Day 003 - 30 Jun 94 - Page 07


     
     1        with smaller restaurants, the drive-through concept which
              is finding its way on to Britain's highways and byways.
     2        The numbers are probably no more £250,000 of which 40 per
              cent needs to be capital.
     3
         Q.   What about BFL, the business facility lease?
     4        A.  The same basic arrangements.  So, someone would
              probably need 25 to £30,000 in working capital.  It is not
     5        a hard and fast rule.  For the right person in the right
              circumstance we are extremely flexible.
     6
         Q.   Within that franchise arrangement, first, who owns the
     7        premises?
              A.  The premise, real estate is controlled by the
     8        corporation, controlled by us.
 
     9   Q.   A subsidiary question:  Does the corporation or, at any
              rate, your company own any premises apart from
    10        restaurants, buildings and offices?
              A.  No.
    11
         Q.   Within the franchise, who does the employing of the crew
    12        members?
              A.  The franchisee hires their own people.
    13
         Q.   Who purchases the supplies of food?
    14        A.  The franchisee purchases their own supplies.
 
    15   Q.   Is the franchisee in any sense governed or dictated to or
              required by the terms of the franchise in the choice of
    16        the decoration, the materials which are used within the
              restaurant?
    17        A.  He is guided, but he is not dictated to.
 
    18   Q.   Perhaps the most important question amongst these,
              Mr. Preston -- no, the second most important question --
    19        how does the company make money out of its licences?
              A.  We charge the licensee a rent and a royalty for use of
    20        the premises and the operating system.  If the gentleman
              or lady operating the restaurant has no sales, there is,
    21        you know, whatever per cent you want times zero is zero.
              It is a shared risk, a shared reward, where they get
    22        theirs first.
 
    23   Q.   Finally, this, Mr. Preston, assuming for the moment (and
              it is a matter to which I shall come in detail in due
    24        course) that McDonald's, the company that is, seeks to
              maintain certain standards in its operation, how does it
    25        ensure that those standards are maintained by its
              franchisees? 
    26        A.  Firstly, we do seek to maintain standards, most 
              definitely. 
    27
         Q.   We will come to that.  Assuming that to be right for the
    28        moment?
              A.  We have a battery of people we call "field
    29        consultants" or "supervisors" who monitor the activities
              of our licensees on an announced or an unannounced basis,
    30        as appropriate.  Here in Britain we employ a system called
              "mystery diner" where people are out shopping at

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