McDonald’s and Its Critics:

1973–2009

As the McDonald’s Corporation entered the 21st restaurants in St. Petersburg; Athens; Rio de Janeiro;
century, its corporate practices had become more Antwerp; London; and Cali, Columbia.1
vulnerable than ever before. A large variety of These attacks played a considerable role in the
public interest groups made McDonald’s the tar- company’s nancial results. In 1998, McDonald’s
get of their attacks. McDonald’s critics contended announced its rst job cut since it had gone public
that the world’s largest fast-food company paid its in 1965, and for the rst time, the company recorded
employees low wages, hired part-time workers— a decline in net income. Despite several initiatives
often teenagers—to avoid paying overtime premi- promoted by the company’s CEO, Jack Greenberg,
ums, and enforced an aggressive antiunion policy business failed to improve, and McDonald’s perfor-
throughout its fast-food empire. More damaging mance continued to deteriorate. In 2002, McDonald’s
to McDonald’s reputation were charges made by closed nearly 200 underperforming units, and at the
consumer advocates, health of cials, and educators end of the year, the fast-food giant posted the rst
that McDonald’s exploited children, cultivating in quarterly loss in its history. McDonald’s nancial crisis,
them a taste for fat at an early age and thereby con- in turn, forced Greenberg to resign, and the company
tributing to child obesity. Similarly, public interest appointed a new CEO at the beginning of 2003.2
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 Would McDonald’s
most in uential was Eric Schlosser, author of the Recover?
2001 Fast Food Nation: The Dark Side of the All-
American Meal, a longstanding best-seller read by To assess the ways in which the company responded
millions worldwide and turned into a major motion to the crisis of 1998–2003, this case looks back his-
picture. In 1999, at the meeting of the World Trade torically at McDonald’s and its critics, exploring the
Organization (WTO), anti-globalization protesters evolution of the company over time. The case begins
attacked McDonald’s outlets in Seattle. In 2002, with the company’s foundations laid out by its
French protesters lead by Jose Bove, a sheep farmer, founder Ray Kroc and moves on to the food con-
demolished a McDonald’s restaurant under con- solidation of the food service network under Fred
struction in France, and subsequently, Bove gained Turner’s direction (1973–1987). The case proceeds
worldwide fame and, a jail sentence. Between 1997 with McDonald’s global expansion under Michael
and 2000, several fast-food outlets around the world Quinlan’s leadership (1987–1998), pays close atten-
were damaged by bombs, among them McDonald’s tion 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
C54 Section A: Business Level Cases: Domestic and Global

and examines Jack Greenberg’s (1998–2003) attempts franchises across the country. Kroc opened his rst
to address the issues raised by McDonald’s critics. McDonald’s restaurant in Des Plaines, Illinois, near
Following a brief account of Greenberg’s failed lead- Chicago in 1955, incorporating his company as
ership, the case moves on to the present, showing the McDonald’s Corporation. Under Kroc’s owner-
how, under Jim Skinner’s stewardship (2004–present), ship, McDonald’s grew rapidly—growing from 14
McDonald’s managed to answer its critics, launch suc- to 38 restaurants in 1958 alone, to 100 in 1959, and
cessful reforms, and come back strongly as a highly 1,000 by 1968. In 1962, McDonald’s introduced
pro table, globally-competitive growth company. the world-famous Golden Arches logo (“now more
widely recognized than the Christian cross,” accord-
ing 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
Foundations: R ay Kroc, companies that made up the Dow Jones Industrial
1955–1973 Average.5
Kroc’s sales background convinced him that the
The McDonald brothers, Richard and Maurice (Dick key to successful franchising was uniformity. Unifor-
and Mac), had operated a carhop drive-in restaurant mity was a revolutionary concept in the food service
in San Bernardino, California, since the 1930s. By industry in the 1950s; at the time, franchisers paid
the early 1950s, the brothers had replaced the car- little attention to training franchisees, setting qual-
hop service with self-service, simpli ed the menu to ity standards, and supervising purchasing. In a stark
offer just hamburgers, cheeseburgers, French fries, contrast to the prevailing practice, Kroc sought to
milkshakes, soft drinks, and apple pie; and ran the develop standards of operation, train licensees to
restaurant like an assembly-line operation.3 “[T]he meet them, and monitor restaurants to make sure
brothers’ concept of a limited menu allowed them franchisees followed the standards. From the outset,
to break down food preparation into simple, repeti- the hallmark of Kroc’s franchise system was commit-
tive tasks that could be learned quickly, even by ment to quality, service, and cleanliness (QSC).6
those stepping into the commercial kitchen for the Although Kroc managed to obtain strict operating
rst time,” McDonald’s historian John Love wrote uniformity among franchisees, his centralized system
in 1986. “Typically, there were three ‘grill men,’ who did not sti e individual creativity. On the contrary,
did nothing but grill hamburgers, two ‘shake men,’ franchisees were often innovators. The introduction
who did nothing but make milkshakes, two ‘fries of the Big Mac menu item was a case in point.
men,’ who specialized in making French fries, two The Big Mac was a double-decker ham-
‘dressers,’ who dressed and wrapped the hamburg- burger that sold for more than twice the price of
ers, and three ‘countermen’ who did nothing but ll a McDonald’s regular hamburger. It was devel-
orders at the two customer windows.”4 The resulting oped, tested, and introduced by a franchisee from
labor cost savings, combined with the increased vol- the Pittsburgh, Pennsylvania area who ran about
ume of sales, allowed the McDonald brothers to cut 12 local McDonald’s outlets. To compete successfully
the price of a hamburger from 30 to 15 cents. with rival brands, the Pittsburgh franchisee asked
Such was the mode at operation of the San McDonald’s for permission to test a large sandwich he
Bernardino restaurant in 1954, when Ray Kroc, a called the “Big Mac.” Persuading the chain’s top man-
salesman who supplied the McDonald brothers with agement to broaden the menu was not easy; only after
multimixer milkshake machines, decided to travel to several delays did the franchisee receive corporate per-
California and observe the brothers at work. mission to test the Big Mac hamburger. The permission
Inspecting carefully the brothers’ operation, Kroc was restricted to a single restaurant. Once introduced,
realized that the McDonalds’ formula of self-service, the Big Mac increased the restaurant’s sales by 10%
paper service, and quick service was something radi- to 12% in a few months. This success soon attracted
cally different from anything hitherto known in the the attention of McDonald’s corporate management.
food service industry. He believed the formula was Following repeated visits to the Pittsburgh area res-
a ticket to business success, and bought from the taurants, McDonald’s corporate managers tested the
brothers the rights to set up McDonald’s restaurant Big Mac item in other markets, scoring a 10% gain
 Case 4 McDonald’s and Its Critics, 1973–2009 C55

