Thursday, May 31, 2012

Term Paper on McDonald’s

Term Paper on McDonald’s

Introducing McDonald’s into Kazakhstan
“McDonald's is the leading global foodservice retailer with more than 32,000 local restaurants serving more than 60 million people in 117 countries each day ( In 1940 two brothers, Dick and Mac McDonald, opened a restaurant in United States, which was offering a wide menu for the visitors and the service for those, who wanted to purchase food straight from the car. In 1954 Ray Kroc became the first franchisee of Mc Donald’s (Daszkowski; About.Com). He has brought a new opportunity for expanding to the company.

The success of the two entrepreneurs has attracted the attention of American businesses, which were willing to join and to further develop its chain together with them. At present, Mc Donald’s franchise costs $45,000; however, there are many other costs and investments which need to be made in order to open a new restaurant ( Despite of the company’s popularity and success, its restaurants are still not integrated in several countries. The following paper is going to examine one of such countries, Kazakhstan. It is going to describe the previous failure of Mc Donald’s to enter Kazakh market and its grounds. It also will propose several actions, which need to be made by Mc Donald’s in order to successfully expand to the new market.

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Kazakhstan is located in Asia and is surrounded by such countries as Russia, China, Kyrgyzstan, and Uzbekistan. Its total area is 2 717 300 m2 and its population is 15 399 437. The countries’ two major religions are Islam (47%) and Russian Orthodox (44%). The country is rich with natural resources and agriculture, which allow it to be steadily developing.

In 1991 Kazakhstan became an independent country after the fall of the Soviet Union. The independence was followed by the significant changes in the governmental operations, which were introduced by the president, Nursultan Nazarbayev in 1997. During the same year the capital moved from Almaty to Astana. The economic situation in the country has worsened after its independence, and its gross domestic product (GDP) has fallen to 61.4% by 1995 (comparing to 1990). However, after 2000 country’s GDP started improving and has increased by 9.6%. Its economy continues growing, and in 2005 it was included in the top ten world fastest-growing economies. (

Mc Donald’s history in Kazakhstan
As was mentioned above, Kazakhstan growth has experienced serious fluctuations in the time period between 1990 and 2000. The separation from the Soviet Union and other countries, which were its members, has resulted in the decline in the country’s GDP and the overall performance. It took Kazakhstan and its government ten years to restructure the country and its operations. Due to these changes, country has significantly fallen behind in its development, and its level is still very low comparing to, for example, European countries.

Due to this and several other reasons Mc Donald’s appeared to be unsuccessful in expanding its business to Kazakhstan. The country is still in the list of the states, which do not have a single Mc Donald’s restaurant even in their capital cities ( Despite of a large number of Mc Donald’s restaurants in the Kazakhstan’s big and influential neighbor, Russia, the former Soviet Union member does not rush with introducing a chain of the fast food restaurants. There are several explanations to why Mc Donald’s has difficulties in entering Kazakhstan’s fast-food market.

First of all, Kazakhstan has a very strong culture, which is also reflected on its food. However, the country is popular not only because of its traditional food, but also because of the variety of cuisines of different countries one can find there. The country is full with restaurants, which offer cuisines of such cultures as Kazakh, Russian, European, Japanese, Indian, Mexican, Turkish, Argentinean, Cuban, etc (Blogger, 2009). Despite the variety of kitchens in Kazakhstan, one of the leading fast-food chains did not succeed in entering this developed and competitive market. Kazakhstan has spent many years being a part of a Soviet Union, and this has left a great effect on the country’s mentality and living style. For example, for many years Kazakh perception of having a good meal was sitting in the elegant and fancy restaurant for a long period of time, having few courses and drinking alcoholic beverages in between (Blogger, 2009). Mc Donald’s, on the other hand, was offering a restaurant, which did not include national dishes and had fewer choices in the menu. In addition to this, together with the fast service, which Mc Donald’s offers to its customers, the time a person spends in the restaurant is also expected to be shorter in comparison to the regular restaurants.

