in the US. However, usually the parent companies (franchisors) make the franchise restaurants unviable with expensive equipment and training in addition to the franchise right.

Roy Croc, however, sees the issue from a different perspective. He thinks that if franchise restaurants win and grow, we will grow and win. He sets clear standards for franchise restaurants. He conducts audits and puts all his efforts into the formation of a system and culture. It provides advertising, training and bulk purchasing support to franchise restaurants.

It never allows cheap additives that would reduce quality. On the other hand, it encourages all franchise restaurants to introduce new products. Pre-processing, which is now almost standard in many packaged meat and vegetable products, originated from such a logic. 

One franchisee notices that his potatoes are not crispy enough compared to his competitors' potatoes. He makes hundreds of trials. Finally, in bencmarking, he found that a small restaurant had pre-fried the potatoes and that the re-fried potatoes were easily cooked and crispier. This dealer then sells potatoes to all dealers. Roy Croc sees no problem with this, because ultimately the parent company gets its share from the franchised restaurants.

In the meantime, he is also doing customer innovation. He realizes that restaurants are not suitable, especially in industrial areas. McDonald's restaurants are shifted to the suburbs (TDK dictionary definition suburbs) where families live.

Its latest innovation is in the McDonald's business model.It was realized that the McDonald's restaurants operated by the company under franchise agreements generate great service quality and profits. And if the franchise company cannot operate the restaurant, the contract is immediately canceled and the franchise right is given to someone else.Thus, a business model that no one has used until then emerges. The parent company buys the premises of McDonald's restaurants, decorates them and makes them ready for operation, then transfers them to someone else to operate.As of the end of 2018, McDonald's operated 37,855 restaurants worldwide with more than 210,000 employees. Of these, 35,085 are franchised and 2,770 are owned.

The parent company also owns all the land on which its restaurants are located, valued at an estimated $16 to $18 billion. The company generates a significant portion of its revenue from rental payments from franchisees. These lease payments increased by 26% between 2010 and 2015, accounting for one-fifth of the company's total revenue at the end of the period (https://en.wikipedia.org/wiki/History_of_McDonald%27s).

Reference: John F. Love (1989) The Legend of the Golden Arch: How McDonald's Hamburger Empire Succeeded.İlgi Publishing House