in sales. McDonald’s Corporation nally put the new Turner’s manual, in addition, showed operators
item into nationwide distribution in 1968, and within how to prepare work schedules, nancial reports,
less than a year, the Big Mac accounted for nearly and sales projections. To calculate operating costs,
20% of all McDonald’s sales. Over time, the Big Mac franchisees were told to break down expenses for
became its most recognizable item.7 labor, food, and nonfood supplies. To better plan
future purchasing, the manual instructed operators
to break down sales by food items. Such informa-
tion helped franchisees track down inventories,
control costs, detect quality problems, and forecast
Consolidation: demand.9
Fred Turner, 1973–1987
Training
A year after opening McDonald’s rst restaurant in
Illinois, Ray Kroc hired Fred Turner, a 23-year-old McDonald’s operations manual was the main text
college dropout, to manage one of his restaurants. used in classes taught at the “Hamburger Univer-
An ambitious fast learner who paid close attention sity” (HU), a training center set up under Turner’s
to details, Turner mastered the task of overseeing res- supervision. Conferring a degree in “Hamburgerol-
taurant operations at a remarkable speed. In 1957, ogy,” the university expanded from a one-classroom
Kroc asked Turner to train new franchisees and school in 1961 to a $500,000 facility in 1968 and
develop standard operating procedures for all fran- a $40 million campus in 1983. In 1973, the year
chised restaurants. Leading McDonald’s operation Turner succeeded Kroc as McDonald’s CEO, HU
division during the late 1950s and 1960s, Turner laid turned out 150 graduates each month, offering
the foundation for a successful franchise system that several classes simultaneously. Altogether, about
has lasted well into the 21st century. 7,000 trainees graduated from the university between
1961 and 1973. Classes were taught in three areas:
food, equipment, and management techniques.
Management Science
Course titles included “Buns,” “Shortening,” “Hot
From the outset, Turner attempted to turn the task of Apple Pie,” “Basic Refrigeration,” “Frozen Products
running a restaurant from an art to a science. Shortly Care,” “Management Decision Skills,” and “Com-
after joining McDonald’s, Turner drafted a 15-page petition.” By 1983, the university employed 30 fac-
training manual that was expanded to 75 pages two ulty members and had an overall capacity to train
years later and 360 pages by 1974. Turner’s train- 750 students in seven auditorium classrooms. It was
ing manual converted the systematic knowledge the the only school in the fast-food industry accredited
McDonald’s corporation gained from operating its by the American Council of Education.10
franchises into a “management science.”8
In part, the manual was a time-and-motion
Supervising Franchisees
study that de ned operating techniques in minute
details. It instructed operators how to grill ham- Beginning in 1957, Kroc asked Turner to visit fran-
burgers, fry potatoes, and prepare milkshakes. chisees and evaluate the performance of their restau-
It speci ed cooking times for all food items, the rants. Early on, Turner drafted a seven-page “ eld
precise temperature setting for all cooking equip- service report,” and soon thereafter, he developed a
ment, and the standard portions of all products. more detailed report that evaluated franchisees’ per-
It established quality control measures unknown formance in four areas—service, quality, cleanliness,
in the food service industry at the time (for exam- and overall performance—and assigned them a sum-
ple, meat and potatoes items held in a serving bin mary grade (A, B, C, D, or F). The McDonald’s Cor-
for over 10 minutes needed to be discarded). And poration, in turn, created a new position of “Field
describing food service as an assembly-line opera- Consultant,” and by the mid-1960s, it employed
tion, the manual told franchisees how to staff each several full-time consultants, whose specialty was
“station,” and the optimal number of crew mem- visiting stores and inspecting their compliance with
bers needed for each shift of operation. McDonald’s operating standards. The eld service
C56 Section A: Business Level Cases: Domestic and Global