Second of all, as was mentioned above, Kazakhstan’s two main religions are Islam and Russian Orthodox. 47 percent of Kazakhstan’s population are religious and have certain food restrictions. Muslims, for example, do not eat pork and have different laws, which need to be observed when killing an animal for consumption. Mc Donald’s restaurants have their own processes of delivering and preparing the meat, and, in addition to it, most of the products offered by Mc Donald’s include meat.

Finally, Kazakhstan has a very developed agriculture sector. Its territory allows farming activities, and a great part of the population has its own farms and livestock. Most of the restaurants in the country receive supplies from the domestic farmers and producers. Kazakh people are very careful about the quality of their food and its preparation. Mc Donald’s, in turn, has its own suppliers, who deliver the ingredients, which are unknown to its customers. For example, Mc Donald’s in Russia has signed a contract with a burgers supplier from Argentina (

An additional important fact about Kazakhstan, which Mc Donald’s would have to take into consideration in the future, is that in the 19th century it was found that a large number of Kazakhs cannot consume milk because their organisms cannot process lactose (Blogger, 2009). This is important for Mc Donald’s, because of its popular milkshake, which is one of the key items in the menu.

As was mentioned above, Kazakhstan has suffered a significant decline in its economy after the fall of the Soviet Union. Since 1991 its GDP and other financial factors were strongly below the average, and it took the country ten years to recover from it. Only by the year 2000 Kazakhstan started showing an increase in its economical activities. In 2007 country’s GDP was $102.5 billion, which was 2.2 percent lower than in 2006, but 8.5 percent higher than in 2002 ( Due to the strong agricultural and natural resources sectors together with certain changes in the governmental activities, Kazakhstan succeeded in improving its situation and performance significantly and was recognized as one of the fastest-growing economies. These changes have attracted a large amount of foreign investors.

Mc Donald’s can have a great potential of introducing its fast-food service to the Kazakhstan’s market at present. In addition to the improving economic factors, Kazakh people’s lifestyle is also changing. Consequently, fast-food industry is becoming stronger and more influential. Turkish fast-food restaurants, for example, are becoming strong competitors for the traditional Asian cuisine (Blogger, 2009). They offer a famous doner-kebab to Kazakh people and become very successful in the industry. According to Blogger, “Obviously, catering in Kazakhstan is changing […] the speed of modern life is dictating its rules”, and Mc Donald’s could consider these changes as an opportunity for expanding its business into another Asian country.

Kazakhstan has developed significantly in the course of the last ten years. The country has one of the strongest economies in the world. It is rich with natural resources and has a very strong and developed export system. Country’s unemployment rate continues reducing, and the individual income rate is becoming higher each year. The country has nearly all the resources for supplying its residents and businesses. All the advantages of entering a Kazakhstan’s market can assist Mc Donald’s as good tools for achieving this goal.

There are several criteria, which need to be met by an individual or a group of people, who are willing to join Mc Donald’s and to purchase a franchise for building a restaurant in Kazakhstan. Currently Mc Donald’s is searching for people, who have “High integrity, business experience in the market, history of success, ability to work well with a franchisor, retail experience, knowledge of the real estate market and significant capital” ( Company needs reliable people, who are familiar with the business practices in the country, where it is going to expand. Kazakhstan is not an exception. The reason, why Mc Donald’s needs partners, who will be familiar with the country’s culture and business practices, is because the market needs to be carefully examined and researched before the fast-food restaurant chain’s entrance. Obviously, the success of one single franchise will influence the entire company. Therefore, it is in Mc Donald’s interest to sell the rights to the people, who will be able to adapt its business to the country’s market.

According to and there are several requirements, which need to be met in order to become Mc Donald’s franchisee:

The cost of a Mc Donald’s franchise alone is $45,000. However, the total investment, which needs to be made in order to run Mc Donald’s restaurant or a chain of restaurants, reaches $950,200-$1,800,000
An individual or a company, who is willing to purchase a franchise, is required to have $100,000 in cash liquidity. In addition, there must be a previous experience in running a business
If there is a need for the loan, Mc Donald’s requires paying 25% cash as a down payment, and the rest financed with the loan for no longer than seven years
There need to be twenty employees hired to work for the restaurant
In return, Mc Donald’s provides with a mandatory training, which takes one week for headquarters and twelve to 24 months for in-store employees. It also supports the franchisee with “newsletters, company meetings, security and safety procedures, a grand opening and toll-free help phone line”. Mc Donald’s also helps with advertising campaign.

