a case study for organizational behavioral students

1. ManagementPracticesin Fast food Industry and its Impact on Employee and
Customer Retention
(Case Comparison of McDonald’s and Fri Chicks
Fortress Lahore, Pakistan)
Introduction
Fast food is food, which is prepared and served quickly at outlets called fast-food restaurants. A
restaurant is an establishment that serves prepared food and beverages on tables set for
individuals, pairs or larger groups, to be consumed primarily on the premises. Restaurants serve
a wide variety of food at a specified cost given on its menu card for on or off the premises
consumption. These includes eating establishments where customers are served at walkup or
drive away ordering counters for either on or off premises consumption. However, most good
restaurant serves food at tables to their customers for on-premises consumption. Many of the
restaurant chains, have enhanced their annual sales many times over, well beyond the limits of
the tablets they can server each day, by offering hot well packed meals through free home
delivery service on orders placed through a telephone call. It is a multi-billion dollar industry that
continues to grow rapidly in many countries.
Background
The fast-food industry is popular in Pakistan, the source of most of its innovation and
many major international chains are based there. The presence of multinational fast food
chains like McDonalds, KFC, Pizza Express, Pizza Hut, Subway etc. have somewhat

2. catered to the high income segment therefore developing a niche as upscale fast food
restaurants. Multinational corporations such as these typically modify their menus to cater to
local Pakistan tastes and most overseas outlets are owned by native franchisees to ensure that
cultural, ethnic, and community values are taken care of.
Additionally, multinational fast-food chains are not the only or even the primary source of fast
food in most cities of Pakistan. Many regional and local chains have developed around the main
cities of Pakistan (for example Bundu Khan in Multan) to compete with international
chains and provide menu items that appeal to the unique regional tastes and habits at
comparatively low costs. In Pakistan, multinational chains are considerably more expensive;
they usually are frequented because they are considered chic and somewhat glamorous and
because they usually are much cleaner than local eateries. However much of the middle-income
segment (which forms a major chunk of fast food goers) prefers visiting local outlets that
offer low cost fast food, hence more frequent visits.
Multinational Fast food chains like McDonalds rapidly gained a reputation for their
cleanliness, fast service and a child-friendly atmosphere where families on the road could grab a
quick meal, or seek a break from the routine of home cooking. Prior to the rise of the fast food
chain restaurant, people generally had a choice between greasy-spoon diners (kiosk) where the
quality of the food was often questionable and service lacking, or high-end restaurants that were
expensive and impractical for families with young children. Modern, stream-lined convenience
of the fast food restaurant provides a new alternative and appealed to consumers' instinct for
ideas and products associated with progress, technology and innovation.

3. Fast food restaurants have rapidly become the eatery "everyone can agree on", with many
featuring child-size menu combos, play areas and whimsical branding campaigns, designed to
appeal to younger customers. Parents can have a few minutes of peace while children played or
amused themselves with the toys included in the premises.
Many consumers see multinational fast food restaurants as symbols of the wealth, progress and
well-ordered openness of Western society and therefore become trendy attractions in many
cities around Pakistan, particularly among younger people with more varied tastes.
The Future of the Industry
The Pakistani economy is becoming increasingly service-oriented, and over the past
several decades, the foodservice industries that offer the highest levels of convenience
have been rewarded with strong sales growth. In the face of rising population, incomes and
increasingly hectic work schedules, a nearly insatiable demand for convenience will
continue to drive fast food sales. Fast Food Outlets will strive to find ways to make their
products even more accessible.
The value of consumer time, as well as the demand for consistent, high-quality food
products, will continue to shape the fast food industry. Fast food, once considered a
novelty, has become an increasingly significant part of the young generation’s diet. The role
of convenience in this dietary shift cannot be over-emphasized, and the future growth of the rest
of the foodservice industry will be driven in large part by its ability to find new ways to save
consumers’ time.

4. Management practices in McDonalds and Fri-Chicks Pakistan
McDonalds Corporation began in 1954 when it was decided by Ray Kroc that he would turn the
already successful Californian store owned by the McDonald brothers into a chain. And in today
society McDonalds is the world’s largest restaurant chain worth of $70 billion dollars. They have
had such great success by using good business practices and by knowing the needs of their
customers. McDonalds put great importance on long term relationships with suppliers and they
make sure the customers get consistent product quality.
On the other hand Fri-chicks is also an international restaurant and is successfully opening
several outlets in Pakistan but its unsuccessful in building its brand image as other international
restaurants have in Pakistan. There are several reasons to it which are explained in the
comparison of both the international food chains in Pakistan.
Experience at McDonalds
After visiting and interviewing the mangers of both the restaurants we found out major
differences in practices and their customer perception. In McDonalds when we gave them
university reference letter and showed the desire to meet the manager to our surprise we were
redirected to the HR department of that particular Branch (Fortress) which was a highly
organized department where people were working to maintain the quality standard of their
employees, the visit time was 11:30 am which is considered to be the less favorite time to eat fast
food restaurant but the restaurant had plenty of customers and the atmosphere was very clean and
worth sitting, in that hour of morning there was an electricity breakdown in the market palace but