report played a key role in the decision to grant on national TV, and spending on its ads rose
or deny existing franchisees permission to operate precipitously. In 1967, McDonald’s national advertis-
additional restaurants. Under Turner’s leadership, ing budget totaled $5 million, in 1969 $15 million,
furthermore, the consultant position had become and by 1974 it had climbed to $60 million, placing
a prerequisite for promotion; managers wishing to McDonald’s among the nation’s top 30 advertisers.
climb up the corporate ladder were required to have Under Turner’s direction, Ronald McDonald’s role
experience working as eld consultants. expanded beyond TV ads. In the mid-1970s, some
Over time, the McDonald’s Corporation invested 50 Ronald McDonald “greeting” and “performing”
heavily in expanding its eld service operation. By clowns were employed by the corporation, and real
1992, McDonald’s spent $27 million to employ more Ronald McDonald clowns attended birthday parties
than 300 full-time eld consultants. Each consultant held for children in restaurants. A variety of Ronald
was expected to visit and grade 21 restaurants sev- items that included Ronald dolls, wristwatches, and
eral times a year. The grade a restaurant received wall clocks were sold in the stores.13
determined its “expandability” as well as its future McDonald’s appeal to children had remained
prospects; a B grade was now necessary for getting a powerful long after Turner stepped down. In 1992,
license to operate additional stores.11 McDonald’s delivered 40% of the fast-food sold
to children under seven, a gure widely exceed-
ing its 33% total share in the fast-food market. A
Management Style
1996 survey of American schoolchildren found that
When Turner became president in 1968, he began fully 96% of all children could identify Ronald
decentralizing McDonald’s organizational structure. McDonald; the only ctional character more rec-
He rst increased the number of regional of ces ognizable to American children was Santa Claus. A
from ve in 1967 to 12 in 1975 and then expanded Ronald McDonald Web site operating since the late
the authority of regional managers. Under Turner’s 1990s encouraged children to send Ronald an e-mail
revamped structure, decisions on both granting fran- listing their favorite menu items at the chain.14
chises and selecting new restaurants sites were made
by regional managers, not corporate of cers. In the
McDonald’s Under Attack:
food service industry, Turner observed, “the closer
Franchisees’ Rights
decision making is to the stores and the marketplace,
the better the decision that managers make,” and During Turner’s tenure as president and CEO,
accordingly, McDonald’s growth decisions in each McDonald’s faced two major problems: one pertain-
region were narrowly tailored to local conditions. ing to franchisee relations and, the other to employee
The result was rapid expansion. During Turner’s rst relations.
ve years as president (1968–1973), annual sales per From the start, not all franchisees were willing
restaurant almost doubled, and the total number of to accept McDonald’s tight control over their store
McDonald’s outlets tripled.12 operations. In the mid-1970s, a group of about
50 franchisees staged an open rebellion against
McDonald’s, establishing their own organization, the
Advertising
McDonald’s Operators Association (MOA). The dis-
One of McDonald’s most successful advertising sident group had two major complaints. First, fran-
projects involved its corporate mascot “Ronald chisees resented McDonald’s prerogative to revoke
McDonald.” The ad project was launched in the early their initial franchise at the end of a 20-year con-
1960s when a team of company marketers created a tract. Second, franchisees complained about the loss
clown character named Ronald and featured it on local of sales at existing McDonald’s restaurants caused
TV. Soon becoming the national spokesperson for the by the opening of new McDonald’s outlets nearby.
chain, Ronald McDonald had a magic touch with To diffuse this threat of dissention, Turner
children and gave the company an important advan- promptly embarked on reform. He established the
tage over its competitors in the children’s market. National Operators Advisory Board (NOAB), a rep-
By the mid-1960s, most of McDonald’s advertising resentative body composed of two elected franchi-
budget was spent on promoting Ronald McDonald sees 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 fran- who combined street smarts with boardroom skills,
chisees. In addition, Turner appointed an ombuds- Quinlan’s reputation for informality combined with
man who heard franchisees’ complaints and issued his hands-off management style helped him gain
advisory judgments. popularity among McDonald’s employees. Lead-
Turner’s reform measures eroded the foundations ing the company through the late 1980s and 1990s,
of the MOA. Losing members and sympathizers, the Quinlan transformed McDonald’s into a global
dissent group of franchisees survived for just two empire, extending the chain’s reach to more than
years, 1975–1977.15 100 national markets.17

McDonald’s Under Attack: Customer Service

Union Rights
Launched by Quinlan early on, McDonald’s Ser-
Turner was the architect of McDonald’s long- vice Enhancement Program was a customer-care
standing labor policy of keeping unions out. In the initiative. Implemented in every McDonald’s res-
late 1960s, he commissioned a study of McDonald’s taurant, the program sought to empower employees
labor relations from a management consulting rm at all levels to do “whatever it takes” to satisfy cus-
in Chicago, nding out that the chain’s outlets were tomers’ requests. To improve customer service, the
all vulnerable to union organizing. Turner then company conducted face-to-face orientation with
hired John Cooke, a labor management consultant each crew member employed at any of the chain’s
who was a former union organizer. Overseeing outlets. Using consumer focus groups, employee “rap
McDonald’s labor relations in the late 1960s and sessions,” complaint tracking systems, and other ser-
1970s, Cooke trained store managers to detect union vice enhancement techniques, the program differen-
threats; he organized “ ying squads” of experienced tiated customer service at McDonald’s from service
managers who quickly arrived at any restaurant at competing chains. McDonald’s employees were
suspected of becoming a target for union organizing encouraged to solve problems on the spot empow-
and held “rap sessions” with the employees to defeat ered to settle disputes with customers without calling
the organizing drive. Altogether, Turner and Cooke the manager, and rewarded for exemplary customer
managed to turn back more than 400 organizing care. Store managers, similarly, were instructed to
drives at McDonald’s outlets. spend more time with customers, listening to their
Using ying squads, closing down restaurants concerns.18
threatened by union organizing, and hiring anti-
union labor lawyers were among the successful tac-
Cost Cutting
tics used by McDonald’s to remain union free for the
next three decades. In 2006, McDonald’s operated Another initiative introduced by Quinlan was cost
nearly 14,000 restaurants in the United States, none cutting. Under Quinlan’s direction, McDonald’s
of which were unionized.16 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 con-
Expansion: Michael struction cost fell by 27% between 1990 and 1993.
Quinlan, 1987–1998 Next, McDonald’s reduced the insurance costs of
United States restaurants by giving franchisees the
Michael Quinlan succeeded Fred Turner as Presi- opportunity to choose among eight competing insur-
dent in 1982 and CEO in 1987. Quinlan began his ance companies rather than offering them a single
career in the McDonald’s mailroom in 1963 and company-approved insurance program. The exibil-
steadily worked his way up. A low-pro le, reserved ity of selecting an insurer through competitive bid-
manager who, unlike his two predecessors, did not ding resulted in cost savings of about $50 million
seek the limelight, Quinlan was the rst McDonald’s annually across 9,300 United States outlets in the
CEO to hold an MBA degree. A shrewd competitor mid-1990s (or $4,000 per restaurant).
C58 Section A: Business Level Cases: Domestic and Global

