McDONALDS: THE ARCH DELUXE LAUNCH

In 1995 McDonalds was the largest restaurant chain in the United States with domestic sales of
almost $15.9 billion. McDonalds was also the countrys fourth-largest advertiser, spending $490
million on measured media in 1995.
1
In the spring of 1996 the company was preparing to introduce the
Arch Deluxe, a quarter-pound hamburger that was the first in a planned series of sandwiches targeted
to adults. It had budgeted $70 million for the launch campaign, which would be handled by Fallon
McElligott, small Minneapolis-based agency that had won a string of advertising awards in recent
years. As McDonald executives, met with their agency counterparts, they wondered what message
the launch advertisements should communicate to the target audience.


McDonalds
In 1948 Maurice and Richard McDonald opened the first self-serve McDonalds in San
Bernardino, California. Six years later Ray Kroc, a milkshake machine salesman, convinced the
brothers to let him become their franchising agent. In 1961 Kroc paid $2.7 million for the brothers
share of McDonalds System, Inc. To raise money for expansion, Kroc took the company public in
1965.
2
By the time of Krocs death in 1984, the company had 7,500 restaurants in 32 countries.
3
By
1995, the number of McDonalds restaurants exceed 16,000, with more than 10,000 located in the
United States.

U.S. expenditures on fast food in 1995 totaled nearly $93.9 billion. According to the market
research firm NPD CREST, each year Americans made 30 billion visits to fast-food restaurants.
Adults aged 35 and older accounted for 44 percent of these visits, while children under 17 accounted for
23 percent.
4
McDonalds was ranked as the top-selling hamburger chain, followed by Burger


1
Bruce Horovitz and Dottie Enrico, Now Serving: Boomer Burger McDonalds Debuts Fast Food Aimed at Making
Adults Happy; Chain Hoping Grown-Up Chow Boosts Sales , USA Today, 9 May 1996, 1A.
2
Charlie Bernstein, Allen J. Bernstein, and David Q. Maler, McD at 35: Unparalleled Success; Clouds on the
Horizon, Nations Restaurant News 24 no. 34 (August 27, 1990): 60.
3
Death of a Salesman, The Economist (January 21, 1984): 66.
4
Death of a Salesman, 66.


This case was prepared by Mark E. Parry, Associate Professor of Business Administration, University of Virginia, and
Professor Yoshinobu Sato, University of Marketing and Distribution Sciences, Kobe, Japan. It was written as a basis for
class discussion rather than to illustrate effective or ineffective handling of an administrative situation. Copyright
1996 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved. To order
copies, send an e-mail to sales@dardenpublishing.com. No part of this publication may be reproduced, stored in a
retrieval system, used in a spreadsheet, or transmitted in any form or by any meanselectronic, mechanical,
photocopying, recording, or otherwisewithout the permission of the Darden School Foundation. Rev. 4/00.








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King (BK) and Wendys (see Exhibit 1). Each day, seven percent of Americans ate at
McDonalds.
5
Frequent diners, who accounted for 75 percent of U.S. sales, visited McDonalds at
least twice a week and tended to be male, aged 15 to 35.
6
Exhibits 2 and 3 provide additional
information regarding McDonalds recent performance.

Franchisees
When Kroc began selling McDonalds franchises in the 1950s, most franchisors made their
money selling territorial rights, equipment, and supplies. Kroc chose a different tack, selling singlestore
franchises to individual entrepreneurs, not absentee owners, for $950 and 1.9 percent of gross sales. In
part, these terms reflected Krocs belief that the best way to make McDonalds profitable was to do
everything possible to make the franchisees profitable.
7

From his franchisees Kroc demanded exact compliance with his pricing structure and
guidelines for food preparation, customer service, and cleanliness.
8
In 1958 Kroc told the McDonald
brothers:

. . . the only way that we can positively know that these units are doing what they are
supposed to do . . . is to make it so that they have no alternative whatsoever. You
cant give them an inch. The organization cannot trust the individual; the individual
must trust the organization [or] he shouldnt go into this kind of business.
9
By 1996, new franchisees typically paid a $45,000 franchise fee, along with a $15,000
security deposit. An additional $385,000 to $520,000 was required for equipment, landscaping, etc.,
from approved suppliers. To learn the McDonalds system, aspiring franchisees spent two years, 20
hours a week, in restaurants cleaning and cooking. Other requirements included a two-week course at
Hamburger University in Oak Brook, Illinois (see Exhibit 4), and an on-the-job evaluation.
According to The New York Times, one recent franchisee, Philip Fuentes:

. was sent where he was needed, as in a ministry. The corporate real estate
division had already chosen and bought his site. . . . The property was leased to
Fuentes for 20 years; in return he pays a monthly fee to the corporation, at least 8.5
percent of monthly sales. Additional costs include a monthly service fee, typically
four percent, and a minimum of four percent of annual sales for local advertising.
10





5
Stephen Drucker, Who Is the Best Restauranteur In America? The New York Times, 10 March 1996, 45.
6
Drucker, 45.
7
McDonalds; Krocs Gold, The Economist (February 28, 1987): 108.
8
Lisa Bertagnoli, McDonalds Company of the Quarter Century, Restaurants & Institutions 99 no. 18 (July 10,
1989): 22.
9
John F. Love, McDonalds: Behind the Arches (New York: Bantam Books): 144.
10
Drucker, 45.








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McDonalds determined store layout, specified seating, lighting fixtures, music, napkins, and
cleaning soap. Company procedures even covered bag folding and presentation.
11
The spirit of
these directions was articulated in the 1958 operations manual by future CEO Fred Turner, who
wrote:

YOU MUST BE A PERFECTIONIST! There are hundreds and hundreds of details to
be watched. There isnt any compromising. Either, (A) the details are watched and
your volume grows, or (B) your are not particular, not fussy, and do not have a pride or
liking for the business, in which case you will be an also-ran. If you fall into the B
category, this business is not for you!
12

Real estate
The Economist once observed that Krocs franchising scheme was so good for the
franchisees it would have either lost McDonalds money or even driven it bankrupt. The solution,
created by McDonalds partner Harry Sonneborn, was to lease or purchase land and then sublease it
to franchisees at a 40 percent premium. By 1987, real-estate rentals generated 90 percent of
McDonalds profits from its franchisees, and McDonalds was the largest owner of real estate in the
world.
13
In 1989 an article entitled McDonalds: Company of the Quarter Century reported that
McDonalds:

. . . owns 60 percent of its real-estate sites, which, along with equipment, are worth
$6.8 billion of the companys $8.1 billion in net assets. The chain uses real estate as
collateral to borrow: the debt to equity ratio is 49%, and the corporations total debt
obligation is $3.2 billion. Because most of the debt is financed long term, the
company can reinvest cash provided by operations in the business.
14

Quality, service, cleanliness, and value
Kroc built McDonalds on one simple formula: quality, service, cleanliness, and value, or
QSCV for short. The companys success at implementing this formula was reflected in one
competitors assessment: Do they have great french fries? Yes. Is the service quick? The fastest. Are
the restaurants clean? Immaculate. You have to give McDonalds credit for knowing exactly what
theyre doing.
15

Quality: From McDonalds perspective, quality was inseparable from consistency. In the
words of Senior Vice President Richard Starmann, McDonalds customers were not looking for the best
burger Ive ever had but rather the same burger Ive always had.
16
Thus the objective of

11
Drucker, 45.
12
Love, McDonalds: Behind the Arches.
13
McDonalds; Krocs Gold..., 108.
14
Bertagnoli, 22.
15
Monci Jo Williams, McDonalds Refuses to Plateau, Fortune (November 12, 1984): 34.
16
Drucker, 45.








