On Friday October, 14, 2005 at about 8pm, you could no longer order a Big Mac burger with french fries and your favorite soda in Jamaica. All the McDonald’s quick service fast food restaurants, which were famous for their burgers, french fries, ice cream, and irresistible chicken nuggets were closed and their overseas parent were feverishly searching for someone suitable to take over the franchise in Jamaica.
4 days later, on October 18,2005 the United States Embassy confirmed this in a cable to their Washington based head office, advising them of the franchise’s unfortunate demise. Outlining the situation, they wrote;
Friday, October 14, effective 8p.m. local time, all McDonald’s outlets remaining in Jamaica closed their doors. In a September 29 letter sent to Charge, the President of McDonald’s Caribbean Division Jose Hernandez stated that the company’s “intent is to continue the search for a qualified local franchisee.” The Jamaican locations have been operated by the parent company since 2003, when Patricia Issacs-Green sold her franchises back to the company.
Having been in Jamaica for just about 10 years, the franchise was just about to pick up, or so we would hope. For me, it was always a joy to make a stop at any one of the fast food outlets, especially coming into Kingston, or going to the Montego Bay airport. But what happened? What was their performance here in the 10 years like? The US Embassy continues in their cable;
McDonald’s had been operating in Jamaica since 1995. At its height, there were 11 stores around the island. This initial aggressive push, when few other U.S. “Quick-Service Restaurants” (QSRs) existed, proved too optimistic, and the local franchisee, Issacs-Green, scaled back to eight outlets. In 2003, however, she decided to sell her stores back to her corporate parent, ostensibly to “spend more time with her family and pursue other interests.” McDonald’s sent Steve Blackwood to Jamaica to run the operation while seeking a suitable franchisee to take over.
Admittedly, the writing on the wall was clear. McDonald’s the well loved and accepted global franchise had to make the unavoidably tough decision. It was not an easy, probably not even a familiar one, as they had, according to this 2008 article, over 31,000 restaurants in more than 100 countries serving more than 52 million people daily. Their cultural reach and wide-ranging impact was and continues to be extensive. The article further states, “McDonald’s has a sizable international presence; 65% of sales occur outside of the United States. In addition to developed markets like the U.K., Canada, South Korea and Australia, McDonald’s operates in fast growing emerging markets like China, India, Russia and Eastern Europe.” The global reach and influence of the American brand is unfathomable. However, this time they made a new discovery. McDonald’s stumbled upon at least one place in the world where it had to close shop, pack its bags, and re-think its strategy.
So Why Did It Fail In Jamaica?
Years later, the McDonald’s brand continues to boom. As at 2011, they operated in 119 countries recently opening restaurants in Bosnia, Herzegovina, and even much closer to home in Trinidad and Tobago; but the questions continue. Why did they fail in Jamaica? Could the government have done anything? Why would they allow a big foreign investor to leave without convincing them otherwise? Why would anyone, including the customers, employees, manufacturers, marketers or even the naysayers want to see the demise of McDonald’s in Jamaica?
REASONS FOR FAILURE
1. Burgers Too Small
Let me first address the unsubstantiated conclusion that many have assumed, that the primary reason for the demise of the brand was mainly the size of its burgers. An October 2005 Jamaica-Star article, titled Why McDonald’s Really Left Jamaica places the blame solely at the feet of Mcdonald’s for the size of its burgers, saying if it not big or ’nuff’ Jamaicans arent interested. They wrote;
McDonald’s though, must take most of the blame for their failure here, because for a fast-food franchise that boasts of selling billions of hamburgers worldwide, they should have done more research on the Jamaican approach to food. There is a reason why Burger King has managed to take root in Jamaica. Do you see the size of their hamburgers? A Burger King hamburger can hold you for a little while. I have seen people wrap up half of their Burger King lunch to snack on later. You can’t do that with a McDonald’s burger! Let’s just say that if you walked from your workplace to lunch at McDonald’s by the time you walked back it would have felt like you were just going to lunch. …and the article goes on to compare the burgers to cocktail patties. It continues below… It’s for that same reason why Taco Bell didn’t do so well. You eat a taco with all those vegetables and beans it’s not filling; all it gives you is gas. We don’t like that. Being full of gas is not as comforting a feeling as being full of beef and fries and bread. No sir. Being full of gas is not comforting at all. While passing gas may be a sign of good health, nobody wants to be that healthy. The thing is this, when most of these companies come here, people will flock to it because we are very foreign minded. We see these franchises on television and when we travel abroad, so when we see them coming to our shores, of course we’re going to flock to them.