In addition, the company introduced its newly McDonald’s opened its rst restaurant in Beijing,
designed “mini McDonald’s” in the early 1990s: drawing some 40,000 customers a day. Working
an outlet that occupied half the oor space of the closely with the Chinese government to establish a
standard restaurant but was capable of handling an web of suppliers who would deliver 95% of its prod-
equal volume of sales. Building a mini McDonald’s ucts (beef, chicken, sh, potatoes, lettuce, and bever-
was 30% cheaper than the construction costs of ages), McDonald’s opened 100 additional outlets in
“full-sized” restaurants; consequently, the breakeven Beijing and other Chinese cities by 1996.21
point of the smaller units was considerably lower than During the late 1990s, the pace of international
that of the larger ones. Low-cost mini McDonald’s expansion accelerated further. Between 1994 and
made up 60% of all restaurant openings in 1992 and 1998, McDonald’s opened 5,800 new restaurants
80% in 1993. abroad, more than the total number added by its
Finally, in the early and mid-1990s, McDonald’s ve largest competitors combined. In 1997,
expanded aggressively into small-size non-traditional 85% of McDonald’s new restaurant openings took
sites, thereby lowering its operating and construc- place abroad, and McDonald’s replaced Coca Cola
tion costs in still another way. McDonald’s opened as the world’s best-known brand. Altogether, during
restaurants in hospitals, military bases, gas stations, Quinlan’s 10-year tenure, McDonald’s foreign sales
shopping malls, recreation sites, sport stadiums, and were growing at a rate of 18.2%; the correspond-
big box retail stores such as Walmart.19 ing 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
International Expansion potential is boundless.” With restaurants operating
McDonald’s international presence dates back to the in 109 countries in 1998, McDonald’s was serving
mid-1960s. Historically, McDonald’s entered most less than 1% of the world population, according to a
foreign markets by means of joint ventures with local company spokesperson.22
partners. To ensure uniform standards, the
McDonald’s Corporation sought a greater degree
McDonald’s in Crisis
of control over foreign than domestic operations. In
most cases, McDonald’s formed partnerships with While McDonald’s expanded rapidly into foreign
local entrepreneurs acting as franchisees and own- markets, domestic sales languished. First, a variety of
ing 50% of the business. If successful, the foreign new products introduced by Quinlan in the 1990s—
entrepreneur might buy McDonald’s 50% share in vegetable burgers, pasta, fried chicken, fajitas, and
the business and become a full- edged franchisee. pizza—did not catch on and were later withdrawn
During Quinlan’s rst ve years at the helm, (McDonald’s last successful product launch was the
McDonald’s international sales nearly tripled from Chicken McNugget in 1983).23
$3 to $8.6 billion, and the share of its overseas Second, McDonald’s again faced a growing
sales grew from 27% to nearly 40%. In 1992, one revolt among some 300 embittered franchisees.
in three McDonald’s outlets was located overseas, A San Diego-based group of franchisees called
McDonald’s operated in 65 countries, and its lead- “Consortium” claimed that many of the new res-
ing foreign markets were Japan (865 stores), Canada taurants opened recently by McDonald’s were can-
(642 stores), and the UK (445 stores). By 1994, the nibalizing the business of existing restaurants and
“Big Six” foreign markets—Japan, Canada, UK, driving operators out of business. Under Quinlan’s
Australia, France, and Germany—accounted for direction, McDonald’s embarked on a major United
80% of McDonald’s foreign income.20 States expansion just as domestic sales were slowing
Two milestones in McDonald’s international down. “They built a whole bunch of new stores in
expansion were its entry into the Russian and the wrong places,” the dissident group’s leader told
Chinese markets. Following some 20 years of nego- Business Week in 1998. During the 1990s, franchi-
tiations with the Soviet authorities, McDonald’s sees’ per store pro ts declined by 30%, and a 1997
opened its rst restaurant in Moscow in 1990—its survey among McDonald’s domestic operators
largest single unit, employing a crew of 1,200 and revealed that only 28% of the franchisees believed
serving 50,000 customers a day. Two years later, McDonald’s was on the right track.24
 Case 4 McDonald’s and Its Critics, 1973–2009 C59

Third, McDonald’s was losing market share. A other rms.29 Second, Greenberg did not conform
1998 Harris poll showed that fast-food consum- to Kroc’s model of offering a uniform, unchanging
ers preferred Wendy’s and Burger King’s offerings menu of a few standardized items but rather changed
over McDonald’s. Altogether, McDonald’s share in McDonald’s menu to an extent previously unknown.
the domestic fast-food market dropped from And third, Greenberg sought growth through merg-
18% to 16% between 1987 and 1998, and its per- ers, a policy violating Kroc’s unbroken rule of focus-
share pro ts in the United States fell by 20% (or ing on the McDonald’s brand—and the McDonald’s
40% after in ation) in the decade ending March brand only.
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
New Menu
stock index climbed 63%.25 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 offer-
Crisis: Jack Greenberg, ing a new menu. The new expanded menu was devel-
1998–2003 oped under Greenberg’s supervision at the time he
ran McDonald’s domestic operation. Once promoted
When Quinlan stepped down in May 1998, to CEO in 1998, Greenberg moved aggressively to
McDonald’s board of directors selected Jack implement the new project.
Greenberg to lead the company. On the day the The expanded menu required a new food prepa-
board announced the new CEO, Greenberg called ration system based on the “just in time” principle of
each of McDonald’s 20 largest shareholders, includ- product customization. To accommodate customers’
ing Warren Buffet, telling them “I’m a different per- preferences, McDonald’s offered customers a variety
son, I’ll have a different style.” Wall Street responded of new items—for example, chicken sandwiches—
enthusiastically; McDonald’s stock gained 4% on made to order, a choice readily available in menus
the day of the announcement.26 offered by Burger King and Wendy’s. Dubbed “Made
Unlike Quinlan and Turner, Greenberg was the for You,” the new food preparation system was
rst senior manager at McDonald’s recruited from intended to improve the quality of the food served as
outside the rm. A former partner in the accounting well as facilitate the development of additional food
rm of Arthur Young, he joined McDonald’s in 1982 innovations.
as the company’s chief nancial of cer (CFO). Ambi- Greenberg implemented the “Made for You”
tious, he undertook training in operations and later project at a remarkable speed. By the spring of 2000,
became a regional manager of hundreds of stores, the new system was fully installed in the company’s
while still serving as CFO. After running McDonald’s 12,500 domestic restaurants. Yet the changeover
United States unit between 1996 and 1998, he was was not cheap. Installing the new kitchen cost about
named CEO.27 $25,000 per restaurant, and many franchisees were
Widely described as an “agent of change,” reluctant to cover the installation cost. To provide
Greenberg launched a strategy aimed at “recasting franchisees with an incentive, McDonald’s paid up
the image of McDonald’s from a stodgy consumer to 50% of the unit’s installation cost.30
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
Acquisitions
Restaurants and Institutions named Greenberg the Greenberg moved quickly toward the acquisition of
magazine’s 1999 Executive of the Year.28 additional brands. He sought to broaden “the view of
Greenberg broke with tradition in three different the brand,” transforming McDonald’s single-line brand
ways. First, he departed from Kroc’s decades-long into a multiple line of different brands. “[We are] sell-
practice of relying almost exclusively on home-grown ing hamburgers and chicken under the McDonald’s
talent and instead hired outside executives from brand, Pizza under the Donatos brand . . . and
C60 Section A: Business Level Cases: Domestic and Global

