The Company primarily operates and franchises McDonald's restaurants in the food
service industry. These restaurants serve a varied, yet limited, value-priced
menu'in more than 100 countries around the world.
The Company also operates Boston Market and Chipotle Mexican Grill in the U.S.
and has a minority ownership interest in U.K.-based Pret A Manger. In December
2003, the Company sold its Donatos Pizzeria business.
Since McDonald's restaurant business comprises virtually all of the Company's
consolidated operating results, this narrative primarily relates to that business,
unless otherwise noted.
All restaurants are operated either by the Company, by independent entrepreneurs
under the terms of franchise arrangements (franchisees), or by affiliates operating
under license agreements.
Under the conventional franchise arrangement, franchisees provide capital by
initially investing in the equipment, signs, seating and d'cor of their restaurant
businesses, and by reinvesting in the business over time. The Company generally
shares the investment by owning or leasing the land and building. Franchisees
contribute to the Company's revenue stream through payment of rent and service
fees based upon a percent of sales, with specified minimum rent payments, along
with initial fees. The conventional franchise arrangement typically lasts 20
years and franchising practices are generally consistent throughout the world.
The Company, its franchisees and affiliates purchase food, packaging, equipment
and other goods from numerous independent suppliers that have been approved
by the Company. The Company has established and strictly enforces high-quality
standards. The Company has quality assurance labs around the world to ensure
that our high standards are consistently met. The quality assurance process
not only involves ongoing product reviews, but also on-site inspections of suppliers'
facilities. Further, a Quality Assurance Board, composed of the Company's technical,
safety and supply chain specialists, provides strategic global leadership for
all aspects of food quality and safety. In addition, the Company works closely
with suppliers to encourage innovation, assure best practices and drive continuous
improvement.
Independently owned and operated distribution centers, also approved by the
Company, distribute products and supplies to most McDonald's restaurants. In
addition, restaurant personnel are trained in the proper storage, handling and
preparation of our products and in the delivery of customer service.
McDonald's global brand is well known. Marketing, promotional and public relations
activities are designed to nurture McDonald's brand image and differentiate
the Company from competitors. Marketing and promotional efforts focus on value,
food taste and the customer experience. In addition, the Company is focused
on being a leader in social responsibility, as the Company believes it is important
to give back to the people and communities around the world who are responsible
for our success.
Competition
McDonald's restaurants compete with international, national, regional and local
retailers of food products. The Company competes on the basis of price, convenience
and service and by offering quality food products. The Company's competition
in the broadest perspective includes restaurants, quick-service eating establishments,
pizza parlors, coffee shops, street vendors, convenience food stores, delicatessens
and supermarkets.
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