Indeed this may be true. The problem is one that has exhibited itself as other Caribbean nations have seen the entry and exit of the fast food nation. In the same diplomatic cable sent from US Embassy in Kingston, Jamaica they made this comment;
This is not the first Caribbean island to lose McDonald’s, despite the subsequent presence and success of other Quick Service Restaurants (QSRs) like Burger King and Kentucky Fried Chicken. Becky Stockhausen, the Director of the American Chamber of Commerce and a longtime resident of Jamaica noted that Barbados and Trinidad and Tobago have seen the company come and go while others survive.
Furthermore, It was Maria Elena Santana, a spokeswoman for the restaurant company’s Caribbean Division who told the Associated Press that when interviewed by the Jamaica Observer in their October 9, 2005 report that “At the moment, we cannot continue to serve Jamaicans the way they deserve and expect.” What did she mean by that? Is it specifically related to the size of the servings, the burgers?
2. Intensive Training & Full-Time Commitment
If we want to continue talking about sizes however, the required training and exposure that any owner of the brand has to undergo would make the burger issue look like ‘chicken feed’, when you find out the magnitude of commitment potential owners have to make. Apparently the level of training and commitment required for operating the franchise is extensive (in terms of time and presence), and costly; two factors which also made it unattractive to possible suitors when the first investor, Patricia Issacs-Green of Three Rivers Management decided to call it quits on the business.
In an April 21, 2004 Gleaner article, a spokesperson for Three Rivers Management Company told Wednesday Business: “Both Joey Issa and Christopher Issa have made enquires. Mr. Issa has been made aware that if he did acquire the franchise, both he and his team would have to undergo extensive training by the head office in the United States.”
A February 11, 2004 gleaner article also stated that Beverley Lopez, who once operated the Taco Bell franchise yesterday said: “Yes we have had talks with McDonald’s with a view to acquiring the franchise but that fell through as a result of them requiring an owner/manager. They are also insisting that the owner/ manager of the franchise be extensively trained by the McDonald’s team. Their way of thinking was not in keeping with my ideas and that’s all I can tell you.”
Simply put, possible investors were not enamored by the level of commitment and sacrifice they would have to make. But do they have a point? Were the requirements too much?
3. Extensive Licensing Requirements & Exclusivity
The franchising requirements for McDonald’s, are significant. In addition to the service fees, marketing fees and monthly rents that are industry standards, McDonald’s also requires that the franchisee spend nine unpaid months learning all aspects of their corporate culture, and must commit to making the restaurant(s) their only business interest. In the opinion of local entrepreneurs, it was this requirement that made searching for a successor to Issacs-Green virtually impossible.
Becky Stockhausen, the Director of the American Chamber of Commerce and a longtime resident of Jamaica, told Econoff on October 13: “Jamaican [businesspeople] would simply never sign off on a commitment to one interest over the long term.” Jamaican investors, she said, own and operate many different businesses, and the concept of putting all of one’s time into a single project would simply not appeal to the business culture here.
Information on McDonald’s website provides the following information about its franchise requirements:
- The franchisee is normally required to invest at least 25 per cent of the total purchase price for an existing restaurant, or 40 per cent of the total purchase price for a new restaurant.
- The franchise holder will also incur additional fees, including a monthly service fee of currently five per cent of sales; annual marketing fee which is currently 4.8 per cent of annual sales; and monthly rent which ranges from 5.65 per cent to 18.4 per cent of sales.
- Another requirement is that the franchisee must not have any other business interests and should be able to devote his or her full time to the business.
- The franchisee must also commit to spending nine unpaid months learning all aspects of running a McDonald’s restaurant and to continue the franchise agreement for at least 20 years.
- In setting up a franchise operation McDonald’s usually purchases the location and leases it back to the franchisee, who is then required to set up the fixtures that include kitchen equipment, seating and décor, signs, and landscaping.
This was confirmed as the primary reason in the United States Embassy cable. They write “Despite rumors that the company never gained the market share that they hoped for, it appears that the strict licensing requirements of the company were the primary reason.”