burritos under the Chipotle brand,” he told the practices, Bove became a hero in France and was
Foreign Policy journal in 2001, listing two of his recent invited to meet France’s president as well as its prime
acquisitions.31 minister. French President Jacques Chirac expressed
McDonald’s had never before taken control of his sympathy with Bove when he declared: “I am
another food chain. In early 1998, as Quinlan was in complete solidarity with France’s farm workers,
getting ready to step down, McDonald’s made its and I detest McDonald’s,” and French Prime Minis-
rst acquisition, purchasing a minority interest in ter Lionel Jospin agreed: “I am personally not very
the Colorado-based Chipotle Mexican Grill chain. pro McDonald’s.” Similarly, in Britain, the Duke of
Greenberg followed up with other acquisitions. In Edinburgh, Prince Philip commented: “[McDonald’s
1999, he bought Aroma Café, a London chain of is] destroying the rainforests of the world . . . cut-
23 coffee and sandwich shops, and then purchased ting down trees to graze [its] cheap cattle to sell [its]
the 150-unit Midwestern chain Donatos Pizza. A hamburgers.”34
year later, in 2000, Greenberg completed his largest Even more damaging to McDonald’s reputa-
acquisition, buying Boston Market, a network of tion was the so called “McLibel Trial.” The famous
some 850 restaurants specializing in serving home- libel trial was the focus of a long-standing and tena-
style meals (with rotisserie chicken as the chain’s cious campaign launched by Greenpeace activists in
best selling item). Greenberg, in addition, bought a London against McDonald’s.
33% stake in Pret A Manger, an upscale chain of In 1986, several members of Greenpeace in London
110 stores selling fresh sandwiches in the United distributed a six-page lea et accusing McDonald’s of
Kingdom. And, nally, he increased McDonald’s selling unhealthy food, exploiting children, mistreating
controlling interest at Chipotle to more than 50%.32 workers, destroying rain forests, and torturing ani-
mals. A series of slogans—“McDollars,” “McGreedy,”
“McCancer,” “McMurder,” “McPro ts,” and
The Attacks on McDonald’s
“McGarbage”—sprinkled with the golden arches was
While Greenberg was busy purchasing regional printed along the top edge of the lea et. The activist
chains, a worldwide campaign against the fast-food group distributed the lea et for four years until the
industry—launched by public interest groups, envi- McDonald’s Corporation decided to sue ve group
ronmentalists, and consumer advocates—was in full members for libel in 1990, claiming the entire content
swing. A major event that galvanized the campaign of the lea et was false. Soon thereafter, three of the
was the publication on 2001 of Eric Schlosser’s Fast accused settled, apologizing to McDonald’s. The two
Food Nation. Translated into many languages, the remaining activists were determined to ght back in
best-selling book focused, among other things, on court—and ght to the end.
the recent increase in child obesity and placed the The libel trial turned into a public specta-
responsibility for such a development on strategies cle. It produced 18,000 pages of transcript and
undertaken by global fast-food chains. It singled 40,000 pages of documents and witness state-
out McDonald’s as the principal culprit, generating ments. It began in 1994 and ended in 1997 with an
unfavorable publicity and damaging McDonald’s 800-page judgment. The judge found the two Green-
reputation. “Schlosser has done for the fast-food peace defendants guilty of libeling McDonald’s,
industry what Upton Sinclair did nearly a century imposed a combined ne of 60,000 Sterling on both,
ago [for] . . . the meatpacking industry in The but ruled nonetheless that some allegations were true:
Jungle,” one writer reviewing the book commented.33 McDonald’s did indeed “exploit children” through
Another event generating negative publicity advertising, paid workers lower wages, and served
directed at McDonald’s was the 2000 trial of Jose an unhealthy diet (increasing “the risk of cancer of
Bove, a farmer and social activist. Leading a group of the bowel and of the breast to some extent”). These
protesters, Bove destroyed a half-built McDonald’s allegations were widely publicized.35
outlet in Millau, France, published a French best- Next, the two Greenpeace defendants appealed
seller targeting McDonald’s “lousy food” (The World the verdict to the UK’s Court of Appeal. In 1999,
Is Not for Sale—and Nor Am I!) and was brie y one year into the Greenberg tenure, a three-justice
imprisoned. Blaming McDonald’s for undermin- Court of Appeal heard the case, overturned parts
ing traditional farming methods with agribusiness of the original verdict (supporting, for example, the
 Case 4 McDonald’s and Its Critics, 1973–2009 C61