Steps toward the expansion
Before introducing Mc Donald’s to Kazakhstan franchisee needs to examine its market. The first step, which needs to be made, is conducting a research. The company must find out, whether its restaurant will be successful in the new market. In order to do so, it needs to examine Kazakh people’s reaction to the Mc Donald’s future entrance to the market. Future customers need to be asked, whether they believe the need another fast-food restaurant in their cities. This survey must be aimed at finding out, what reputation Mc Donald’s has in Kazakhstan, and how do Kazakh people perceive it.

According to Amirbekov, the research, which was made in Kazakhstan several years ago, has shown that majority of the country’s residents were not aware of Mc Donald’s existence (Kazakhstan Expert). However, these results might vary in different cities and among people of different ages.

Since Kazakhstan has two biggest and most developed cities, Almaty (former capital city of Kazakhstan) and Astana, Mc Donald’s needs to consider opening its restaurants in both cities. Many businesses and big organizations are still located in Almaty, and this city is considered to be the business center of Kazakhstan (Blogger, 2009).

After making a research in the market company (together with the franchisor) needs to come up with the effective business plan. There is a fixed set of marketing activities, which a franchisee needs to consider. However, depending on the country, several adjustments need to be made. A business plan for introducing Mc Donald’s restaurants to Kazakhstan must include all the necessary steps, which are required to be performed for this task. It must include the budget, people or organizations involved in the project, and time frames for each task. A business plan must be prepared by the management team in Kazakhstan, which will be formed at the same time, when the franchisee is chosen.

First thing that needs to be considered in the business plan is whether Mc Donald’s should be introduced to only one city or to both Almaty and Astana at once. Astana is the capital of Kazakhstan, while Almaty is its most known city. The significant fact is that the population in Almaty is more than twice bigger than in Astana. In Astana population is 602,480, while in Almaty- 1.3 million ( In addition to this, Almaty seems to be more developed than and ahead of Astana.

Mc Donald’s could consider introducing its restaurants to both cities at a time; however, this could be too risky for the company. One of the approaches would be to introduce the first restaurant in Almaty and to take some time for observing and evaluating its performance there. After an examination of its performance Mc Donald’s could enter Astana.

Mc Donald’s management must examine country’s customs and its people’s habits. This knowledge will assist the company in understanding both the core issues and opportunities of this project. This knowledge will also allow Mc Donald’s to introduce certain changes to its business practices. Such changes could be, for example, having a domestic supplier of meat and other ingredients. Mc Donald’s could enter a partnership with several farmers, who would deliver all the necessary products at the required amounts.

Further changes could include introducing an advertisement campaign, which will be aimed at convincing people of different religions that Mc Donald’s food is healthy, nutritious, and does not include any prohibited or unhealthy items. One of the greatest advantages of Mc Donald’s is that it does not include any alcoholic beverages in its menus, which could seem attractive for the people, who follow Islam religious views. In addition, the company could introduce a special item in the menu, which would be made out of the products, which are made according to the Islam laws. Like, for example, Israel, where there is a kosher Mc Donald’s, Kazakhstan could have a division, which would produce food, which can be consumed by Muslims.

Before creating an advertisement campaign, Mc Donald’s must take into consideration two important aspects. First is that there are two major religions in the country, Islam and Russian Orthodox, which in total is 91 percent of the entire population. Second factor is that Kazakhstan is a bilingual country. Its ‘state’ language is Kazakh, while Russian is its ‘official’ one ( However, Russian is used mostly in business.

Above are mentioned few of the actions, which can be performed by the company. In case these steps will bring satisfying results in Almaty and Astana, Mc Donald’s can move forward and expand into other large cities in the country, such as Qaraghandy, Shymkent, Taraz, Pavlodar, Kyzylorda, etc. However, before entering those cities Mc Donald’s must consider that due to the large territory of Kazakhstan, markets might vary from city to city, and other large cities can have less potential for launching the fast-food restaurants in them. Market examinations and researches, therefore, must be made separately for each city.

