Day 003 - 30 Jun 94 - Page 06
1 reports of the corporation, something like 70 per cent of
the restaurants worldwide are franchised?
2 A. That is right.
3 Q. In this country the figures are somewhat different; is
that right?
4 A. It is lower here. We began franchising in about
1986. We are currently standing about 15 per cent of our
5 restaurants franchised with a goal of building that to
one-third over time.
6
Q. Can you describe, please, as briefly as you can because it
7 is not truly speaking an issue in this action, what is the
nature of the general franchise arrangement which
8 McDonald's makes with its licensee?
A. A franchisee and McDonald's basically share in a
9 business opportunity. We have an operating programme, an
operating system, which is very carefully manualised and
10 made available to an individual demonstrating
entrepreneurial qualities, in some cases capable of making
11 a financial investment of some size, in other cases not
having any capability of making a financial investment on
12 day 1.
13 Q. I would like to ask two questions about that, please.
First of all, to what extent, so far as you are aware, are
14 the people who apply for and are in due course granted
McDonald's licences people who have had some experience of
15 or connection with the company before that happens?
A. Well, I am not sure of the exact figure, but I would
16 very surprised if it was not at least 40 per cent, maybe
50 per cent currently.
17
Q. The second question I ask is this: In the ordinary case
18 will the franchisee be expected to put up some kind of
capital investment before he is granted a franchise?
19 A. In the ordinary sense, we like 40 per cent of the
moneys required to be made available in cash or liquid
20 assets, the balance being capable of borrow. In a what we
will call a "business facilities lease" we require some
21 capital, normally working capital, but we make the
investment ourselves and give the licensee an option to
22 convert that business facilities lease into a conventional
franchise within about three years.
23
Q. So the business facilities lessee, have I understood it,
24 will be required to put up a smaller capital investment
than the other ordinary franchisee?
25 A. That is correct.
26 Q. Can you put rough figures on the sorts of amounts we are
talking about?
27 A. In the US today the investment is currently in total
about $400,000 for a conventional licence; some 40 per
28 cent of that being required in cash, so that is, what,
something less than 200,000, $275,000,000. In the UK, the
29 numbers are not dissimilar if you remove the --
historically not dissimilar. If you remove the pound sign
30 and replace it with a dollar, that will come close. More
recently the numbers have come down quite dramatically