4. Attractive Franchise & Real Estate
Despite all the issues that surfaced however and the difficulty with finding a franchisee, McDonald’s was an attractive business – with its brand, its global presence and its wonderful products. Even more relevant in Jamaica, was its valuable real estate. At the height of its operation and at its demise what made the McDonald’s franchise particularly appealing was that it came with prime real estate and equipment. It had real estate interests in Cross Roads, New Kingston and Ocho Rios; prime spots awaiting development as outlets.
Their growth was also significant. Mrs. Issacs-Green started off ambitiously in 1995, opening 12 outlets in just four years. In 2001, she announced plans that would see 15 more restaurants throughout the island over the next five years. However, the harsh economic climate and a sliding local dollar put paid to that.
So Why did it close? As you can see it was influenced by a number of complex issues.
5. Required Capital Investment
In the same February 11, 2004 Gleaner article, it was reported that McDonald’s vice-president for franchising outside the United States, Jim Kramer in 2003 told Wednesday Business that it was looking for a local businessperson who did not necessarily have to possess experience as a restaurateur but must have the ability to invest US$2 million in the business. McDonald’s said it would provide the person with comprehensive training and the technology to maintain the operation.
“We are going to give tremendous support to the successful franchisee, through our offices in Puerto Rico.” he said
The franchisee will be expected to invest in both infrastructure such as buildings, as well as the retail side of the business, in other words the franchisee would be expected to undertake the bulk of the capital investment.
6. Market Penetration and Slow Economy
Another Issue was that McDonald’s did not get the required growth it had expected and the slow growing Jamaican economy only made it worse. According to The Thursday October 13, 2005 edition of Caribbean business a number of fast food chains descended on Jamaica literally creating a stampede. They write that market analysts warned of a possible shakeout which only got worse. Apparently “McDonald’s did not have the deep market penetration enjoyed by Burger King and KFC and could not cope with the overcrowded market environment at a time when the Jamaican economy was not growing as expected”, they write. The report continues to highlight that they closed the Port Antonio Branch only after six months because of low demand and by 2003, with 10 restaurants was in retreat mode.
Other international franchises that have come and gone include
- Shakey’s Pizza
- Taco Bell
- Kenny Rogers Chicken
7. Local Suppliers, Beef & Alcoholic Beverages
Multinationals operating in different countries encounter various challenges in adapting their products to local demands and tastes. Two other such issues relate to using local content and adapting the product from locals.
As it relates to local content, it did not go unseen to local farmers that a large fast food joint such as McDonald’s was importing tons of beef to make its burgers. This created a tense situation between the local producers and the multinational. They eventually came to an agreement however and by late 2000 it was announced that there would be an agreement by early 2001. The Gleaner reports
Discussions between Content Agricultural Products and fast food chain, McDonald’s Jamaica Ltd, are expected to reach an agreement early next year resulting in the food franchise using local beef at its outlets. If the deal is sealed, it would brush aside the Government’s shaky agreement with McDonald’s, which would have seen the food chain buy about 208,000 pounds of beef per month from local farmers and then ship it to Guatemala where it would be processed before being returned to Jamaica, duty-free in the form of mince.
Other issues faced by the management included the serving of local dishes and alcoholic beverages. In October 2005 The Gleaner reported that Ms. Issacs-Green stated in an interview that McDonald’s did not serve alcohol or the classic Jamaican dishes. She said the first few restaurants were difficult to set up as the company learned to deal with local suppliers.
Can They Return?
On October 9, 2009, The Jamaica Observer reported that McDonald’s Corporation San Juan-based head office for the Caribbean confirmed that the world’s largest fast food company is pulling out of Jamaica, but claims that the chain will be back. However the company could not say when, or under what circumstance it will return to the island.
“It’s not a completely final closure, “Maria Elena Santana, a spokeswoman for the restaurant company’s Caribbean Division told the Associated Press. “We want to be back.”
Reports are that the company hopes to find a suitable Jamaican franchisee in the future, but Becky Stockhausen, the Director of the American Chamber of Commerce (at the time) and a longtime resident of Jamaica and others stated that they felt that it will be virtually impossible for the company to regain even the minimal foothold that it had here once they leave. While this might seem to suggest an Achilles Heel in their globally successful armor, indications are that it is not only the product, but also the corporate demands that have led to this result. If they intend to return and prosper in Jamaica, it would appear that some flexibility may be required.
What do you think?