allegation that eating food served by McDonald’s core hamburger business and sell off other ventures.
may increase the risk of heart disease), and reduced In 2003, McDonald’s sold Donatos Pizza back to
the ne to 40,000 Sterling. In the meantime, the activ- its founder and disposed of all Boston Market out-
ists’ campaign against McDonald’s intensi ed. The lets outside the United States. In 2006, McDonald’s
McDonald’s corporation wanted the case to go away sold off the Chipotle chain, and in 2007, it divested
and announced that it would no longer try to stop itself completely of Boston Market, selling the chain
Greenpeace members from distributing the lea et. to a private equity for $250 million.38
Still, the two Greenpeace defendants were not The global criticism of McDonald’s hurt the
done. They appealed the Court of Appeal’s ruling to company’s nancial performance as well. In the
the British House of Lords. When the Lords refused United States, the image of McDonald’s as a seller of
to hear the case, the defendants led an appeal with unhealthy, fatty food triggered an increasing number
the European Court of Human Rights. As of 2002— of lawsuits led against the company by consumers
Greenberg’s last year at McDonald’s—the appeal to alleging that eating regularly at McDonald’s made
the European Court was still pending.36 them overweight. Overseas, the “McLibel Trial”
turned into a public relations disaster as it gained
worldwide publicity—the Greenpeace lea et alone
Financial Results
was translated to 27 languages. One likely result
Under Greenberg’s leadership, McDonald’s nancial of the global attack on McDonald’s public image
performance had remained lackluster. The introduc- was the company’s decision to pull out of several
tion of the expanded menu failed to increase sales, countries, including Bolivia and two Middle Eastern
the new acquisitions produced disappointing results, nations.39
and the global attack on McDonald’s public image The decline in McDonald’s performance under
turned customers away. Greenberg’s direction was evident across several key
To begin with, the “Made for You” system was nancial indices. During both 2000 and 2001, same
too labor intensive and, as such, increased both stores sales—sales at restaurants opened more than
implementation costs and service times. A company a year—fell, and McDonald’s United States market
internal document obtained by Fortune magazine share was growing at a slower rate (2.2%) than that
in 2002 cited “alarming research” showing serious of Burger King (2.7%) and Wendy’s (2.5%). In 2002,
problems with customer service. “Mystery shoppers” McDonald’s stock price was trading at a seven-year
hired by the company to visit restaurants found that low, and during seven of the eight quarters end-
operators met their “speed-to-service” standards ing summer 2002, McDonald’s earnings declined.
only 46% of the time. It also cited complaints about When McDonald’s disclosed its third-quarter results
“rude service, slow service, unprofessional service, in December 2002—showing no improvement—
and inaccurate service.” The Strategy Direction jour- Greenberg announced his resignation.40
nal, 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 Comeback: Jim Skinner,
American Customer Survey Index showed that cus- 2004 to Present
tomer satisfaction at McDonald’s fell well below the
levels at Wendy’s and Burger Kings, its two direct McDonald’s board elected James Cantalupo, a former
competitors.37 head of the company’s international operations, to
Nor did the regional chains bought by Greenberg succeed Greenberg and added two other senior exec-
perform as expected. Underperforming, the newly utives to a newly formed turnaround team: Charles
acquired chains were sold one after another during Bell and Jim Skinner. A year later, Cantalupo died of
the six-year period 2001–2006. In 2001, McDonald’s a heart attack, and Bell, in turn, assumed the com-
sold off the Aroma Café chain, and in 2003, shortly pany’s leadership. Stepping down a few months later
after Greenberg had stepped down, McDonald’s to ght a battle against terminal cancer, Bell himself
announced that it would henceforth focus on its was succeeded by Skinner in November 2004.41
C62 Section A: Business Level Cases: Domestic and Global

Unlike Greenberg, Skinner was a McDonald’s crumbling plastic booths with large comfortable
insider, as were both Quinlan and Turner. The son chairs, installed soft lights in place of bright ones,
of a bricklayer, Skinner started his career at repainted the walls, and added Internet access.
McDonald’s ipping hamburgers at an Iowa res- Selected McDonald’s outlets went further, display-
taurant in 1962. Never graduating from college, he ing wide-screen televisions, installing video games,
steadily made his way up the corporate ladder and and placing stationary bicycles with video screens in
eventually took charge of McDonald’s European new play areas within the restaurants.44
operation. In 2003, McDonald’s board promoted To bring in new customers as well as attract old
Skinner to vice chairman and a year later to CEO.42 ones, store hours were extended. Opening earlier
Skinner was a congenial, low-pro le chief execu- and closing late, restaurants could now serve both
tive who ate daily at McDonald’s, stopping regu- early risers and late night diners. By 2009, fully
larly at restaurants to mingle with employees, often 34% of McDonald’s stores in the United States were
jumping in to help the kitchen crew at the back end open 24 hours.45
of the restaurant (“I don’t touch the cash register. I Another initiative undertaken by Skinner
don’t know anything about [it]”). “He’s very was diversi cation into premium coffee drinks.
down-to-earth, rooted and very approachable,” a Competing head to head with the Starbucks Cor-
McDonald’s supplier described Skinner. “He’s poration, McDonald’s began installing coffee bars
extremely witty and has a great way of putting (“McCafes”) with “baristas” preparing espressos,
people at ease.” Popular with both subordinates and cappuccinos, and lattes in its McDonald’s United
peers, Skinner was a good listener and a skilled con- States restaurants. To begin with, McDonald’s mar-
sensus builder; he routinely brought managers with keting department conducted a large-scale study of
different viewpoints together, soliciting their advice Starbucks’ customers. Interviewing and videotap-
before undertaking important decisions.43 ing respondents talking about their coffee-drinking
Working together with Cantalupo and Bell to experiences and offering them espresso drinks at
turn McDonald’s performance around, Skinner McDonald’s, the study found that a large number
helped forge a new strategic initiative called “Plan to of Starbucks’ customers were sitting “on the fence”
Win.” Implemented company-wide during Skinner’s ready to experiment with McDonald’s choices of
rst ve years at the helm (2004–2009), the plan espresso drinks—all of which were sold at a price
prescribed two principal goals: (1) the upgrading lower than Starbucks’. Encouraged by its ndings,
of customer service to improve the nancial perfor- the McDonald’s Corporation implemented the
mance of existing restaurants (rather than open new program promptly, and by 2007, 800 McDonald’s
ones); and (2) the introduction of nutritional, health- United States restaurants were serving espresso
ful, and higher quality food choices coupled with the drinks. McDonald’s installed 5,700 additional
promotion of a “balanced lifestyle.” “McCafes” in its United States restaurants in 2008,
bringing the total to 6,500 out of some 14,000 out-
lets operating nationwide at the end of the year. In
Improving Stores’ Operations
the meantime, the Starbucks Corporation was strug-
Under the leadership of both Quinlan and Greenberg, gling, closing down stores and laying off employees
McDonald’s expanded aggressively, building an for the rst time in its history.46
excessive number of new restaurants, many of
which were cutting into the pro ts of existing ones.
Answering Its Critics
In addition, customer service at McDonald’s had
steadily deteriorated, reaching its lowest level during Fast-food nutritional critics continued to target
Greenberg’s last two years in of ce. McDonald’s long after Greenberg stepped down.
Skinner’s “Plan to Win” was designed to address In 2004, as Skinner assumed the company’s leader-
both problems. First, McDonald’s expanded inter- ship, a documentary lm entitled Super Size Me was
nally, investing in existing stores instead of adding released and played in movie theaters around the
new locations. Most existing stores were redeco- world. The lm depicted a man getting increasingly
rated, and thousands were completely remod- sick as he consumed an all-McDonald’s diet and
eled. Aided by the company, franchisees replaced nothing else for a whole month.47
 Case 4 McDonald’s and Its Critics, 1973–2009 C63

