The Failure of McDonald's in Iceland

Introduction

• McDonald's: A global fast-food giant present in over 100 countries since the 1950s
• Exception: Failed to succeed in Iceland despite a 15-year effort, closing in 2009
• Key question: Why did McDonald's fail in Iceland?

Entry into Iceland (1993)

• McDonald's symbolized Iceland's shift to a free market economy and globalization
• Grand opening event attended by Prime Minister David Adson
• Initial success: Long lines, high sales

The Honeymoon Phase Ends

• Initial enthusiasm wanes
• American fast-food franchise seen as a symbol of modernity and global community

The Economic Collapse of 2008

• Iceland hit hard by the global economic collapse, affecting businesses nationwide
• Stock market and three biggest banks collapsed
• Dramatic devaluation of the Krona, leading to higher import prices
• High tariffs affected foreign brands reliant on imports

Operational Challenges

• McDonald's in Iceland imported raw ingredients from Germany
• Increased costs: e.g., cost of onions compared to a bottle of good whiskey
• Same issues affected Burger King, which also closed during the crisis
• High import costs made it difficult to maintain profit margins
• Need to raise Big Mac price by 20% to $6.36, making it most expensive globally

Closure in 2009

• Announced closure with one week’s notice, citing high operational costs
• Local franchise partner: "Lyst"; business was busy but not profitable
• Daily patronage in final days was around 15,000 people

Broader Impact on Fast-Food Chains

• Other businesses like Burger King and Pizza Hut also exited Iceland
• Chains sourcing locally fared better compared to those relying on imports

Analysis

• High import costs affected all businesses, even those using local ingredients
• Management and financial strategies crucial for survival
• Companies with conservative financing or better bank support survived

Iceland's Economic Landscape

• Iceland is known for high living costs, second most expensive globally in 2018
• Consistent pricing and quality are key for local fast-food businesses

Post-Closure: Metro Identified

• McDonald's franchise rebranded as Metro and shifted to locally sourced food
• Still operational today

Survivals and Improvements

• KFC remained operational by using locally sourced raw materials
• Iceland’s economy rebounding, becoming attractive for business
• Ranked fifth in Economic Freedom Index among European countries
• Increase in tourism and locals dining out frequently

Potential for McDonald's Return

• Improved economic conditions and rising tourism present an opportunity for McDonald's comeback in Iceland

Conclusion

• McDonald's struggled in Iceland due to high import costs, economic collapse, and operational challenges
• Success in Iceland requires local sourcing, consistent pricing, and quality
• Potential for future re-entry given positive economic trends and tourism growth.

Key Takeaways

• Local sourcing and consistent quality are critical for business survival in high-cost regions like Iceland
• Economic shifts and management strategies significantly influence business success
• Potential for future opportunities as economic conditions improve

Relevant Statistics

• Big Mac price needed to rise to $6.36 for profitability in 2009
• Iceland: Second most expensive country globally in 2018
• Young Icelanders spend avg. $220/month on fast food
• Foreign tourism quadrupled since 2010 as of 2017
• Top 5 in Economic Freedom Index among European countries.