Expected growth
There are fixed fees, which a franchisee must pay to Mc Donald’s. According to, there are two types of fees: service fee and rent. Service fee is based on the restaurant’s performance and is four percent of the monthly sales. Since Mc Donald’s usually owns all of the property, the second fee, which franchisees must pay, is the rent.

These fees (and the growth in general) cannot have any exact predictions, which can be expected by Mc Donald’s, from expanding to Kazakhstan market. However, in case all the steps will be made accurately, Kazakhstan’s new Mc Donald’s restaurants will have a great potential in delivering big profits to the company. The number will vary from city to city, and it will greatly depend on the target group, which a newly introduced restaurant chain and its advertisement will be aimed at. In addition to the success of the company in the new market, a global economy will play a big role in the development of Mc Donald’s business. Kazakh financial stability was not affected significantly by the world’s economy collapse; however, as a country surrounded by and financially connected to its neighbors it might experience a slight decline within next few years.

The effect of the global financial crisis on the country must also be considered by Mc Donald’s before entering a new market. However, as was mentioned above, the events in the global economy’s decline did not have a great effect on Kazakhstan’s performance. Therefore, Mc Donald’s does not have to delay its entrance to the country’s market.

The growth and the profit from the newly introduced restaurants introduced by Mc Donald’s will depend on their location. Astana is the capital of Kazakhstan, and, therefore, some of the businesses and big organizations were moved to this city. As in any capital, the lifestyle in Astana is expected to be more loaded and busier comparing to other cities in Kazakhstan. Almaty, on the other hand, is twice bigger population wise.

The level of Almaty, in general, is considered to be higher than in Astana. The reason for this is that Astana has become a capital comparatively not so long ago. It is still less known than Almaty. Therefore, the business growth in Almaty is expected to be higher than in any other city in Kazakhstan.

Other cities in Kazakhstan are less developed than those two, which were previously mentioned. Despite of that, they still can have a great potential for Mc Donald’s. For example, Qaraghandy is the second largest city in Kazakhstan after Almaty. This means that it has a larger population and, consequently, more potential customers for the company. Other cities, which were mentioned above are also larger than Astana, and, therefore, have great opportunities for Mc Donald’s entrance to their markets population wise. However, these country’s residents’ purchasing power might be below the average since they are less developed and might not have the necessary environment for conducting a business. In any case, it will take some time for Mc Donald’s to introduce its restaurants to Almaty and Astana and to examine its success there. This means that in this period of time, the situation in other large cities of Kazakhstan can still improve and offer good opportunities to the company.

This paper has examined both the situation in Kazakhstan and Mc Donald’s opportunities in this country. Despite of the previous negative experience of Mc Donald’s in Kazakhstan, it has a great potential of introducing its restaurants’ chain at present. The country has developed in the course of ten years, and its economy has significantly improved. Two major cities, Almaty (the business center) and Astana (the capital), have the most opportunities for Mc Donald’s, since these cities are the most developed among all other places in Kazakhstan.

Apart from the great amount of opportunities, which Mc Donald’s can find in the country, it might also be faced with certain difficulties. These difficulties can be connected with, for example, country’s main religion and food preferences. Since Islam is one of the two main religions in the country, special changes must be applied to the business practices of Mc Donald’s as well as its menus. Advertisement campaigns must also be aimed at the people, who have certain restrictions due to their religion. Mc Donald’s must clearly identify its target group and to concentrate mainly on it, because Kazakhstan is a country of many cultures, which demand different approaches.

This paper has also discussed the changes, which can be applied by Mc Donald’s in order to strengthen its position in the new market. One of them is introducing a special division, which will be aimed at producing food and beverages, which can be consumed by Muslims. Another change could be reconsidering the delivery of all the ingredients, including meat, and establishing domestic farmers as restaurant’s suppliers.

In case all the activities will be performed accurately by Mc Donald’s and its partners, the newly introduces restaurants are expected to produce high incomes for the company. In general, Kazakhstan market has a great potential and the necessary economical environment for Mc Donald’s expansion in case it will carefully think through all its activities.

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