The renewed attack on McDonald’s required a University, pointed out that McDonald’s was more
speedy response. Skinner, accordingly, discontinued responsive to critics than its competitors. “As fast-
the chain’s Super Size menu and substituted healthier food restaurants go, McDonald’s has been pretty
food choices; in 2004, McDonald’s promoted fruit progressive,” Brownell told the New York Times in
and milk as substitutes for French fries and soda 2009. “If you look at the last ve years, McDonald’s
drinks in kids’ meals and, for a limited period, added has introduced some better foods and resisted the
a bottle of water and a pedometer to adults’ Happy urge to offer bigger burgers.”52
Meals. In addition, McDonald’s, offered customers
deli sandwiches, served on either a French or a rye
Financial Results
roll, a new line of premium salads, and apple slices.
Milk was no longer sold in large size cartons but in Skinner’s turnaround efforts resulted in a resounding
small bottles.48 success: during Skinner’s rst ve years at the helm,
In 2005–2006, McDonald’s launched a Bal- McDonald’s posted its best nancial results ever.
anced Lifestyle (smart eating) and Fitness program When Skinner completed his rst year as
and refocused its marketing strategy on exercising. CEO, same-store sales in the United States rose by
In a typical ad released in 2006, Ronald McDonald nearly 10%, the largest increase in 30 years. Dur-
is featured as an “ambassador of balanced lifestyle” ing Skinner’s rst two years, McDonald’s market
and is depicted in a running position.49 value doubled, and during the deepening recession
McDonald’s promotion of healthier food of 2008, McDonald’s surprised analysts—month
choices was not con ned to the United States but after month—with stronger than expected results.
extended to Europe. In Britain, in the mid-2000s, Throughout 2008—a year in which the stock market
McDonald’s reduced the salt added to French fries lost more than a third of its value in the worst per-
and chicken nuggets by 25%–30% and in Ireland formance since the Great Depression—McDonald’s
by 50%. McDonald’s also provided consumers with stock gained 6%, and the McDonald’s Corporation
nutritional information, labeling all its products and emerged as one of the only two companies (the other
listing the products’ fat and salt contents on sign- being Walmart) listed in the Dow Jones Industrial
posts placed in stores. In both the United States Average to post a stock price increase. In 2008,
and Europe, McDonald’s completely phased out McDonald’s global revenues rose by 5%, and its net
trans fats in 2008, using a newly developed blend of income tripled, producing a rate of return on sales of
canola, corn, and soybean oils to cook French fries, 18%. McDonald’s served 58 million customers a day
hash browns, chicken, and sh lets.50 globally in January 2009, 8 million more than two
Still, the most far-reaching change in McDonald’s years earlier.53
food offerings under Skinner was the shift from beef Finally, under Skinner’s leadership, McDonald’s
to chicken products. In 2009, McDonald’s menu planned further expansion in 2009. At that time
included four chicken choices: grilled chicken sand- when an increasing number of restaurants, both
wich, Southern-style chicken sandwich, wrap chicken in the United States and Europe, were struggling
sandwich, and chicken for breakfast. Between 2002 to remain in business, McDonald’s announced its
and 2009, chicken sales at McDonald’s doubled plan to open 650 additional outlets within a year
while beef sales remained at, and by 2009, the (2009), 240 of them in Europe, and to spent more
McDonald’s Corporation was purchasing annually than $2 billion on this effort.54 Asked whether
more chicken than beef worldwide.51 McDonald’s was “recession proof,” Skinner replied:
McDonald’s nutritional efforts did not go unno- “No, we are recession- resistant. I don’t know if we
ticed by its critics. Kelly Brownell, director of the are depression-resistant though.”55
Rudd Center of Food Policy and Obesity at Yale

Endnotes
1. Eric Schlosser, Fast Food Nation (New York: Harper, 2. “McDonald’s,” International Directory of Company
2005), 244–246; “McDonald’s Corporation,” Inter- Histories, 284–285, “McDonald’s,” Hoover’s Handbook
national Directory of Company Histories (New York: of American Business, 2008, 557.
St. James, 204), vol. 63, 285.
C64 Section A: Business Level Cases: Domestic and Global