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McDonalds management was to look for new, innovative ways to create an experience that is
exactly the same no matter what McDonalds you walk into, no matter where it is in the world.
17
The result, according to Fortune, was that McDonalds had become a symbol of stability. A
McDonalds meal tastes pretty much the same everywhere.
18
To achieve such consistency, McDonalds invested constantly in process innovation. For
example, during the companys first 10 years it invested over $3 million developing a better french
fry (see Exhibit 5).
19
One innovation, the clamshell grill, simultaneously cooked both sides of 24
frozen hamburger patties for exactly 108 seconds, the top sides at 400 degrees, and the bottom at 325
degrees.
20

McDonalds also relied on a close relationship with and intense loyalty to suppliers who
were willing to reinvest in new capacity and in new technology designed to improve their quality and
efficiency.
21
From the time Kroc began franchising McDonalds restaurants, suppliers worked without
a written contract. As Restaurants & Institutions explained:

Giving McDonalds freedom to dismiss an errant supplier at willnot when the
contract was upwas the only way Kroc felt he could force suppliers to meet
McDonalds quality specifications . . . Krocs legendary handshake deals built a
stable of steady suppliers, among them the biggest retail names in spices, chicken, and
cheese. Suppliers maintain separate facilities for McDonalds, and send their
employees who work directly on McDonalds accounts to short courses at
Hamburger University located near the Oak Brook home office. We develop
relationships with people, not with corporations, says a McDonalds spokesman.
22

Service: In the Kroc credo, service meant minimal customer waiting time. In 1990, Nations
Restaurant News reported that hotter and faster was a constant theme at McDonalds, and the
companys United States president, Ed Rensi, agreed: we are working on service now more than
anything..
23
In July 1992, McDonalds introduced a satisfaction guarantee, promising a free meal if
consumers were unhappy with either service or food quality. According to Rensi, its how were
going to be doing business in our restaurants from now on. . . . If youre not satisfied, well make it right
or your next meal will be free.
24







17
Herma M. Rosenthal, Inside Big Macs World, Newsday, 4 June 1989, 8.
18
Penny Moser, The McDonalds Mystique, Fortune (July 4, 1988): 112.
19
John F. Love, McDonalds Behind the Arches, Restaurant Business Magazine 86 (February 10, 1987): 122.
20
Drucker, 45.
21
John F. Love, cited in Herma M. Rosenthal, Inside Big Macs World, Newsday, 4 June 1989, 8.
22
Bertagnoli, 22.
23
Bernstein, McD at 35.
24
Milford Prewitt, Sandwich Giants Wage Service War, Nations Restaurant News 26 no. 31 (August 3, 1992): 90.








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Cleanliness: In a television interview, Phil Donahue once asked Kroc: Did you really clean the
johns? Kroc replied, Youre damn right I did, and Id clean one today if it needed it.
25
Kroc had no
patience with dirty restaurants. According to one McDonalds executive:

When Ray read out an operator with a dirty store, you could hear him six blocks
away. . . Youre in the wrong business, and you ought to sell out, he would tell
them. After he got through reaming a guy out, he would talk to him like a son, and tell
him he knew he could do better.
26

After Krocs death, the obsession with cleanliness continued under McDonalds USA
President Rensi. When Rensi was asked Whats on your mind these days? he replied: Weve got
some 20,000 bathrooms that need to be cleaned every day.
27
Asked where McDonalds would be in the
year 2020, he replied: I cant tell you; I just want to make sure that all the bathrooms are clean
tomorrow.
28
To this end, top executives like Rensi spent 70 percent of their time visiting
McDonalds restaurants.
29
Rensi had one simple but fail-safe way to grade a store on its Q.S.C.: All
you need to do is walk into a McDonalds restaurant-or any restaurant, for that matter-and walk toward
the rest rooms. If you can smell them before you get there, you know theres a problem.
30

Value: From the time Ray Kroc began franchising, he viewed the 15-cent hamburger as a
core component of McDonalds image. Price discounting, however, was traditionally considered the
province of local franchisees. Moreover, by the late 1980s, corporate headquarters was preoccupied with
environmental (e.g., foam packaging) and nutritional issues. As one executive later explained:

As a prominent company, we obviously had to respond to public criticism. But
while they were the front-burner issues for the company, they were not front-burner
issues for heavy consumers of our products. If we had paid more attention to our
research, we would have realized that our number-one problem was value.
31

During the summer of 1990, McDonalds responded to competitive prices with a $1.99
promotion on kid-oriented Happy Meals.
32
According to McDonalds: Behind the Arches, The
results were eye opening to the systemtransaction increases ranging from 40 to 50 percent when the
Happy Meal was priced under $2.
33
By 1995, Extra Value Meals (combination meals that



25
Moser, 112.
26
Love, McDonalds: Behind the Arches, 144.
27
Bertagnoli, 22.
28
Peter Berlinski, Edward Rensi: President and Chief Operating Officer McDonalds U.S.A., Chief Operations
Officer McDonalds Corp, Restaurant Business Magazine, 87 no. 7 (May 1, 1988): 200.
29
Bertagnoli, 22.
30
Berlinski, Edward Rensi: 200.
31
Love, McDonalds: Behind the Arches, 293.
32
Richard Martin, McD Bruised by Upstarts in Sandwich Market War, Nations Restaurant News 24 no. 31
(August 6, 1990): 1.
33
Love, McDonalds: Behind the Arches, 457.








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included a sandwich, fries, and a drink) accounted for almost half of all menu transactions at
McDonalds, up from only 20 percent four years earlier.
34

To maintain profitability, McDonalds began an aggressive cost-cutting program. From 1985 to
1990, restaurant development costs in the United States had risen 50 percent. To reduce
construction costs, McDonalds reduced the size of its restaurants by a third, saving almost $150
million on the 324 U.S. units opened in 1993. Smaller, more efficient kitchen equipment also
yielded operating savings.
35
Other cost-cutting experiments included unwarmed buns (warmed buns
increase labor, electricity, and equipment costs); pasteurized, liquefied eggs; precooked meat patties;
frozen pancakes; self-service beverage fountains; and self-ordering kiosks.
36

Marketing strategy
From the beginning, Kroc envisioned McDonalds as a family restaurant. Thus a 1958
operations manual prohibited jukeboxes, cigarette machines, and public telephones. As Kroc later
explained: I had made up my mind that all hamburger joints had jukeboxes, telephones, and
cigarette machines, and that your wife and my wife wouldnt go to a place with leather-jacketed
guys and smoke-filled rooms.
37

Advertising: In 1969, McDonalds hired Needham, Harper, and Steers to create a new
advertising campaign. Needhams research indicated that a trip to a McDonalds was an event for each
member of the family that could be likened to an escape to an island of enjoyment. Kids could see the
mountains of french fries, moms could escape from meal planning, and dads could escape the hassles of
business.
38
The result was a theme song that advised: You deserve a break today, so get up and get
away to McDonalds. One of the best-known break commercials focused on cleanliness with
a musical production number and lyrics that began: Grab a bucket and mop, scrub from bottom to top,
before we open the door, put a shine on the floor.
39

Needham also distinguished McDonalds from its competitors in another way: The product
was almost never sold directly or separately, but rather as part of a package of positive human
experiences to be gained from a McDonalds visit. Within the company, this strategy was
summarized in three words: food, folks, and fun.
40
In 1986, Chief Operating Officer Michael
Quinlan observed that McDonalds had two types of commercials. One says that McDonalds is a
food company that serves great food, with fast service, squeaky clean. . . . The other type is for the


34
Carol Casper, Cutting the Mustard; Hamburger and Sandwich Fast Food Restaurants, Restaurant Business 94 no.
3 (February 10, 1995): 138.
35
Richard L. Papiernik, Mac Attack? Financial World (April 12, 1994): 28.
36
Richard L. Papiernik, Big Macs Guns Target Margins to Blast Through Burger Battles, Nations Restaurant
News 29 no. 6 (June 26, 1995): 11; see also Bruce Horovits, McDonalds Trimming Fat from Operations, USA Today,
14 June 1995, 2B.
37
Love, McDonalds: Behind the Arches.
38
Love, McDonalds: Behind the Arches.
39
Love, McDonalds: Behind the Arches.
40
Love, McDonalds: Behind the Arches.








