Business Model Canvas For Restaurant – With approximately 40,000 restaurants in more than 100 countries, McDonald’s business model depends primarily on the sale of McDonald’s products by their franchisees, who typically lease McDonald’s-owned properties. The business model was first adopted by brothers Richard James and Maurice James MacDonald, who sold their business to Ray Kroc, their first franchise agent, for a whopping $2.7 million in 1961.
Launched in 1948, the Speedy service system was a precursor to McDonald’s. It was started by two McDonald’s brothers, who adopted the drive-in and franchising concept for fast-food delivery. Their first franchise agent was Ray Kroc, who opened the first McDonald’s franchise in 1955. He bought the rights to their business for US$2.7 million in 1961, after seeing what their business and its business model could be.
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With its business model and emphasis on quick service and delivery of consistent quality products, McDonald’s became the most valuable QSR brand in 2021 with a brand value of US$154.9 billion and global revenue of US$19.21 billion.
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While McDonald’s business model is primarily focused on franchising, they generate income in other ways as well. However, under franchising, they operate it in three different ways. They:
Under this type of franchising, the franchisee invests its own capital to set up its restaurant, which includes operating and real estate costs.
McDonald’s supplies the products and receives a percentage from sales as royalties. The company also charges a predetermined amount for each franchisee seeking its license.
This type is the exact opposite of traditional franchising and is in use in more than 6,950 restaurants in more than 80 countries.
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This structure is most effective in McDonald’s business model. The company either leases long-term or owns the land on which the restaurant is built, while the franchisee pays minimum rent and ongoing royalties to the company for a period of 20 years.
The franchisee also pays for the restaurant’s signage and interior decoration, while receiving innovative and operational help from their parent company. This structure ensures that McDonald’s revenue streams are stable and predictable, while maintaining profitability amid low operating costs.
It is often used in China and Japan, where companies pay a percentage of sales as royalties for McDonald’s products. These products include hamburgers, french fries, milkshakes, soft drinks, salads, coffee and desserts.
Although small, McDonald’s has many restaurants that they own and operate, hire employees and order supplies themselves. However, the company’s goal is for 5% of its restaurants to be company-owned, while 95% will be owned and operated by franchisees.
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McDonald’s most profitable business model structure, traditional franchising, allows them to keep up to 82% of the revenue generated by their franchisees, as opposed to company-operated restaurants that only keep 16% of their revenue. The success of their strategy in the international market has resulted in the term ‘McDonaldization’.
Over the years, McDonald’s has developed and improved its marketing strategies aimed at increasing the profitability of its franchisees and parent company. Such strategies include enhancing the customer experience by focusing on people, product, price, place and promotion that work together with your mission statement.
They have also worked on their growth strategies by working on strategies to retain existing customers, regain lost customers, and convert non-customers. This was their 2017 continuous growth plan and was listed as follows:
In their effort to accomplish this, they made improvements to their digital platform, such as delivery services, adding an Experience of the Future (EOTF) through the introduction of new technologies to their restaurants.
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To further boost growth, they have also worked on diversity with the proposition of “Diversity IS Inclusion” and the acquisition of other companies such as Donato’s Pizza in 1968, and Boston Market in 2000.
McDonald’s has tried to remove all preservatives, artificial colors and other artificial ingredients from its seven burger products, offer healthy options on its menu such as Southern Grilled Chicken Salad, the option to add apple slices to its children’s meal. And recently, the introduction of McPlant. However, they have yet to catch up with other restaurants that offer more fast-casual options.
As stable as it seems, McDonald’s hold on the QSR industry — due to changing demands and economic conditions — may see some jostling and jostling in the years to come. However, this will not affect the revenue as much, because people still need to eat. Also, due to their innovative nature and strategies, they will eventually bounce back in the long run. Their franchising business model will aid in their recovery and/or growth.
Newsletter Want to receive new business model analysis straight to your inbox? Subscribe now and never miss any new posts! Leave this field blank if you are human: TripAdvisor is a lucrative platform business. It started as a user-generated travel review website and has evolved into adjacent areas over time. It has seen phenomenal growth in users and reviews and has won its place in the travel industry. In recent years, they have become a travel meta search engine as well as an online travel agency (OTA).
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It has given travelers a voice and a channel to share their experiences. In doing so, it became a significant player in a $1.3 trillion travel industry that was highly fragmented and had its biggest players in the hotel and airline industries as well as established players in offline travel agencies.
Most people don’t understand the difference between Booking.com, Expedia or TripAdvisor. While they are all demand aggregator platforms, there are important differences that you as an inventor should be aware of.
While TripAdvisor is much smaller by market capitalization than Expedia and Booking.com’s parent Priceline, it has more traffic and reviews:
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I describe TripAdvisor’s business model in the Business Model Canvas which consists of the 9 categories you see below. Broadly speaking, the left-hand side is the supply side from a business perspective and the right-hand side is the customer/demand side.
TripAdvisor describes their value proposition as “helping travelers decide where to stay, how to fly, what to do and where to eat” and save money by comparing “prices from 200+ booking sites”. And their value proposition for hotels, B&Bs, attractions and restaurants listed as “on top travel sites”, “reaching millions” and “delivering your message at the right time”.
TripAdvisor shows their value proposition to travelers (=users) and travel service providers (=partners), i.e. hotels, restaurants, attractions, rentals [source: TripAdvisor, Q1 ’17 results, pdf].
Platform businesses have two or more parties/customers that they need to deliver value to. For TripAdvisor, these are travelers and travel service providers, such as hotels, vacation rentals, attractions, restaurants. Users/passengers form the demand-side. Travel service providers, hotels, etc. are the supply side.
Tripadvisor Business Model Canvas
TripAdvisor also has an affiliate program through which brick-and-mortar (and online) travel agencies can access TripAdvisor’s listings and tools. This is the third aspect of their platform business model and I will briefly elaborate on it below.
TripAdvisor’s key partners are those that enable their various business models. For their advertising business model, all hotels and OTAs charge per click advertising costs. Their business model is that of agencies, hotels and OTAs that pay for direct bookings. For their restaurant business, subscription partners and food delivery platforms are important. And of course, general search engines are important in feeding organic traffic.
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TripAdvisor’s core activities, like all platform businesses, are to enhance the platforms indirect network effects. Some of the important levers are: (1) adding valuable content and inventory (2) enhancing the customer experience (3) enhancing the value proposition.
Network effects are at the heart of TripAdvisor’s business model [source: investor preso, Q4’14, pdf]. There are direct network effects between content creators and other users but also powerful indirect network effects between users and hotels
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A key function of key resources and assets in a platform business model is to underpin the indirect network effects that are at the heart of this business model. For TripAdvisor, these are reviews (content) and their inventory (stock of hotels, restaurant attraction reviews and bookables). Other key resources (and assets), such as webpages and mobile apps, are meant to provide a customer experience that is all about reducing friction.
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TripAdvisor segments on both sides of the platform, hotels, restaurants, attractions as well as travelers. Can do hotels, restaurants, attractions
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