3. “McDonald’s,” International Directory of Company 29. Dayan Machan, “Polishing the Golden Arches,” Forbes,
Histories, 280. June 15, 1998, online, ABI data base, 42.
4. John Love, McDonald’s: Behind the Arches, (New York: 30. Amy Zuber, “Jack Greenberg: Bringing New Luster to
Bantam books, 1986, 1995), 17–18. the Golden Arches,” Nation’s Restaurants News, January
5. “McDonald’s,” International Directory of Company 2000, online, ABI data base, 90; Fortune June 2, 1998;
Histories, 280–281. The quotation is from Schlosser, Restaurants and Institutions, July 1, 1999.
Fast Food Nation, 5. 31. Moises Haim, “McAtlas Shrugged,” Foreign Policy May/
6. Love, McDonald’s: Behind the Arches, 114–116. June 2001, online ABI data base, 124.
7. Love, McDonald’s: Behind the Arches, 293–295. 32. McDonald’s,” International Directory of Company His-
8. Max Boas and Steve Chain, Big Mac: The Unauthorized tories, 284; Nation’s Restaurants News, January 2000.
Story of McDonald’s (New York: New American Library, 33. Reprinted in Eric Schlosser, Fast Food Nation under
1976), 72, Love, McDonald’s: Behind the Arches, 140. “Praise for Fast Food Nation.”
9. Love, McDonald’s: Behind the Arches, 140–141. 34. Eric Schlosser, Fast Food Nation, 244. The quotation is
10. Boas and Chain, Big Mac, Chapter 5; Love, McDonald’s: from Foreign Policy May/June 2001.
Behind the Arches, 147–149. 35. The quotations, in order, are from Eric Schlosser, Fast
11. Love, McDonald’s: Behind the Arches, 144–146. Food Nation, 245–247, and John Vidal, McLibel: Burger
12. Love, McDonald’s: Behind the Arches, 280–281, but see Culture on Trial (New York: New Press, 1997), 306.
also 385. 36. Eric Schlosser, Fast Food Nation, 249.
13. Boas and Chain, Big Mac, Chapter 7, but see also Love, 37. David Stired, “Fast Food, Slow Service,” Fortune,
McDonald’s: Behind the Arches, 220–221. September 30, 2002, online ABI data base, 38; “Has
14. Love, McDonald’s: Behind the Arches, 222; Schlosser, McDonald’s Lost Its Plot?” Strategic Direction, April
Fast Food Nation, 4, 45, 294. 2003, online ABI data base, 14.
15. Boas and Chain, Big Mac, Chapter 9; Love, McDonald’s: 38. McDonald’s,” International Directory of Company
Behind the Arches, Chapter 16. Histories, 284–285; McDonald’s Corporation, “His-
16. Love, McDonald’s: Behind the Arches, 394–395; Boas tory,” Hoovers.Com, retrieved May 27, 2008.
and Chain, Big Mac, Chapter 10; Schlosser, Fast Food 39. Eric Schlosser, Fast Food Nation, 249; McDonald’s,”
Nation, 76–78. International Directory of Company Histories, 284–285.
17. “McDonald’s Names Quinlan as Chief, Succeed- 40. McDonald’s,” International Directory of Company His-
ing Turner,” Wall Street Journal, October 21, 1986; tories, 284–285; Kate MacArthur, “McD’s Boss Blasts
“McDonald’s,” International Directory of Company Chain ‘Naysayers,’” Advertising Age, March 18, 2002,
Histories, 280–281. online ABI data base, 11; Shirley Leung, “McDonald’s
18. Michel Quinlan, “How Does Service Drive the Service Chief Plans to Leave,” Wall Street Journal, December 6,
Company?” Harvard Business Review, November– 2002.
December 1991, 146; Love, McDonald’s: Behind the 41. Dale Buss, “McDonald’s Salad Days,” Chief Executive,
Arches, 459–460. November 2005, online ABI data base, 16.
19. Love, McDonald’s: Behind the Arches, 461–462. 42. Carolyn Walkup, “2006 Golden Chain: Jim Skinner,”
20. Love, McDonald’s: Behind the Arches, 416, 462–463. Nation’s Restaurant News, October 16, 2006, online,
21. Tony Royle, Working in McDonald’s in Europe, (London: ABI data base, 88; Andrew Martin, “The Happiest
Routledge, 2000), 24–25; Love, McDonald’s: Behind the Meal,” New York Times, January 11, 2009; Lauren Fos-
Arches, 464–466. ter and Jeremy Grant, “McDonald’s Woos Its ‘Burger
22. J. P. Donlon, “Quinlan Fries Harder,” Chief Executive, Flippers,’” Financial Times, April 15, 2005.
Jan/Feb. 1998, online ABI data base, 4. The quotation is 43. The quotations, in order, are from New York Times,
from Love, McDonald’s: Behind the Arches, 463. January 11, 2009, and Nation’s Restaurant News,
23. “McDonald’s,” International Directory of Company October 16, 2006.
Histories, 280–281; David Leonhardt, “McDonald’s: 44. Janet Adamy, “Boss Talk: How Jim Skinner Flipped
Can It Regain its Golden Touch?” Business Week, McDonald’s,” Wall Street Journal, January 5, 2007;
March 9, 1998, online ABI data base, 70. “McDonald’s Takes on a Weakened Starbucks,” Wall
24. Business Week, March 9, 1998. Street Journal, January 7, 2008; New York Times,
25. Business Week, March 9, 1998. January 11, 2009.
26. Patricia Sellers, “McDonald’s Starts Over,” Fortune, 45. New York Times, January 11, 2009.
June 22, 1998, online, ABI data base, 122. 46. Wall Street Journal, January 7, 2008; New York Times,
27. Fortune, June 22, 1998. January 11, 2009; Janet Adamy, “McDonald’s to
28. The quotations, in order, are from Fortune June 22, 1998, Expand, Posting Strong Results,” Wall Street Journal,
and Scott Hume, “Jack Greenberg’s New Populism,” January 27, 2009.
Restaurants and Institutions, July 1, 1999, online, ABI 47. Steven Gray and Janet Adamy, “McDonald’s Gets
data base, 109. Healthier,” Wall Street Journal, February 23, 2005.
 Case 4 McDonald’s and Its Critics, 1973–2009 C65

48. Amy Garber, “New McD Chief,” Nation’s Restaurant 51. New York Times, January 11, 2009.
News, December 13, 2004, online, ABI data base, 50; 52. Cited in the New York Times, January 11, 2009.
Chief Executive, November 2005. 53. Chief Executive, November 2005; New York Times,
49. Janet Adamy and Richard Gibson, “McDonald’s Read- January 11, 2009; “McDonald’s Press Release October
ies Strategy to De ect Critics’ Next Barrage,” Wall Street 22, 2008,” online, McDonalds.com; Wall Street Journal,
Journal, April 12, 2006. January 5, 2007 and January 27, 2009.
50. Joanne Bowery, “McDonald’s Gets Back to Basics,” 54. Wall Street Journal, January 27, 2009; Jonathan Brichall
Marketing, October 25, 2006, online, ABI data base, 16; and Jenny Wiggins, “McDonald’s Bucks Trend by Creat-
Janet Adamy, “McDonald’s Loses Its Trans Fats,” Wall ing Jobs,” Financial Times, January 24, 2009.
Street Journal, May 23, 2008. 55. Quoted in the New York Times, January 11, 2009.