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general image of the company, what the public thinks about McDonalds. Good for kids, a happy
place.
41

Children: Kids were an integral part of the focus on families. While some adults found the
idea of a 15-cent hamburger distasteful, by the end of the 1950s a number of franchisees realized that
children liked coming to a places that sold their favorite foods in an environment that gave them a
chance to place their own orders and to be entertained by watching the cooking process.
42
Thus
marketing to children became a way to reach adults. As Minneapolis franchisee Jim Zein later explained:
I knew if we could get the kids, we would get their folks, too. Zein also concluded that childrens
television was the best way to reach children. He soon began devoting his entire advertising
budget to three childrens show in Minneapolis.
43

Zeins success prompted franchisees in other cities to target children through television. In
1963, the Washington, DC partnership of John Gibson and Oscar Goldstein introduced Ronald
McDonald, played by local TV personality Willard Scott. According to Scott: the concept was that
Ronald did everything kids like to do, and the commercials showed him roller skating, biking,
swimming, or playing baseball. Ronald was their pal. Ronald made his national debut in 1965 and
eventually became the only commercial character in the United States with a recognition factor
among children equal to that of Santa Claus.
44

The Needham agency bolstered Ronalds appeal by creating commercials set in
McDonaldland, a fantasy land peopled by Ronald McDonald, the Hamburgler, Mayor McCheese,
Officer Big Mac, and Grimace (a character that sucked down milkshakes). Soon these characters
were incorporated into restaurant playgrounds called Playlands, a key part of McDonalds focus on
children.
45
By 1995 about 40 percent of McDonalds restaurants had playgrounds for children.
46

Happy Meals: McDonalds also relied on promotions such as Happy Meals to attract
children. The first Happy Meal, introduced in 1977, combined a hamburger, french fries, and a soft
drink packaged in boxes designed to look like cars in a circus train. The first national Happy Meal
promotion, Star Trek, followed one year later. Happy Meals soon became the companys most
important promotion. During a 1983 Happy Meals promotion featuring Hot Wheels die-cast cars, the
company purchased 44 million toy vehicles.
47
Although McDonalds initially offered one or two
promotions each year, the company was forced to add additional promotions because the kids were
disappointed when they didnt get a Happy Meal.
48



41
John Gorman, McDonalds Fast-Rising Burger King, Chicago Tribune, 13 October 1986, 1
42
Love, McDonalds: Behind the Arches.
43
Love, McDonalds: Behind the Arches.
44
Love, McDonalds: Behind the Arches.
45
Love, McDonalds: Behind the Arches.
46
Drucker, 45. see also The Lettuce and Tomato Wars, Fortune (December 9, 1985): 10-11.
47
Love, McDonalds: Behind the Arches; see also Jane W. Applegate, Good for Tots; Restaurants Find They Can
Use Toys as Well as Taste to Win Over the Under-10 Crowd, Los Angeles Times, 23 October 1988, B1.
48
Love, McDonalds: Behind the Arches; see also Applegate, B1.








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Premium Hamburgers
McDLT
In 1985, McDonalds responded to three years of attack from Burger King and Wendys with its
first new burger since the Quarter Pounder, introduced in 1972. The new hamburger, dubbed the
McDLT, was a quarter-pound hamburger served in a double-cup foam-box package that separated the
hamburger from its condiments (lettuce, tomato, mustard, ketchup, mayonnaise, onions, and
pickles). Although as many as 1,800 restaurants offered the sandwich by mid-1985, McDonalds
launched the McDLT nationally in the first week of November 1985.
49
Television ads claimed that the
hot stays hot and the cool stays cool and added that the McDLT could be the best-tasting lettuce
and tomato hamburger ever.
50

By the end of March 1986, promotional spending for the McDLT was approaching $100
million.
51
During a public speaking engagement in April, McDonalds Corporation President and
COO Michael Quinlan admitted that the McDLT was nothing more than a Quarter Pounder with
lettuce and tomato. Then how could McDonalds call the McDLT a new product? Quinlan
responded: Were we selling it two years ago? No. Now were selling it. Its a new product.
52