5. it didn’t seem that the restaurant has any effect of that because proper backup system was
available to make the experience of their customers worthwhile.
Interviewing their HR manager Mr. Naveed Sajid we found out that they have some permanent
employees and have contracted workers who are loyal to the company and are working from the
period more than a year, they are trained and our management style helps us in retaining
employees. Proper training of a week is given to employees and it can be extended as per the
requirements. Hence we came out thinking that the management practices as they are a taught to
us and are a part of today’s globalized culture have a strong impact on the employee retention,
brand development and customer satisfaction that helps them in accomplishing their mission that
is to be their customers' favorite place and way to eat, and improvement of operations to provide
the most delicious fast food that meet our customers' expectations.
Experience at Fri-Chicks
We moved on to our next targeted restaurant which was Fri-Chicks (Fortress). As we stepped in
the restaurant our nostrils were filled with stench the restaurant had and first thing that came to
our minds were to leave the place immediately. We proceeded further and told them our reason
to be there, we were asked to wait, while waiting the things that we noticed were 1. No air
conditioning and ventilation system, no electricity backup system, only two customers were there
at the restaurant and 3 employees were there to greet the new coming customers.
After interviewing the branch manager (owner) of that outlet we found out that there exists no
such thing as a management culture. It was more like the rule of the owner. When we inquired
for any problems, the answer was that we have never encountered any problem and everyone is
so happy, after trying quite hard to know about the management practices and finding out none

6. we started asking indirect questions from the employees which helped us to reach to a
conclusion. We found out that there were no permanent employees in that restaurant and the
currently working employees had tenure of less than a year and there were no rules regarding
employee hiring and none of the employees received any training required to operate in the fast
food industry which was probably there because the employee turnover was high in that
restaurant. Although the prices of the food had minute variations form the McDonalds but the
atmosphere and the management ensured lesser number of customers visiting them in future.
Business Analysis
Financial RatioAnalysis 12/2007
GrowthRates % McDonald's Industry S&P 500
Sales (Qtr vs year ago qtr) -3.30 4.20 -3.80
Net Income(YTD vs YTD) 84.70 47.90 8.40
Net Income(Qtr vs year ago qtr) -22.60 -59.90 -94.80
Sales (5-Year AnnualAvg.) 6.53 8.14 13.26
Net Income(5-Year AnnualAvg.) 23.39 15.30 14.45
Dividends (5-Year AnnualAvg.) 32.36 22.36 12.30
Price Ratios
CurrentP/E Ratio 14.7 14.2 13.0
P/E Ratio 5-Year High N/A 9.5 12.5
P/E Ratio 5-Year Low N/A 4.7 2.0
Price/Sales Ratio 2.62 1.88 1.47

7. Price/Book Value 4.62 3.54 3.00
Price/Cash Flow Ratio 11.20 10.00 9.00
Profit Margins %
Gross Margin 36.7 32.1 39.4
Pre-Tax Margin 26.2 17.2 13.2
Net ProfitMargin 18.3 12.0 9.1
5Year Gross Margin (5-Year Avg.) 33.9 33.3 39.1
5Year PreTax Margin (5-Year
Avg.)
19.8 14.2 16.6
5Yearr Net ProfitMargin (5-Year
Avg.)
13.7 9.8 11.45
Financial Condition
Debt/Equity Ratio 0.76 .80 1.03
CurrentRatio 1.4 1.2 1.4
Quick Ratio 1.3 1.1 1.1
InterestCoverage N/A 1.2 29.9
Leverage Ratio 2.1 -5.3 1.9
Book Value/Share 12.00 10.00 19.75
Investment Returns%
Return On Equity 32.2 44.4 27.9
Return On Assets 14.9 11.3 8.1
Return On Capital 17.0 13.7 11.2

8. Return On Equity (5-Year Avg.) 19.7 22.8 20.6
Return On Assets (5-Year Avg.) 10.0 8.98 8.5
Return On Capital (5-Year Avg.) 11.4 11.0 11.5
Management Efficiency
Income/Employee 10,783 9,401 91,499
Revenue/Employee 58,806 98,207 1,000,000
Receivable Turnover 23.7 44.7 15.8
Inventory Turnover 125.7 98.7 12.3
AssetTurnover 0.8 1.1 1.0
Date Avg P/E Price/ Sales Price/
Book
Net ProfitMargin
(%)
12/07 26.50 3.13 4.49 10.2
12/06 16.10 2.66 3.45 13.7
12/05 15.80 2.25 2.81 13.5
12/04 15.60 2.20 2.87 12.2
12/03 17.10 1.85 2.62 8.8
Date Book
Value/
Share
Debt/
Equity
Return on
Equity (%)
Return
on Assets
(%)
Interest
Coverage
12/07 $13.11 0.61 15.3 7.9 9.5
12/06 $12.84 0.54 18.5 9.9 11.0
12/05 $11.99 0.67 17.0 8.6 11.0

9. Net WorthAnalysis 12/2007(inmillions)
1. Stockholders'Equity + Goodwill= 15,279.80+2,301.30 $17,581.10
2. Net income x 5 = 2395.10x5 $11,975.50
3. Shareprice = 58.91/EPS 2.02=$29.16 x2,395.10 $69,849.18
4. Number of Shares Outstanding x Shareprice =
1,165x58.91
$68,630.15
MethodAverage $42,009
Sources
1. www.mcdonalds.com
2. www.mcdonalds.ca
3. Strategic Management concepts and cases by Fred David 12 edition
4. Exploring Corporate Strategy text & cases 8th edition
Questions
1. Why both the restaurants have drastically different management practices while both are
competing in a global market and are at the same location? Give reasons?
2. Does local adaption contribute to business growth in a country? Explain McDonald’s
efforts to adapt to the culture of Pakistan?
12/04 $11.18 0.65 16.0 8.2 9.9
12/03 $9.50 0.81 12.6 5.8 7.3

10. 3. What efforts Fri-Chicks is making to compete with international fast food restaurants in
Pakistan?
4. Have you ever visited McDonalds and Fri-Chicks restaurant? Compare and contrast your
experience with both the restaurants.
5. How can Fri-Chicks improve its operations to compete successfully in the market?
Should it alter its strategies?