Retail Chain Expansion: The Early Years of McDonalds in Great Britain

By: Otto Toivanen and Michael Waterson

CEPR URL: http://d.repec.org/n?u=RePEc:cpr:ceprdp:8534&r=his

[Earlier version – free download : http://ideas.repec.org/p/ecj/ac2003/219.html ]

Understanding the development of chainstores is important given the large GDP share of services and the continuing importance of chains in bringing these services to market. Service chains provide a puzzle because they take a long time to develop even when there are obvious expansion opportunities. We study the spread of McDonalds in Britain. We find cannibalization on the demand side and economies of density both within and between markets on the cost side, and evidence of learning by doing at the firm level. Within-period diseconomies of scale at the firm level help explain the lengthy opening pattern.

Keywords: Cost of entry; diffusion; economies of density; economies of scale; entry; expansion

JEL: L10

Business historians have explored retailing in different forms (such as food in supermarkets and financial services by banks). This article, however, opens a potentially interesting side to the story. Toivanen and Waterson’s tell how McDonald’s entered the UK market in 1974 and follow through until 1990, when Burger King arrives.Theirs is primarily a story of industrial organization. The company provided data on new outlets (few of which were franchises) and this was matched to geo-economic information that results in a fascinating analysis of growth (by measuring how market size attracts different size of entry).

Placing a similar study in its context and cultural implications could be an interesting business history, as well as the dynamics of the competition with the incumbent, Whimpy. Of course, why Whimphy failed to respond appropriately is another part of the story. However, I think the greatest potential Toivanen and Waterson offer to business historians is the linking of retailing studies with “big issues” such as the roots of obesity.

Obesity is an increasing concern for policy makers. For instant, the recent article in The Economist. It a problem of global impact as it seems to be growing faster in less developed countries (says BBC News). Actions of government seem ineffective and some even open to ridicule (such as a direct path to a fast foor resaurant as discribed by Piquant Salty Humour).But academic input from historians seems marginal and perhaps limited to the work of Sander L. Gilman.