In October 1986, Advertising Age reported that McDonalds was putting heavy pressure on
the Leo Burnett Company advertising agency to buttress McDLT sales. One source said the
sandwich was heavily media dependent, meaning that when advertising slowed down for the
sandwich, so did sales. Several months earlier, McDonalds forced a change in the personnel
handling its account at the Burnett agency. The result was a new series of ads that employed
celebrities proclaiming the McDLT was misnamed, because it contained more than a burger, lettuce,
and tomato.
53
By the end of the year, however, ADWEEK was predicting that the McDLT could be
headed for a McFlop.

McLean Deluxe
In the spring of 1991, McDonalds replaced the McDLT with the McLean Deluxe, which
featured a hamburger patty mixed with carrageenan (a seaweed derivative). The new sandwich
contained 320 calories and 10 grams of fat, 16 grams fewer than a Big Mac.
54
Early reports from
some franchisees indicated that the McLean Deluxe accounted for three percent to four percent of
sales, but others questioned the value of a product that requires high promotion, offers questionable
sales growth and mixed taste results. As one franchisee said: Ive been in this business since the

49
Top 100 Advertisers, Advertising Age (September 26, 1985): 110.
50David Zuckerman, Burger Giants Launch New Product Assaults; McD Speeds Rollout of McDLT Sandwich,
Nations Restaurant News 19 (November 18, 1985) 1. see also Barbara Lippert, McDLTS Wheel of Fortune, The
Record, 23 November 1986, 8.
51
Brian Moran, Herb Helped BK Visibility, But Little Else, Advertising Age (March 24, 1986): 1, 120.
52
Moran, 1, 120.
53
Scott Hume and Patricia Winters, Fast Foods on Grill, Advertising Age (October 20, 1986): 1, 110.
54
Drucker, 45.








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day I walked out of college 24 years ago, and Ive never had a customer say to me, Gee, I wish you
guys had healthful food.
55
One analyst agreed, noting that People talk thin and eat fat.
56
When
McDonalds finally discontinued the McLean Deluxe in January 1996, Vice President Starmann
offered the same explanation: People talk thin and eat fat.
57

Arch Deluxe
To replace the McLean Deluxe, McDonalds began testing a new hamburger called the Arch
Deluxe. The May edition of Mac Today reported that the Arch Deluxe was a new flagship brand
with a brand new taste thats paving the way for a dramatic refreshening of our entire menu. Mac
Today continued: While the Arch Deluxe will help regain the balance between being special for
kids and being special for adults, an entire line of Deluxe sandwiches will be aggressively tested to
capitalize on the tremendous adult momentum it generates. Objectives for the launch included (1)
creating a $500-million brand by the end of 1996; (2) inviting adults back to McDonalds by
enhancing our adult and food image; and (3) generating system unity and pride.
58

The Arch Deluxe was created by Andrew Selvaggio, who spent two years developing the
new sandwich. Before joining McDonalds, Selvaggio served as the head chef at the Pump Room, an
upscale Chicago restaurant. According to Selvaggio, the Arch Deluxe was a home-style that would
ring back memories of ,When I was a kid. . . . A reporter who interviewed Selvaggio noted that the
new sandwich had leaf lettuce that looks torn, rather than shredded lettuce that looks processed,
and two mustards, as if the refrigerator had been raided. Selvaggio called the potato roll bun soft and
nurturing. He continued: Black pepper and hickory-smoked bacon give this sandwich an
outdoorsy taste. . . . The sandwich has an adult taste. But its not any one bite. . . . Its how the sandwich
makes you feel.
59

According to McDonalds, consumer reaction to the new sandwich was positive. Internal
research reported in Mac Today revealed that 72 percent of consumers think the chain has the best
burgers for kids, but only 18 percent say it has the best adult burger. However, Eight out of 10
adults who tried the Arch Deluxe said they would buy it again, and two-thirds said it is equal to or
better than the fast-food burgers they eat most often.
60
While these results were encouraging,
McDonalds executives wondered about the kind of launch campaign that would be needed to insure the
success of the new burger.




55
Milford Prewitt, McLean Triggers Sales, Questions; McD Licensees Enjoy Traffic Surge, Ponder Long-term
Outlook, Nations Restaurant News 25 (20), May 20, 1991, 1.
56
Richard Turcsik, McDonalds Beefing up Taste of McLean Burger, Supermarket News 42 no. 22, (June 1,
1992): 43.
57
Drucker, 45.
58
Louise Kramer, McD Targets Adults with New Menu Line, Nations Restaurant News 30 no. 18 (May 6, 1996):
1.
59
Drucker, 45.
60
Drucker, 45.








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Exhibit 1

MCDONALDS: THE ARCH DELUXE LAUNCH

The Largest 25 Restaurant Chains Sales


1994 U.S. Total U.S. %
Company Name Sales ($000s) % Change Units Change
1 McDonalds $14,941,000 5.3 9,744 5.0
2 Burger King 6,100,000 9.3 6,327 4.4
3 Pizza Hut 4,858,000 1.2 8,399 5.4
4 Taco Bell 4,160,000 11.9 4,453 20.6
5 Wendys 3,887,200 9.4 3,998 5.5
6 KFC 3,500,000 2.9 5,149 0.4
7 Hardees 3,427,848 1.7 3,444 2.1
8 Dairy Queen 2,370,000 3.5 4,914 1.1
9 Subway Sandwiches 2,235,000 10.6 8,949 14.5
10 Dominos Pizza 2,085,000 (0.7) 4,239 (2.3)
11 Little Caesars 1,930,000 0.0 4,700 2.0
12 Red Lobster 1,776,000 5.2 628 4.5
13 Dennys 1,715,701 1.1 1,490 2.7
14 Arbys 1,696,076 11.0 2,621 4.2
15 Shoneys 1,346,446 2.1 922 0.8
16 Dunkin Donuts 1,187,519 10.4 2,622 12.0
17 Olive Garden 1,094,000 8.2 447 8.8
18 Big Boy 1,030,000 2.0 850 (0.2)
19 Jack in the Box 1,026,900 2.0 1,208 4.0
20 Long John Silvers 932,843 3.3 1,440 2.1
21 Applebees 887,600 45.9 505 39.9
22 Chilis 856,265 15.2 379 10.5
23 Sonic Drive-Ins 802,598 11.0 1,403 7.3
24 T.G.I. Fridays 783,544 12.5 277 14.0
25 Cracker Barrel 710,922 22.9 201 18.9
Total/Average $65,340,462 8.3 80,309 7.5
Source: Schroder Wertheim & Co. Inc., March 7, 1996, Report No. 1717851.























































































































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Exhibit 2

MCDONALDS: THE ARCH DELUXE LAUNCH

McDonalds and Industrys Total Units by Country


1994 1995
United States
Operated by franchisees 7,849 8,180
Operated by company 1,546 1,634
Operated by affiliates 349 527
Total 9,744 10,341
Outside of the United States
Operated by franchisees 2,609 3,060
Operated by company 1,537 1,879
Operated by affiliates 1,315 1,529
Total 5,461 6,468
Total Units 15,205 16,809
Total Units by Type of Operator
Operated by franchisees 10,458 11,240
Operated by company 3,083 3,513
Operated by affiliates 1,664 2,056
Total 15,205 16,809
Satellite Restaurants
United States 494 1,027
Outside the United States 251 544
Total 745 1,571
Systemwide Countries 79 89
Traditional Restaurants by Country
Japan 1,169 1,482
Canada 824 902
Germany 570 649
England 530 578
Australia 454 530
France 353 430
Brazil 195 243
Netherlands 110 128
Mexico 113 132
Other 1,394 1,938
Total 5,712 7,012

Source: Wheat First Securities, Inc., February 5, 1996, Report No. 1702803.











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Exhibit 3

MCDONALDS: THE ARCH DELUXE LAUNCH

Total Systemwide Dollar Sales (in millions of dollars)


1994 1995
United States
Operated by franchisees $11,964.4 $12,474.5
Operated by company 2,550.2 2,725.1
Operated by affiliates 426.4 705.6
Total 14,941.0 15,905.2
Outside of United States
Operated by franchisees $5,181.8 $6,648.1
Operated by company 3,242.4 4,138.4
Operated by affiliates 2,622.2 3,222.2
Total 11,046.4 14,008.7
Total systemwide sales 25,987.4 29,913.9
Total systemwide sales by type of operator
Operated by franchisees $17,146.2 $19,122.6
Operated by company 5,792.6 6,863.5
Operated by affiliates 3,048.6 3,927.8
Total 25,987.4 29,913.9


Source: Wheat First Securities, Inc., February 5, 1996, Report No. 1702803.







-13-
Exhibit 4

MCDONALDS: THE ARCH DELUXE LAUNCH

McDonalds Hamburger University


McDonalds leaves nothing to chance in making sure its employees know the business and
company philosophy. From day one, from crew to upper management, employees are indoctrinated
into the McDonalds way. Training in McDonaldland is a real fundamental element, says Keith
Magnuson, director of operations development. When youre a crew person, the first thing you go
through is training, and that training is an ongoing process. The same thing happens with
management. It culminates at HU [Hamburger University].

About 3,500 students a year comprised of franchise management, corporate employees,
prospective licensees, and suppliers attend HUs two-week intensive course in management,
equipment, maintenance and the McDonalds corporate culture. By the time they get there, most
have had about 2,000 hours of training. From all parts of the McDonalds empire (the session I
attended had acolytes from Sweden and Brazil), they come to sit in state-of-the-teaching-art
classrooms replete with translation booths so the McD mantras can be interpreted in a passel of
languages. The training is motivational as much as instructional, relying on techniques borrowed
from transactional analysis. Games and contests reinforce lessons: One competition calls for
participants to put together a shake machine in less than 20 minutesblindfolded.

We want to pump em up and send em out raring to go, says HU professor Tom Warwick
during the graduation banquet, an event with the fervor of a pep rally before the big game. While it all
appears rather hokey, scoff not at a degree in hamburgerology. Eighteen courses and programs can be
credited toward degrees in restaurant or food management at several universities, and the button-
down boys at IBM know a good thing when they see it. They frequently check out the
McDonalds training program.

We have a saying . . . A lot of conversations with McDonalds executives, who have
nearly as many maxims as they do franchises, begin this way. We have two employees: those who
serve customers and those who serve those who serve customers, says Randy Vest, the dean of
Hamburger University. In other words, McDonalds workers, whether at the retail level or in the
executive offices, must be part of a team.

Source: Excerpted from Herma M. Rosenthal, Inside Big Macs World, Newsday, 4 June1989, 8.







-14-
Exhibit 5

MCDONALDS: THE ARCH DELUXE LAUNCH

The Search for Consistently Perfect French Fries


First Steps
In 1954 Ray Kroc adopts the Chicago method of cooking french fries in two steps (blanche for
three minutes in the morning and finish-fry for two minutes later in the day).

Kroc also contacts Interstate Foods, a supplier of beef-fat based shortening, which eventually
develops a customized shortening formula for McDonalds.

Process Improvements























































Improvements
Monitoring temperature and time
settings on fryer.

Monitor vat temperatures.
Use No. 1 Idaho Russet Potatoes
Reasons: oblong shape and
high solids content.

Cure potatoes for three weeks
(permits sugars to be converted
to starches)
Encourage specific planting and
fertilizing methods.
Find processors willing to invest
in modern storage facilities with
automated temperature controls.
Learnings
Vat temperatures still vary
Depends on solids content
of potato
Solids variability depends
on storage time, storage
temperature, and planting
techniques


Source: Love, McDonalds: Behind the Arches, 122.